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What is operations management?
Operations management is basically managing/overseeing all the processes involved in production, right from the production itself, to the distribution and sale of the products. Operations management therefore often constitutes analyzing the various processes and operations of the organization to grade and help constantly improve their efficiency and effectiveness (Andrew, 26).
The operations management team is also tasked with increasing performance, inducing and maintaining optimal production levels and reducing all operational costs at all levels, with the ultimate goal being to increase the company s profit margins while at the same time maintaining high quality standards. Although operations management (OM) mostly deals with the operations of the company, it also focuses on the needs of the end-consumer for without them, operations management is rendered pointless.
Dell Computer Corporation utilizes a very effective model of operations management. The core resource of any operations management is the human resource. With this knowledge, the company puts special emphasis on the selection of the operations management staff. The company ensures that recruitment of such staff is open and fair, hiring only the best candidates who show the greatest potential and a wide variety of relevant skills (William, 579).
The company also encourages and rewards excellence in performance and promotes innovativeness, creativity and team work among the staff.
With the advent of technology, it is also easier to manage and monitor changes and progress in the whole production process in real-time. This translates to a faster Turn-Around-Time in transactions and an ability to make decisions faster thus saving both time and resources. Dell Computer Corporation is at the forefront of the technological revolution placing it in a good tactical position to fully exploit these benefits (Alison, 46).
Seeing that the operations management team deals with almost all levels of the production process, the operations managers really have their work cut out for them. In recruiting operation managers, Dell Computer Corporation not only seeks out candidates with advanced operation skills, but also interpersonal skills, leadership skills, as well as a general knowledge of various functional areas within the company. This is because they in the course of executing their tasks, they should also show a remarkable ability to communicate with other staff, promote team work, be able to motivate others and also work with multidisciplinary teams.
Such multidisciplinary areas may include:-
a) Process design and innovation
This mainly deals with outlining the production process from obtaining the raw materials, designing the product and making the finished product.
b) Distribution chains
This involves transporting the finished products from the manufacturing plant to the end point-of-sale, whether to intermediaries or to the end consumer.
This sector in the production process simply deals with making sales. They are tasked with setting prices for various markets and evaluating the profitability of the products by evaluating the cost of production versus the price at which the product is presented to the market.
The marketing team is also responsible for building the brand name through advertisements and promotional offers.
In every business, the core activity is making transactions. These transactions are handled by the finance department. Straight from the capital to production costs and finally to income generated by the business, all these transactions need to be recorded, managed and constantly monitored to determine the financial health of the company. Inventories of assets and liabilities are made and managed by the finance team.
e) Service operations
This deals with services utilized within the daily operations of the company. Services such as product performance evaluation, packaging and delivery among others are handled by the service operations team.
f) Customer service
Production companies need to get feedback from the customers and also provide customer care services for troubleshooting and other purposes. This improves customer relations and if the customer care service is efficient enough, it goes a long way in creating a reputable brand name. The customer feels sufficiently catered for and that is one way of creating and maintaining loyalty in the customers.
In general, the effectiveness of operations management can be graded by how productive the company is. Operations managers calculate this by getting the ratio of outputs to inputs:
Productivity ratio: Outputs
For Dell Computer Corporation, outputs comprise of both computers and computer parts. The inputs include capital, raw materials, machinery/equipment, human resource (labor), and other assets.
Basically, productivity = Output or Output or Output or Output
Labor Capital Materials Energy
This equates to the following illustrations that show Dell s productivity figures in income, expenditure, gross profits and market worth.
Last 12 months 5 Year Growth
Sales 60.7 B 1.5%
Income 2.0 B -13.8%
Profit Margin (ttm): 2.68%
Operating Margin (ttm): 4.86%
Return on Assets (ttm): 5.30%
Return on Equity (ttm): 28.87%
Revenue (ttm): 58.20B
Revenue Per Share (ttm): 29.76
Quarterly Revenue Growth (yoy): 21.70%
Gross Profit (ttm) 9.26B
EBITDA (ttm) 3.79B
Net Income Avl to Common (ttm): 1.56B
Diluted EPS (ttm) 0.79
Quarterly Earnings Growth (yoy): 15.50%
Principles of Operations Management
The essence of any business venture is to provide/produce goods and or services for sale. To achieve that, the management of any such business must first be in touch with the needs of the customer and be able to meet the demand. Dell Computer Corporation identifies the kind of product needed by a particular customer or group of customers and strives to provide an almost customized product for that particular market. The first principle applied here is knowing which market needs what product and the location of that market. This is achieved by doing a market research or survey where the customers are presented with a forum on which they can air their needs or what they would expect in a product and the features most relevant to them.
Customers are also provided with an opportunity to give feedback on products they have purchased and they also receive free customer support services as an added benefit. Using this data, the company is in a better position to understand and cater for the customers needs and expectations. In addition, frequent customers are offered low prices and other promotional offers to create loyalty and to widen the customer base. This is not only a good strategy to avoid losing customers to the competitors, but it creates a sense of belonging in the customer. Dell Computer Corporation also sends updates to willing customers on new products even before they hit the market.
There are vital factors to consider even after a business has picked up and is seemingly running smoothly with an inevitable projected progress in sales and growth. One of these is quality control. Maintaining the quality of products that are being presented to the customer is vital as this not only builds a good reputation in the market, but also means that your brand name remains untarnished. Once a reputation goes down the drain, the process of rebranding or regaining the market trust will be an uphill task not to mention very costly.
Although quality control checks and maintains high standards of production and quality goods/services, it also comes in handy when eliminating redundancies in the production line.
In every market, there are bound to be several investors. Even in a new market, competition sprouts at the first sign of success. It is the inevitability of supply and demand. Dell Computer Corporation operates in a market in which competition is strife. Therefore, the company chose not to ignore the competition but get to know what kind of competition other firms pose and then make strategic decisions that will help the company engage in healthy competition in the market knowing the competition helps the company assess both its products and others flooding the market, with an aim on improving the quality of the product, better meeting the needs of the market, and reviewing the cost of the products in order to stay competitive and at the same time affordable (Chris, 116).
The staff (human resource) of any company constitutes the heart of the company. All factors constant, the staff determine the performance of a company. Dell Computer Corporation has made a remarkable investment in human resources. This has been achieved, as aforementioned, through acquisition of highly qualified and highly motivated personnel. In addition, Dell Computer Corporation ensures health, safety and security measures are in place and effective for its staff. The company also continually upgrades its staff by facilitating their retraining and cross-training through seminars, workshops and company-sponsored courses.
In a bid to get the most out of the available resources, the company sets out to frequently perform servicing and maintenance on the machinery. This increases the lifespan of the equipment while reducing chances of breakdowns. What this means is that the company will save on new equipment as the existing one will last longer, and also save on damage control or repairs since few of those will be experienced. Moreover, during acquisition of new equipment, the company targets low-cost equipment that is mobile or easy to move and upgradeable in the future. Compatibility is important in making sure that the equipment can be used with either existing machinery, or new additional equipment.
The design and organization of any company is also a key principle of operations management. Dell Computer Corporation disseminates and delegates various resources into several paths in the distribution channels with the intention of focusing on a specific product or service, or even a particular type of customer. The company also strives to identify the best supplier for its needs and acquire high quality raw materials at the best price. This is geared to increasing profit margins. To calculate this, the break-even analysis can be applied. This analysis helps the company calculate and determine the point at which the revenue generated by the product and the total cost are equal. In this case, it can also be utilized by the company to determine when the company starts making profit on the equipment.
Break-even demand = cost of process or equipment
Price per unit cost per unit
Total fixed costs of process of equipment
Unit price to customer Variable costs per unit
Supporting Dell Data
Price/sales (ttm): 0.45
Price/Book (mrq) 4.28
Market Cap (intraday) 25.86B
Enterprise Value (Nov 30 2010) 19.36B
Trailing P/E (ttm, intraday) 16.81
Forward P/E (fye Jan 29, 2012) 8.93
PEG Ratio (5yr expected) 1.35
Enterprise Value/Revenue (ttm) 0.33
Enterprise Value/EBITDA (ttm) 5.11
Cash Flow Statement
Operating Cash Flow (ttm): 3.64B
Levered Free Cash Flow (ttm): 2.35B
The core operation in any manufacturing plant is to process raw materials to end up with a finished product ready for the market. To secure uniformity in the products, the processing itself needs to be void of variations and errors. Therefore, the company ensures the uniformity of the production process. The time taken from acquisition of raw materials/supplies through the production process to distribution and finally delivery of the products (wait time) should be considerably reduced. The distance between the manufacturing plant and the suppliers, manufacturing plant and the distributors, distributors and the retail facilities, and between the retail facilities and the customers should also be as short as possible to reduce transports costs and save time.
Every production process is susceptible to problems. It is vital that the company designs and implements a suitable problem solving model. The first step to problem solving is identifying a problem when it occurs. For this reason, Dell Computer Corporation collects and records data throughout the production process analyzing the quality of the end products, the processing data and any flaws to the products that are detected. With this data, the company is able to take corrective measures to the production line by identifying the causes of such problems and implementing solutions.
Problems and weaknesses in the current operations management system
As discussed earlier, Dell Computer Corporation engages in data collection on the performance of its products and also provides both customer support and a forum for airing comments and new ideas to further improve their product. In such a scenario, the data collected can be, and mostly is, overwhelming. What starts out as a great channel to obtain vital information and feedback becomes a liability by wasting resources. Sifting through all that data and sorting the relevant from the irrelevant can be both time consuming and needs a lot of manpower (Schneider, 109).
This has led to the company seeking a more efficient way to collect and sort the data.
During the recent global recession, many businesses sank. With the tough economic times, there were just not as many customers to sustain their businesses. Products piled up in stores and warehouses and soon the cost of running these businesses far exceeded the amount of sales leave alone gross profits they were making. Dell Computer Corporation was not spared either. All businesses felt the crunch. During this period, sales went down by a considerable percentage and the company was suddenly not getting as many orders as projected. The company was in the course of several expansion projects which needed, and were utilizing, a lot of resources. The company was producing more than what the market was able/willing to take on. And although the financial crisis is slowly deteriorating, the company has had a surplus of products that were meant for sale in the market 2 years ago. But with the new production line of improved products, that means these surplus products are almost running obsolete in today s market.
In an organization as huge as Dell Computer Corporation, there are a myriad of operations going on at the same time in various locations, not to mention the big number of staff/personnel. In such a setting, coordinating all the activities that happen within and without each plant, facility or branch presents humongous challenges. The work flow is dependent on the smooth operation and executing specific tasks in tandem. Therefore, operations managers are faced with a challenge in managing and overseeing all the operations of the company and supervision different departments and the roles they play in the production process. There is a real risk of losing control of some vital operations or leaving others unattended to. Moreover, gathering such information on what exactly is happening at what location in real time presents a challenge.
Anticipation in the business world is a priceless asset. A business enterprise should always try to predict market trends and forecast the possibilities in the future using relevant data. The element of surprise is disadvantageous in business. Just before the global financial crisis, Dell Computer Corporation ought to have made accurate projections on the impending crisis and planned appropriately. The company had sought to reduce the wait time by mass producing a product that has turned out to be running obsolete only 2 years down the line. In the technology industry, products are more like perishables because of the high rate of technological advancement.
As operations managers oversee and coordinate between various departments in the organization, they should have mobility. Usually, mobility comes at the price of losing proximity to the office or some central information processing point. This can be remedied by providing, not only the operations managers but also all the personnel, with mobile devices e.g. PDAs and Pocket PCs through which they can receive, send and access information on various processes and events in the organization in real-time whenever they are. Using these devices, they remain constantly updated on what is happening and provides an excellent reliable means of communication channel to all.
Forecasting provides a company with an advantage in that it shows what the future will be using available data hence estimating future occurrences/trends. This helps the operations managers to plan for the future and restructure the system, if need be, appropriately. It also helps them plan the implementation of the planned system well before hand. However, during forecasting, a deviation or margin of error, is inevitable as it is rarely perfect. Also, if more data is available to be counted upon, then this increases the accuracy of the forecast. A good forecast should be reliable, accurate, timely and easy to utilize. The forecast should also be reliable as the direction will take heavily relies on such a forecast. The figure below shows a sales forecast for Dell Computer Corporation small-scale retailer for the next 5 months.
Months Forecast of sales Actual Sales Error Squared Error = E2
1 10 8 2 4
2 8 12 4 16
3 11 7 4 16
4 14 16 2 4
5 10 8 2 4
Total 14 44
Total absolute deviation (TAD) = 14
Mean absolute deviation (MAD) = S(Actual forecast) /n = 14/5 = 2.8
Total squared Error (TSE) = 44
Mean Square Error (MSE) = 44/5 = 8.8
With such a forecast, the retailer is in a position to make an informed decision about how much stock to order and also give reliable feedback about the market trends of that locality.
After conducting a market research, it emerged that with the rapid advance of technology, new products and services are being introduced into the market at an alarming rate. There is a wide variety of products and services that grows even wider by the day. Many innovations and new ideas are being formulated and incorporated into product lines then introduced to the market. With such a steady influx of products, Dell Computer Corporation ought to consider reducing the time taken to develop and manufacture and introduce new products to the market. Of course, there is a delicate balance between the rate at which the company can execute new developments and the cost of such a major operation.
As we have seen, technological advancements are occurring everyday and at an alarming rate. Any business venture should strive to upgrade their systems regularly in order to avoid becoming obsolete. With this knowledge, the company is constantly integrating new advancements in technology into its operations. The company s position in the technology market puts in an advantageous position to exploit technology as a strong point.
Provision of high quality goods and or services is the core goal of a manufacturing company. Dell Computer Corporation provides high quality products to its customers worldwide. But more than that, the company is intent on maintaining the high quality level of products throughout the production process. At the same time, the company tries to check and control the production cost so that the cost of production is not too exorbitant and run the risk of reducing the profit margins.
The human resource is one of the core resources of a company. It is necessary for a company to invest in its staff/personnel. Simply recruiting qualified personnel is hardly enough to make a positive impact in a company. Dell Computer Corporation also engages in staff seminars and constant retraining and re-evaluating employees to improve their skills and performance in the company.
During the distribution process, the company is bound to interact with the customer, either directly or indirectly through the use of intermediaries like wholesalers and retailers. This interaction is very vital. This is because to achieve maximum sales, all the players in the distribution channel should be customer-friendly. Right from the location of the supply facility to the display of the product, its packaging, delivery and customer service, the process is designed to be user-friendly.
As witnessed in the market, competitors have merged to form a formidable force and have increased their market share immensely. Dell Computer Corporation looks forward to identifying and working jointly with potential partners to form strategic alliances and to pool the available resources with an aim of expanding the market share and consequently sales.
As of September 2010, Dell Computer Corporation was number 2 in PC market share behind Hewlett Packard and knocking off Acer from that position. Taking into consideration the recent mergers and acquisition carried out by HP, it is clear that Dell is the choice of many for networking and technological solutions.