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Efficiency could be like getting the maximum outcome (goods) while using minimum resources and taking less time to reach to the finishing level in the production phase. And effectiveness could be achieved by the characteristic of the goods produced by the organisation to fulfil and satisfy the needs and demands of the targeted users. For an organisation to reach this level and the standard of the methods in its operations, it has to manage its production methods and processes and the management of these processes and mechanisms for manageable results. The operation management concept addresses the fully managed internal system of the organisation to re-formulate production ways and methods by allocating the maximum resources towards the desired commodities.
Operations management is concerned with the production, design of, and improvements to the system that produces goods and services for an organisation. That is why operation management is crucial for the success of an organisation as all the functions of the organisation are purely dependant on these operations, because these affect the profitability and growth of the organisation and this could also affect its future.
Operations management becomes more crucial for organisations because it provides a more formulated and structured way to produce goods to achieve their business objectives. And the application of the operations management can be expressed by the diagram shown below.
In order to maintain the environment of setting the benchmarks to produce goods
Products and services for the customers
The diagram clearly shows that when operations management is in practise then the inputs are put together with rational strategies of processing them in order to get the efficiency and effectiveness. This is the phase of the production where an organisation has to make changes to its production techniques if necessary to maintain the desired level of quality and the design criteria. It shows how the processing of the management techniques into processes amends the existing methods of processing, providing the output that is required by the customers.
Chosen Company for Demonstration purpose
There have been many problems associated with the application of an organisation's production processes which makes the operations management critical in terms of issues and problems linked to it. The organisation that I have taken for the demonstration of this concept is a manufacturing organisation producing automotives. Sazgar Engineering Works Limited (SGL) is an Asian organisation in Pakistan with high levels of market competition from its competitors. The company was incorporated on 21st September 1991 as a private limited company and converted into a public limited company on 21st November 1994 under the Companies Ordinance 1984 with the Authorized Capital of the Company at 500 million Pakistani Rupees.
I had a chance to work close to the functions and operations of the organisation while I was on my internship program. The company believe in innovations and it keeps on implementing different revolutionary methods to its processes to produce the desired commodities for its targeted users.
The company is practising very systematic operations management for its methods of formation of the inputs. The company's policy is "No compromise on Quality". Strict quality controls and procedures are followed and maintained to achieve the desired quality of production, right from the procurement of materials until the dispatch of finished goods. The company also believes in quality of service, keeps a close eye on the service providers, and takes quick action on any demand arising for the end users.
As for the growing motive of the company, it recently took a decision to diversify its operations. The company accepted the challenge of developing a new generation environmentally friendly CNG 4 stroke rickshaw. Rickshaw is a three wheel light engine operated vehicles and it is designed to carry two passengers and one driver. Rickshaw is very popular in third world countries because it is economical. But since the Compressed Natural Gas (CNG) revolution in Pakistan in the late 90,s the demand for a CNG operated engines highly rose because of more economy and less pollution and CO2 emissions. As compared to its rival the old Vespa rickshaw the new CNG operated rickshaw was very much quite. The engines for Vespa has been used to be imported from Italy. The highly seen Vespa Rickshaw on the streets of south Asia was originally two strockes which resulted in high noise near 90db and high CO2 emissions resulting in pollution. While the new CNG operated rickshaw had a four stroked engine which is highly efficient. While with the concept of the CNG rickshaw and with the high availability of the CNG most investors decided to put inland manufacturing and assembling plants. SGL is one if these companies. This concept also included the vision to provide a vehicle which would be according to the needs and requirements of the environment in which it would apply. The workd Sazgar is derived from the National Lanuguage Urdu and means helpful. Sazgar's aim is to complete this assignment in record time by applying the more focused methods of getting the improved tasks of manufacturing the rickshaw with greater efficiency and effectiveness by giving the customers what they want. Here is the precise picture of how the outcome means the finished product comes to exist due to the operations of SGL.
Sazgar Mini Cab
CNG 200 CC Auto Rickshaw
This is the end product that is demanded by the customers for their usage. This is what SGL intended to produce for its targeted and valued customers in order to satisfy their needs by giving them the best product, while achieving its core objective of getting customers' appreciation and also achieving the desired growth in its operations for future events.
But the organisation, in producing the CNG rickshaw, has faced some issues with the operations necessary for the production in its plants and manufacturing units. The organisation experienced problems as it has to import spare parts from the other countries, like importing the engines from China, and then assemble those parts into the finished goods (rickshaw), which are then available for the customers. SGL is using the pre-determined benchmark standards to maintain the quality for its new and existing products due to the fully integrated operations management system in practice with its production processes. As SGL has just started the production of the CNG rickshaw, it experienced the problem that its operations management was unable to maintain the "Lead Time" for the production operations of the rickshaw, which affects all other manufacturing operation processes of converting the inputs into finished goods.
The quality of the rickshaws is affected because the engines the company receives from China are sometimes good quality and sometimes poor quality, and so this affects the proper implication of the "TQM" (total quality management) in the production process. This is because SGL has less control over its supplier's production methods due to their distant location. This operations management problem also challenges the "Supply Chain Management", as it is crucial to maintain SGL's relationship with its suppliers. SGL's operations flow in a smooth way to process and produce the desired outcomes. In order to maintain its operations in an effective way, SGL manages production by not adhering to the efficient production methods like "JIT" (just in time production) also it makes the process more resourceful to produce the finished goods.
So, it became crucial for SGL to address this issue because it was affecting the whole organisation and the process would halt if the engine parts do not reach its warehouses from China due to some territory restrictions. The production of CNG rickshaws is now SGL's main operation to achieve sustainability in the highly competitive industry, because there are many other rickshaw producers devising different strategies to push the competition out of the market. So, in order to compete with the competitors, SGL has to fix the issues attached to its operations management which are blocking its growth and desired objectives and goals.
The processes of the production operation are demonstrated by the diagram below.
Checking the quality standards of parts
Import spare parts from China, e.g. Engines
Collaboration/ coordination b/w units
Phasing out the parts for different production units
Higher degree of expertise and mechanism used
Ready for the assembling process to begin
Operations involved in production
Rickshaws are formed and ready for sale of CNG rickshaws, systematic
approach for the processes
Distribution through channels for customers
Output, Quality goods, customer satisfaction
SGL's operations involve these stages so it must start by ordering the parts for the required level of production from China. It has to be very vigilant in the forecasting and prediction of future demand for its rickshaws because the whole production process is based on imports from Chinese suppliers. Then, after getting the supplies the operation starts in a systematic way to facilitate the next step by maintaining the required standards of quality during the operations. But the problem comes again for SGL as the parts imported might lack quality. If the engineers decided to return parts to the supplier it will cost SGL not only in its operations but also in competitive terms as well because it might not be able to supply the goods to the customers at the right time when they demand them.
Theories and their application to the practical situation of SGL
Operations management has become critical and crucial for the success of effective managed operations. As the organisation has to order the stock of parts (engines) from Chinese suppliers it includes the time taken between the orders being placed and the day the orders are actually received by SGL.
The time taken by the supplier to deliver can be referred to as the LEAD TIME. Lead time is the time between the order placement and the actual arrival of the ordered goods. The application of lead time is crucial for the smooth running of operations management. If the lead time is really high it means there will be a delay between the customer orders placed for the specific goods and the time when they actually receive them, which causes a loss of integrity and the risk of losing customers.
In this case study of SGL's operations management, the lead time is important, as explained above. SGL is faced with the problem of managing the lead time in order to facilitate the management of its operations. Because SGL's supplies are actually coming from China, it has to calculate the exact lead time in order to maintain the coordination of its production operations and the ordering of parts for production needs. Currently, SGL has been facing the severe issue of how to reduce the time in between the orders and the reception of the ordered goods because it freezes the whole system and every single operation of the organisation. As a result, the operations management is just is not achieving the required objectives by applying its applications to the production processes, and therefore, SGL is failing to reach the levels of efficiency and effectiveness required in its operations.
The concept of operations management requires another responsible party to control and manage the operations of the organisation with the view to achieving the high standards of processes to formulate the goods and services. So, in this case again, the managers of SGL have to come to the front in order to fulfil the requirements of sufficient operations management. They have to check the available solutions to this problem of not practising the full control operations and that makes it hard to manage the operations of SGL because of the lead time to get the required parts (inputs) and to get the demanded goods (outputs).
There is another problem that SGL is experiencing regarding a better and more accurate application of operations management; that is the issue of Supply Chain Management, which has been stopping SGL from progressing in the market. Supply chain management is the basic need of organisations as they struggle and work hard to achieve the satisfaction of the customers and the desired market shares in the market. This concept addresses the problem of operations management as the operations of an organisation depend upon supply chain management because it involves the suppliers and the relationships with suppliers in order to get deliveries on time, whatever the time constraints are. And it also includes the distribution of the goods after their production which is also immensely important for the objectives of organisations.
There are many advantages of using the techniques of supply chain management in order to boost operations and to get the goods available to the targeted customers with efficiency and with minimum time consumption. The concept of supply chain management affects the operations of an organisation, which then contribute to the achievement of goals. The diagram below shows the impact of the application on an organisation's functions,
Supply Chain Management
Supply chain enterprise applications
Supply chain strategy
Product lifecycle management
Supply chain planning
Actually, Supply Chain Management (SCM) works on the principle of controlling the inventory for the re-operations of an organisation and also aims to solve the issues relating to operations management. It has to deals with the problem to make better communication between the supplier and buyer in order to determine the time for the inventory to become available.
Regarding SGL, there is a problem with the lack of communication with the suppliers as they are in the much bigger market as China is the centre for most of the world's trade operations; they are busy finding new clients as they have the choice of many buyers in such a vast industry. The issue with SGL is that the supplier is providing only limited information, such as "we have processed your order and it will be dispatched soon". This is a controversial statement which makes SGL incompetent and leaves it in isolation. On the other hand regarding transportation or freight, governments can reduce charges on imports to make supply chain management even more efficient. This would facilitate organisations like SGL which imports goods from another country and pays a high amount on them. Because of this over spending by SGL to get its imports cleared through the ports, it has less capital, which is already spared for its operations, and is not able to offer its employees overtime when it needs to increase production during a market boom or for the projection of a big order from a dealer and distribution site.
This also affects SGL's operations management, making it tougher to manage the production processes because the money spent on extra freight costs imposed by the government reduces the capital for marketing purposes. Operations management includes achieving the right level of customer attraction by advertising, so if the company is not getting in touch with its customers it is not working according to the needs of the customer as the company does not know what the customers demand.
There is the implication of another theory which deals with production methods within an organisation. As we all know, there are many methods of producing goods, ranging from batch production, flow production, lean production, and cell production, etc. These methods are given by Kaizen under continuous improvement in the production methods model. But it has been declared by Kaizen that to improve production, the most efficient method to start using is called 'JIT' (just in time). This method uses the minimum resources at a given period of time as it allows production only when demand comes for the goods and allows organisations to use the resources for other important things rather than blocking their capital in the form of stock.
A company also needs capital for storage and stock safety and there might be a risk of stock becoming obsolete as demands change in the markets. This could also include the factor of inflation. Prices might goes down due to inflation and the drop in customers' purchasing power might lower or increase suppliers' prices. So, these could also be taken as the loophole which is affecting the operations. SGL has an issue with its operations management which has become crucial to an organisation as it is working on the JIT efficient method of production. As it has got the foreign supplier it is unable to respond to the demand as efficient as its competitors. Beacause if the demand increases, it has to order to the foreign supplier which is unpredictable. Secondly, there is a problem with SGL's long distance ties with suppliers which makes the organisation uncompetitive compared to its rivals. So, SGL has to take stock of its unpredicted and unforeseen future which puts even more pressure on the managers to control the costs and work through the risks.
After discussing all these concepts and the problems faced by SGL, there is an important concept that is really crucial for the lifecycle of any organisation and its product lines to survive in the competitive market. It is actually a characteristic that is attached to the goods produced by organisations which satisfies their customers, and is called 'Quality'., It identifies and categorizes it from other goods in the same range. This feature constitutes the concept of quality management which eventually leads to the theory of 'TQM' (total quality management).
TQM is an approach to maintain a high level of quality in an organisation's process and the goods that are produced as a result of the operations of the organisation. This technique is best described by the diagram below.
(Total Quality Management)
Quality needs to be maintained in all operations in an organisation so that customers come to buy the organisation's goods as they are quality conscious. In TQM there are certain benchmarks set to be achieved through the efficient usage of resources and the desired level of quality in the goods. Now, we can use this approach on the real life case of SGL where there is a problem of quality maintenance which is affecting the management of operations. There are quality problems with the input parts which SGL imports from outside the country as the suppliers are working for many other customers and keep on changing their methods, and they are making parts according to the specifications of individual buyers. So, this diversification by the suppliers has been a serious issue for SGL's management to deal with as it restricts its operations and ability to be efficient in its functions and processes.
There are problems with having a huge lead time on getting the required parts for the operations and the missing standardisation of the supplies from the suppliers. There are also problems regarding the relationship with suppliers and the indirect costs involved in the operations which are incurred by SGL on its imports from China. These all contribute heavily towards the lack of the progress for SGL's production and the inability of its operations to satisfy the targeted market and the customers. Operations management becomes inactive as it goes through serious issues. SGL can lose its competitiveness when it is busy in its internal problems, managing its operations in such a way that can provide better way to achieve strategic objectives.
As far suggestions for SGL's current situation, I recommend the operation managers come up with the right strategy to maintain their standards at a level where they are acceptable. They may do this by changing their methods of buying supplies for their operations from foreign suppliers towards local supplies as there are many sellers for those parts (engines) available inland. This would reduce the lead time issues and the wastage of capital will also include money going to the government in the form of shipping costs. Then what they can do is start contracting with the seller and also make good ties with them to restrict them producing just for them, as that will solve the issue of quality standards as the seller's core objective would be just to satisfy SGL's requirements. They can also form a strategy to keep the level of stock in their warehouses for unforeseen future demands and also forge good relationships with their suppliers to provide goods in emergencies. This technique of getting things done will allow SGL to start practising the good practises of the JIT production method. Also to overcome the situation the manufacturer can calculate the mean time for the supplies from its past experience and then can order the new supplies before hand for the new manufacturing while keeping the supplies in stock the sufficient quantities. But this will incur in revenue being blocked towards stock keeping, maintenance and security of the goods. Also in this method the manufacturer can not predict exact production figures and is highly dependable on the supplier. There can be another method to overcome this if the manufacturer can search of an alternative supplier who can accomplish the order for the supplied on time. But in this competitive World beating Chinese prices if not an easy job for most of the companies Worldwide. China is becoming the largest exporter in the modern world, and it hugely depends upon the cheap labour in china which heavily reduces the prices of the manufactured goods. Discussing productions in China is beyond the scope of this article but this is a big reason that why SGL prefers supplies from Chinese manufacturers. The operation management process of producing the rickshaw can be improved by the benchmark techniques which set the quality standards for every single production unit, which must be passed in order for the product to be fit for sale to customers.
Zhaohui W. U., Thomas Y., Choi, M. & Rungtusanatham, J., Journal of Operations
Management, In Press, Accepted Manuscript, Available online, 20 September 2009.