Value of Operations Management

Operation Management (OM) is a heart of every organization. Organization exists to create value, and operations involve tasks that create value, OM represents all operations within it. Related activities that are been covered include quality control, managing purchases, storage, inventory control, logistics and evaluations. The Most Essential Element in it, is the efficiency and effectiveness of processes. Eventually, the nature of how the operations management is carried out in an organization depends very much on the nature of products or services in the organization, for example, manufacturing, wholesale, retail etc. (Meredith, J.R et al., 2002) Different authors, have presented their own view with regards to the service operation management (SOM) and traditional operation management (TOM) followed in manufacturing industries. Davidow, W.H et al, 1989 defined service as “Service is that thing which when added to a product, Increase its utility or value to the customer”.

According to Nemeth (2007), it can be considered that the operation management (OM) originated from Taylor’s scientific management and was applied by Henry Ford, who set up a first assembly line to build cars. He then emphasized on standardization operation in order to reduce the time and improve efficiency. Today, OM is gradually improved by the applications of more sophisticated technology and innovative approaches and thus can be divided into SOM and manufacturing operation management (MOM) This is regarded as the differences between the natures of goods and services, such as tangible or not, interaction etc. O’Hara, J. et al,. (1993), concentrates on the difference between SOM & MOM as, service is normally perishable or transient while a product can be stored, Service production and consumption are simultaneously and are inseparable but Manufacturing and use of product are separated by time and distance, Production of service is a part of marketing mix whereas in manufacturing, a functional divide is present like marketing ,markets, manufacturing and manufacturers and In service Industry people form a part of the production system as customer’s or clients, instead In the manufacturing Industry, customer are remote and usually unknown.

However, it cannot be denied that the SOM is based on the basic OM concept and its activities, location, layout, inventory, are similar to the MOM activities, although there is great number of significant differences between their inputs, outputs, characteristics and methods to achieve their purposes. Hence, this writing attempts to provide a better understanding of the SOM, MOM and their relationship if any with the support of industry examples. Therefore we will analyze this in more details using following reasons.

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To Start with, as mentioned by Davis R. A, Markland R.Z. & Vickery S.K. (1995), the core of both MOM and SOM is conversation and transformation processes. Whatever in manufacturing industry or service industry, companies need create both physical and psychological benefits to customers by transforming their inputs to outputs through their supporting activities and primary activities. Even in exclusive service industries, such as motel services and consulting services, companies still cannot provide their services without tangible and visible goods. Similarly, in exclusive manufacturing industries, such automobile industry, companies sell their cars with a series of services. Consequently, this reveals a strong relationship between the MOM and the SOM, and implies that the MOM and SOM are inseparable, when applied in either, manufacturing or service industries, namely ‘a particular operation does not necessarily provide only services or only physical goods’. (Davis R. A, Markland R.Z. & Vickery S.K. 1995, P42). Dell, based on Build-on-order, produces and sells personal computers/laptops, This is a pull control and illustrates how to utilize customer orders and services to manage manufacturing and to add value by achieving JIT as a core of MOM .(Dell.com)

In addition, the SOM and TOM are both based on the common concepts and theories, which reflect their coincidence and most OM theories can be employed in both two industries. The overall OM can be considered as a mix of different production missions, such as operation strategies, planning, quality control etc, and SOM and MOM are not exceptions (Heizer J & Render B 2001). For example, the processes and methods of SOM strategies planning are similar with those of TOM, generally from setting up missions, identifying opportunities by SWOT to final implementation. However, Their missions and objectives are quite different, but this is dependent on what a company is now? What purpose the company wants to achieve? And what the company does? And not just by relying on the kind of industry company had been. For example McDonald’s, the largest food service company, has continually improved its operating processes and layouts, and more focuses on standardization of food quality, nutrition and temperature at all branches, and have added higher value from following the concept of TQM, It focuses primarily on total satisfaction for both the internal and external customers, within a management environment that seeks continuous improvement of all systems and processes. It has lead McDonald’s gaining competitive advantages over other industries in similar sector. Ho, S.K.M. (1999)

Therefore, at present, JIT and TQM, both derived from Japanese manufacturing firms, such as Honda, are tailored and employed in different companies in both manufacturing and service industry, so as to meet/satisfy certain customers’ demands by avoiding wastes and improving productivities during manufacturing and delivery (Heizer J & Render B 2001). Ajax a small package company in the Air cargo industry has successfully implemented JIT to manage materials in service operations. This company ranks among the highest in growth, profitability in the overnight small package industry and provides the service delivery that is accessible, reliable and efficient. (Mehra, S. et al,. (1984)). Supply chain plays major a role in the speeding up delivery processes to customers, that results in improvement of JIT as Dell reduces inventory to 4 or 5 days worldwide, that results in and from improvement in customer satisfaction (Dell.com).

Besides this, queuing theories, which are based on probability theories and widely utilized in service centers, communication networks and computer systems (Willig A, 1999), can also be useful in manufacturing for allocating scarce resources and machines (Davis R. A, Markland R.Z. & Vickery S.K., 1995). Hence, it cannot be denied that the number of SOM and MOM theories is based on common theories and has been customized to adapt to requirements of application in different industries.

Additionally, the tendencies of market competition, technological innovation, are leading to cooperation of SOM and TOM theories across overall business operation in different MNCs. Due to increased competition and market emergence, most manufacturing companies, not only focuses on improving their products and increasing productivities for healthy competition with their competitors, but also needs to be customer oriented. This implies that the MOM extends into or is involved in the SOM, and JIT and TQM are the best examples to support that (Heizer J & Render B, 2001)

Moreover, globalization can be considered as an inevitable tendency and require MNCs to consider about regional users, social and culture differences carefully and tailor their operation strategies with these differentiations across different nations. As mentioned by Heizer & Render (2001), when MNCs design global locations for a new factory or service facility, they need to identify ‘critical success factors’, such as level of success education, economic factors, social culture and so on, and take these factors into consideration and design their both SOM and MOM missions to adapt these differentiations. Therefore, globalization can result in both the cooperation of SOM and MOM in MNCs and the diversification of them in different countries.

However, due to the different natures and industrial fields of goods and service, the methods and purposes of SOM and MOM in each mission and activity are diversified. As mentioned by Davis, Markland & Vickery (1995), the key for SOM is interaction with customers, thus SOM more emphasizes on customers’ contact and participation so that its strategies are different from MOM in many aspects. He also mentions that the factor determining the location of service facilities is mainly related to customers, such as the population of customers, their incomes, education, behaviors etc. In addition, competitors, proximal support system (hotels, medical centers and entertainment) and geographic and environmental factors cannot be ignored. Human resource is considered as a major competitive resource rather than technology, and thus motivation is one of the most important strategies to maintain quality services and productivity. But, to measure quality and productivity in service industry is usually difficult, customer feedback forms and participation rates play important roles. Furthermore, making differentiation and uniqueness is the way to improve service quality and to bring up customers’ loyalty. Also, in capacity planning, companies usually adjust the number and type of work force during peak time rather than singly speeding up customer’s ordering process. As a result, SOM more leans to interaction with customers. Compared with these, the MOM more addresses on the application of high technology into real practices, such as CAD, CAM, ERP, MRP etc, and concentrates on product quality and technology to attract customers, such as Iphone. In addition, layout strategies are set up for seeking lower cost, such as lower labour and convenient distribution.

Consequently, Growing technologies and market emergence has resulted in establishing direct link in OM of manufacturing Industry & OM of service Industry. Berry (1991) suggests that manufacturing companies are, in fact, also service companies, and similarly, (bitner, 1997) affirmed that all business indeed are service business in some or other forms. Research executed in the field of marketing and management has revealed the need for service-offering strategies in manufacturing firms (cespedes,1994; johnson, 1998; Samli,1992). Management Techniques such as lean (Lean sometimes also referred as Toyota Production System) and Six Sigma, which were mainly limited in manufacturing firms like in Toyota Corporation, have now made lots of noise in manufacturing industries and unsurprisingly OM gurus have now switched their attention to service industries (Becker, 1998). Fujitsu is now leading the market in business-to-business IT services, because the way Lean principles is mainly designed and used to manage work. Hence, the traditional production, make and sell model has been replaced by a customer-driven ‘sense and respond’. Hence, despite the various differences in the way OM is followed, the two are still complementary but would very much depend on the company’s short-term and long-term strategies to reduce the gap in two, (Stokes, 2007), would require a commitment and support by management, and participation of all the personnel within an organization to increase the performance repeatedly and be successful. (Becker, 1998)

References:

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