Strategies in Operations Management
 
 

Strategies in Operations Management

This article will discuss various strategies involved in operations, such as the strategy to change to an international organization.

1. Global View

When taking a worldwide look -- take what is currently performed domestically and move it to another country or countries -- there are six main reasons why an organization might change to an international organization:

1. Provide better goods and services.

2. Improve the organization's supply chain.

3. Reduce costs, such as labor, tariffs, taxes, and more.

4. Learn to improve operations.

5. Understand other markets.

6. Employ top-of-the-line contributors from all over the world.

Provide Better Goods and Services

The goal of every business is to provide the best goods or services they possibly can. Learning from businesses in other countries can provide insight into how to do that. Taking advantage of being in their location, especially for service industries, can open whole new markets and provide the next level of quality in service provision. Providing new customers with quick and adequate service creates returning customers. The same applies when a customer is satisfied with a good and keeps buying more of the same.

Improve the Supply Chain

The supply chain is a critical piece in an organization's success. There is significant benefit to moving or locating new facilities in countries that are close to unique resources, such as expertise, materials, or workforce. Much like the Silicon Valley in the 1980s was known for its computer expertise, such center points of knowledge or technology are all over the world. Smart operations managers are looking for ways to get their inputs better or faster across the entire spectrum of resources.

Reduce Costs

There are very evident ways to reduce costs, and then some not-so-visible ways that exist when looking at global possibilities. Moving production to international locations can save money. Low-skill jobs shifted to countries with lower wage costs saves money. It also frees higher skilled workers to perform more high-skill jobs, instead of tasks that are less challenging and make inefficient use of their time. Such savings can be used as capital investment funds, another variable in productivity.

There are also advantages in trade agreements. Agreements between the United States and other countries that make trade free, lower tariffs, or otherwise reduce costs may be less visible to the general public, shareholders, and other stakeholders, but are something of which operations managers need to be aware. The World Trade Organization (WTO) has helped reduce tariffs to an average of 3 percent today, down from 40 percent in the 1940s. This is a huge cost savings and should be explored. Some such trade agreements are NAFTA (USA, Canada, Mexico), APEC (the Pacific Rim countries), MERCOSUR (Argentina, Brazil, Paraguay and Uruguay), and SEATO (Australia, New Zealand, Japan, Hong Kong, South Korea, New Guinea, and Chile), just to name a few.

Learn to Improve Operations

Learning does not happen in isolation. It is best served when encouraging the free flow of ideas. Customers benefit from this the most, as do the firms that actively participate. Look for opportunities to partner or exchange one strength for another. One country may excel at production, while your firm has excellent inventory control. Working together on a product line may improve efficiency for both parties -- something that translates into lower prices or improved quality for your customers.

Understand Markets

One of the best side effects of participating in international business is the requirement to interact with foreign customers. This can provide great insight into current markets, trends, and customer demands that can help your organization plot a course for the future. This helps with diversification of product lines, add production flexibility, and can smooth out a business cycle.

Employ Global Talent

By being global, your organization can offer more, and better, employment opportunities. Such opportunities are in high demand by talented individuals looking to expand and enhance their career. Their gain is also your gain as you can access different ideas, knowledge bases, and skill sets. This also gives your company more flexibility with your workforce, ability to transfer and utilize top notch people all over the globe, and retain those individuals who view international employment as a chance to see the world.

All of these things give your organization a competitive advantage, as the world grows smaller, due to improved communication and transportation.

2. Mission and Strategy

Mission is the purpose or rationale for an organization's existence.
For example: What does your organization contribute to society?
The mission of your company will be the compass by which all other decisions are made. It is all about satisfying a customer's needs and wants. A good mission statement will provide the boundaries and focus around which the firm can rally. Developing a good strategy is difficult but can be made easier if the organization has a well-defined mission.
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Strategy is the organization's plan of action to achieve the mission. Every functional area has its own strategy on how to do its part to help the entire organization achieve its mission. Such strategies consider strengths, weaknesses, threats, and opportunities -- and how to best take advantage of them, or conversely, minimize them. Taken as a whole, the contributions of the functional area strategies support the mission and the success of the organization.

3. Competitive Advantage

There are three ways that firms strategize to meet mission: differentiation, cost leadership, and response. Operations managers turn these into tasks to be completed in order to deliver goods and services cheaper, better, or more responsively.

A key factor in any of those strategies and tasks is to establish competitive advantage. What makes your goods or service more unique than anyone else who may offer the same? Competitive advantage is the creation of an exclusive advantage over competitors.

Differentiation

It is important to set your product up as different from competitors. It needs to be special or unique in some way. There are ways to make this happen in almost every function within a company. The goal is to find something that adds value to the customer. It may not be in price, but in quality. It could be in accessibility, like location, or offering follow-up customer service, like repair and maintenance. The only limit is the imagination of the operations manager.

Cost

Cost is not all about the dollars and cents; it also includes what your customer perceives as maximum value. It means driving down costs, without making it low-cost or low-quality. There are ways to do this behind the scenes, in resource allocation, turnover times, shifts and routes, just to name a few. This can turn into a dollar-and-cents saving to the customer, although he or she may not know why. As long as the low-cost leadership is in line with strategy and mission, anything is possible.

Response

Response is broader than just delivery to a customer of a good or service. It also includes the organization's ability to adjust timely to other factors or changes in the marketplace. It is the set of values related to rapid, flexible, and reliable performance. The operations manager who can design a system to do so in all three regards is a formidable one.

Strategic OM Decisions

These three concepts come into play as operations managers make good decisions in the seven major functional areas of operations management, otherwise known as operations decisions.

  1. Product and Service Management. What good or service do we offer and what is the design of it?
  2. Operations and Supply Chain Management. Should we make or buy what we need to produce our good or service? If we purchase it, who can supply it?
  3. Inventory Management. How much should we keep on hand? When do we re-order?
  4. Forecasting and Capacity Planning. What does the short-term and long-term schedule look like? How much can we make in what period of time?
  5. Operations Scheduling. What do we need for materials? Personnel?
  6. Management of Quality. What quality system should we use? What impact does quality have on our organization?
  7. Facilities Planning and Management. How is the facility used in production? What is its relationship to other resources? How should it be arranged?
When sound operations management decisions are made, it shows that the strategies were effective, and the organization's mission can be met.

Decision Making in Operations Management


The three concepts of differentiation, cost, and response come into play as operations managers make good decisions in the seven major functional areas of operations management, otherwise known as operations decisions.

Whatever the decision is to be made, consistent consideration about the company's goals, in conjunction with a persistent process in decision making, will keep the operations manager on course and successful.

Process

First step in the process is to evaluate whether the issue is goods- or service-related. Very few products are either all goods or all service. Defining the product at this stage plays an important part in how a decision is implemented.

Operations Decision

Goods

Services

Product and Service Management

Tangible

Intangible

Operations and Supply Chain Management

Critical to final product

Important, but not critical

Inventory Management

Stored

Not stored

Forecasting and Capacity Planning

Can schedule production

Supply on demand

Operations Scheduling

Workforce centered on technical skills

Customer interaction is key

Management of Quality

Objective standards

Subjective standards – nice color

Facilities Planning and Management

Near materials; layout affects productivity

Near customer; enhances product as well as production

Research

The second step of effective decision making in Operations Management needs to involve research.
An organization called the Strategic Planning Institute has a program called PIMS, or profit impact of market strategy. It collected data from more than 3000 companies to determine characteristics of firms that achieve a high return on investment (ROI). These also influence decision making.

1. Low direct cost per unit

2. Low investment intensity

3. High capacity utilization

4. High product quality

5. High operating efficiency

These characteristics are key not only to strategy, but to implementation. They can be measured and evaluated, and should be, to determine if the decision was a good one and where to go next.

Preconditions

There are many factors, internal and external, that can influence the success of a decision. Those factors require consideration for possible outcomes. While the list is long, at a minimum, the following should be evaluated:

1. Product life cycle

2. Resources available

3. Strengths and weaknesses of competitors

4. Commitment of suppliers and distributors

5. Current and possible environmental, technological, legal, and economic issues

6. Integration with the firm's strategy

7. Integration with other functional areas

Dynamics

All areas of a company are subject to change, or dynamic. Those changes can affect a company's strengths and weaknesses and have an impact before, during, and after the execution of a decision. Therefore, it is important to consider possible dynamics, as well. The two most common are changes within the organization -- such as personnel, finance, and others -- and changes in the environment. When market and customer expectations change, so must the firm to maintain its viability and ensure ultimate success.

Fundamentals

Once an operations manager understands the issues involved in decision making, it is important to step back and assess the company itself. What is it good at? What is it poor at? What will propel it forward?

SWOT Analysis

The SWOT analysis is a great tool with which to start. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. This is critical to establishing competitive advantage. The purpose of a SWOT analysis is to maximize opportunities and minimize threats in the environment, while maximizing advantages of the organization strengths and minimizing its weaknesses. This should be constantly evaluated against the successes of the firm.

Critical Success Factors

Critical success factors (CSFs) are those activities that are necessary for the firm to achieve its goals. They are so important that the very survival of the company depends upon them.

Each functional area should be assessed for its contribution to the company's CSFs. For instance, Marketing could have the CSFs for service, distribution, promotion, price and product positioning. Without those things, a product would never be seen by the consumer.

Core Competencies

Core competencies are the set of skills, talents and activities that a firm does extremely well. These are the building blocks for competitive advantage and set it apart. Here are some questions to help determine core competencies:

1. What tasks must be done well for the company to meet its goals?

2. What gives the company its competitive advantage?

3. What elements have the highest likelihood of failure?

4. What elements have the highest likelihood of success?

5. What requires additional commitment of resources – monetary, personnel, IT, or managerial?

Staffing

Whatever strategy is decided upon, and regardless of how it is grouped with other necessary activities, the next step for an operations manager is to build and staff the organization to support it. While the operations manager may not have influence over other key managers, such as marketing and finance, it is important to participate in the team environment and select individuals who can get the job done well. Never forget that the role of the operations manager is to implement strategy, provide competitive advantage, and increase productivity. Each organization goes about it differently.
 
 
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