Operations Management: Concepts and Strategies
What is Operations Management?
Operations management involves managing resources for production and delivery of products and services. It’s a core business function responsible for producing goods and services.
The 4 Vs of Operations
Operations are characterized by four key dimensions:
- Visibility: How much customers see of the operation’s activities. Lower visibility often means lower costs.
- Volume: The number of products or services produced. High volume allows for task repeatability and systematization, leading to lower unit costs.
- Variety: The number of different products or services offered. More variety requires greater flexibility and higher costs.
- Variation: How much demand changes over time. Low variation allows for routine operations and lower costs.
Location Decisions and Demand-Side Influences
Location decisions aim to minimize costs and maximize revenue/customer service. Demand-side factors influencing location include:
- Labor Skills: Local workforce abilities impact customer perception.
- Site Suitability: Intrinsic site characteristics affect customer service and revenue generation.
- Location Image: Certain locations have established images in customers’ minds.
- Customer Convenience: Ease of access to the operation is crucial for many businesses.
Matching Production with Customer Demand
Operations can use different approaches to match production with demand:
- Resource-to-Order: Production is triggered by customer orders, common in dependent demand situations.
- Create-to-Order and Make-to-Order: Resources are stocked, but the final product or service is made to customer specifications.
- Make-to-Stock: Goods or services are produced in advance of orders, either for cost efficiency or difficulty in one-off production.
Inventory Management
While inventory is important, it has drawbacks:
- Ties up working capital.
- Incurs storage costs.
- Risk of obsolescence, damage, or loss.
- Administrative and insurance costs.
The Operation’s View of Quality
Quality is defined as “consistent conformance to customer expectations.” This involves meeting specifications consistently and considering customer expectations influenced by price.
Quality Gaps
Several gaps can lead to poor perceived quality:
- Gap 1: Mismatch between customer and operation’s specifications.
- Gap 2: Mismatch between product/service concept and internal quality specifications.
- Gap 3: Mismatch between actual quality and internal quality specifications.
- Gap 4: Mismatch between communicated image and actual quality delivered.
Performance Measurement
Performance measurement quantifies actions to assess how well an operation meets its objectives. Examples of performance measures include:
- Number of defects per unit
- Level of customer complaints
- Frequency of delivery
- Average lateness of orders
- Proportion of products in stock
Benchmarking
Benchmarking involves comparing performance or methods against others for improvement. Types of benchmarking include:
- Internal
- External
- Non-competitive
- Competitive
- Performance
- Practice
Economic Order Quantity (EOQ) Example
EOQ calculations help determine optimal order quantities to minimize total inventory costs. The example demonstrates calculations for EOQ, number of orders, ordering costs, holding costs, and total costs.