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INTRODUCTION
Nernesian (2000) asserts
that operations management is all about transforming raw inputs in the
form of labour, material, and capital into useful goods and services.
While this is true, there are a whole lot of dimensions to the operations
management arena where the manager has to make rational decisions in
difficult circumstances, with limited, imperfect information. In
organisations, such managers will have different titles, a store manager
for a retailer, administrative managers within a hospital or distribution
managers in a logistics company (Lowson 2002). The operations of an
organization are all of the activities directly related to accomplishing
the main purpose of the organization, whether it is producing some product
or providing some service. In either case the operations system will
provide the conversion of certain inputs, such as materials and labour,
into certain outputs, either products or services. Thus, the operations
function can be distinguished from the other main functional areas of an
organization, such as marketing, finance, personnel, and accounting, which
are no less vital for the firm’s success but which are less directly
related to the organization’s day-to-day pursuit of its main business. Of
course, all main functional areas of an organization are intricately
entwined; all interact with and provide support for the others, and the
boundaries are not always clear between them (Summers 1998), which makes
the operations management function more delicate and complex, thus the
need for making rational decisions as part of the day-to-day activities of
the manager, given the available information that the organisation has at
hand, which most of the times are limited and imperfect.
MAKING RATIONAL DECISIONS
The value that is added by
operations management is fundamental to most organisations (Lowson 2002),
in that the specialty performs the traditional managerial functions that
includes planning, organizing, directing, and controlling on the
organisation’s operations. Operations managers include those with
traditional line authority such as the chain of command from the Vice
President of Operations down through supervisors and foremen, for example
and those in staff positions that include production planning, inventory
control, and quality control, for example. Staff personnel are responsible
mainly for preparing recommendations regarding the planning, organizing,
and control of operations, while line personnel have the actual authority
to direct the operations. Managerial thought is critical to processes of
strategy formulation, for example, which require managers to envision and
prioritize future states that are appropriate and proper. Similarly,
managerial thought is critical to environmental analysis, which requires
managers to forecast and make predictions. These tasks all depend on
individual cognitive capabilities and on cognitive processes such as
attention, perception, reflection, and understanding (Hunt & Phillips
1992).
The operations management
concept has revolutionised beyond just internal production or
manufacturing. Now it encompasses other activities such as purchasing,
distribution, product and process design, etc. Further, there will also be
external managerial responsibilities at a supply network level, covering a
number of interconnections between external firms (Lowson 2002). As Drejer,
Blackmon & Voss (1998) point out, operations management differs from most
other areas of management, in that it addresses both the physical and
human elements of the organisation. With this change also come additional
decision-making activities for the operations manager, which the person
may or may not have been trained for. In addition to this paradigm,
information needed to make rational decisions are often times limited and
imperfect to an extent that managers must use what information that they
have at hand in order to fully assume their responsibilities as managers.
Decisions regarding process selection, network design, technology choice,
product design, capacity & scale, supplier & customer relations,
information flows, scheduling (how much, when, what) and inventory all
lies in the hands of the operations manager.
It is apparent that if one
is to show all of these informational flows on a diagram, it would be
quite a mess. However, it is important to realize how one component of the
system affects others. Also, by identifying some of the major components
within a general operations system, it can be seen what some of the main
problem areas are. These components are there because they are necessary
to solve certain types of problems and keep the system running smoothly.
In fact, it would be fairly easy to construct a course syllabus simply by
looking at the components included in the following operations system
diagram. It is also useful to consider the flows, or interactions, between
the operations system and the other major subsystems of the overall
organization. Here again we must be aware that decisions are not made in a
vacuum, that what is decided in the marketing system, for example, has a
great effect on the operations system. A typical operations system, which
reflects the complexity of the workings of the operations management
specialty, is illustrated below.
Figure 1. Typical Organisational Operations
Initially, to set up an
operations system, operations managers need to decide the location of the
system, the layout of the facilities, and the exact production process or
method of providing service. Obviously, these decisions are not made in
isolation but are quite dependent on each other. For example, the facility
layout depends on the location decision if an existing building is
purchased and the production layout must be designed to fit that building.
On the other hand, if a new facility is built, it will certainly be built
to the size and specifications needed to fit the desired facility layout.
Similarly, the layout decision is intricately connected to the design of
the production process itself. The mentioned considerations are part of
the long-run decisions that managers have to face in the duration of
assuming their responsibilities as operations head. There are also
medium-run decisions to be made, like determining the needed capacity for
machines, labour and materials throughout the next year. It takes time to
hire and train new workers, and it also takes a certain amount of notice
to lay off workers. Materials also need to be ordered ahead of time, and
any new machines need to be ordered and put into operation over a period
of time.
Short-run decisions, on the
other hand, mostly involve inventory planning and control (Summers 1998).
The reason for this concern is that the costs of inventory can be
substantial, especially in large companies, and they can make a big
difference in a company’s profitability. Besides these two glamour areas
of short-run decision-making, there are also the equally necessary area of
production scheduling and control. The main concern of most line managers
is the day-to-day managing of people, materials, and equipment. As demands
come in which are different from those forecast, a constant rejuggling of
the schedule is necessary. Again, different types of systems experience
this problem to different extents. The more repetitive, process-oriented
systems will change their schedules only very slowly, while job shops need
to adapt constantly to new orders. A special case in the area of
production scheduling and control is the planning and control of large,
one-time projects. For such projects as large construction projects or
aerospace projects, accurate planning and tight control of materials,
labour and overhead are necessary to prevent the cost overruns all
managers dread.
The field of operations is
complex in itself. If the complex interactions between decisions in this
field and other areas also have to be taken into account, as is the case
at the strategic level, an operations strategy becomes analytically very
demanding indeed. Together with the mentioned lacks of knowledge that
appear to exist in practice, this results in a lack of insight into the
many interrelations between the various subsystems in organizations and
the relations with the environment--and, consequently, a lack of coherence
between policies for different parts of the organization. Voss (1990)
notes that the process of manufacturing strategy development requires a
high level of analytical skill, while Miller & Hayslip say that ‘piecing
together the complex relationships required to attack new markets,
products and processes can be a swift-paced, highly analytical/logical
exercise’ (1989:24). Maruchek et al. found that there was a consensus
among operations managers that ‘operation decisions made in isolation
could result in sub-optimisation of corporate strategy’ (1990:116).
As such, researchers in the field agrees that examining operational
decisions (potential value creators) using a dyadic economic value added
analysis (EVA) will show simultaneously how process changes drive value in
multiple firms (Lambert & Pohlen 2001). EVA has the advantage of providing
a measure of wealth creation that aligns the goals of divisional or plant
managers with the goals of the entire company (Brewer 1999). A dyadic EVA
takes this a step further by measuring value creation across multiple
companies and aligning management decisions with the objectives of the
supply chain (Pohlen & Goldsby 2003). A value-based approach expands the
analysis beyond a simple ‘cost-cost’ analysis by examining the effect on
revenues, cost-of-goods sold, expenses, and assets. In many instances, a
process change will affect activities in multiple companies. A dyadic
analysis provides the capability to simultaneously determine the effect of
any changes from the supplier's and customer's perspectives (Coleman &
Pohlen 2005).
Successful operations management ultimately comes down to the ability to
create more value than the competition. The configuration of firms,
processes, and activities composing the supply chain drives value
creation. Operations managers and senior executives confront the problem
of determining the configuration yielding the greatest value for the
end-user and each trading partner. They need to evaluate how the
operational capabilities of each firm contribute to attaining supply chain
objectives and the level of value created. The value of collaborative
action must be measured and sold across each link to obtain trading
partner buy-in and to align intra-firm performance with supply chain
objectives. Despite the need to measure and align performance across
multiple firms, most managers view performance from an internal
perspective, or at best, how it is affected by their immediate upstream or
downstream trading partners. Complexity and the interdependent nature of
the supply chain make inter-firm performance measurement extremely
difficult; however, firms that act first to apply inter-firm measures and
align their performance with supply chain value objectives will achieve a
sustainable advantage their competitors may be unable to emulate.
The important lesson of
this subsection is the contention that organizations, their operations,
supply networks, supply chains and material and information flows are
dynamic systems. Cohen & Stewart (1994) use the terms ‘simplexity’ and
‘complicity’. Simplexity is the tendency of a single, simple system to
generate highly complex behaviour. This leads to the more subtle concept
of complicity, which is when two or more systems interact with mutual
feedback that changes them both, leading to behaviour that is not present
in either system on its own. As Levy (1994) phrased it:
‘By understanding
industries as complex systems, managers can improve decision making and
search for innovative solutions …. Chaos [complexity] theory is a
promising framework that accounts for the dynamic evolution of industries
and the complex interaction among industry actors. By conceptualizing
industries as chaotic systems, a number of managerial implications can be
developed. Long-term forecasting is almost impossible for chaotic systems,
and dramatic change can occur unexpectedly; as a result, flexibility and
adaptiveness are essential for organizations to survive. Nevertheless,
chaotic systems exhibit a degree of order, enabling short-term forecasting
to be undertaken and underlying patterns to be discerned. Chaos
[complexity] theory also points to the importance of developing guidelines
and decision rules to cope with complexity, and of searching for
non-obvious and indirect means to achieving goals’.
CONCLUSION
With the continuously tighter
global market competition, companies are increasingly focusing on their
operations to gain market leadership and thus increase profitability. In
many organizations—and at many business schools—the boundaries between
operations and other functional areas is rigid and nearly impenetrable.
Yet as competition heats up and cost-cutting pressures mount, corporations
are demanding that all functional areas in the organization work together
to bring products and services to market quickly and cost-effectively. As
business sharpens its focus on productivity and cost control, the future
belongs to those companies that can integrate operations management theory
and practice throughout their enterprise. Recent experience shows that
even huge companies are feeling the need to be able to move quickly in the
competitive arena. Decentralized organization structures can enhance the
quality of such decisions, while also providing higher managers a greater
opportunity to pursue strategic planning. Technological improvements in
product design, resource planning software, and manufacturing itself also
reduce the time it takes to institute strategic changes.
The field of operations
management is complex, both in an organizational and in a technical sense.
It is especially complex if one intends to exploit the full potential of
integral optimization along the entire value chain from procurement to the
final customer. Such a complex field requires sophisticated analysis with
sound theoretical foundations. In practice, however, clever strategic
analyses will only be successfully realized if they are embedded in a
sound approach to the process of strategy formulation and implementation.
In view of the many process-related shortcomings in present OS practice,
it is essential that effective techniques are used to overcome these
shortcomings. This, however, is not sufficient. In the long run the major
challenge in developing a successful operations strategy may well lie in
achieving a synergetic combination of both rigorous technical analysis and
effective process facilitation. The high degree of internationalisation in
operations management (increasingly, even for smaller firms) has certain
implications for managers. An operations manager can become more valuable
by developing the skills necessary for conducting business in various
settings. These would include language skills and a certain amount of
flexibility, understanding, and resourcefulness in dealing with different
cultures, as well as more developed decision-making skills needed in
handling difficult circumstances with limited, imperfect information. |
