A Project Report On Operations Management

The report has been prepared on “Operations management”. The main objective of this report is to explore, plan and develop all aspects of managing operations in an organization.

The purpose of this report is to understand the usefulness of appropriate management of operations in the current market situation.

Operations management is an activity of managing and controlling the resources which are fully devoted to the production and delivery of goods and services. In most organizations the operations function involves a significant percentage of the employees and physical assets of the organization.

In addition to demonstrate the theories involved in operations management, we have chosen a retail store called “Wal-Mart”. Wal-Mart is the world’s largest retail store which is mainly working in the USA and other parts of the world as well. It is a hypermarket offering a huge array of goods of good quality for all products at affordable prices.

Research methods

Online research data from different web sites, different articles, and theoretical studies from different books. The methodology which had been used was collecting data from both primary and secondary sources. Primary sources were the personal interaction with the experts and secondary was the information collected from websites.

Introduction to operations management:

Operations management can be defined as the systematic direction and control of the processes that convert inputs into finished goods and services. In most organizations the operations function involves a significant percentage of the employees and physical assets of the organization. Operations managers are always concerned with each step in even providing a single service or a product. At all times, they analyze what equipment, labor, tools, facilities, materials, energy, and information should be included into an operating system and how these inputs can be best obtained and used to satisfy the requirements of the current market place. Operations managers are also responsible for critical activities of the organization such as, capacity planning, quality management and control, materials management, purchasing, and scheduling.

In recent years, the importance of operations management has increased dramatically. Increasing foreign competitions, shorter product and service life-cycles, highly educated and quality conscious consumers, and the upcoming advanced new technologies have placed tremendous pressures on the operations function of the organization, to improve productivity and quality while providing a broader range of high-quality products and services.

With the increasing globalization in the markets, companies are recognizing that the operations function can be used to strengthen their position in the market place. Managers in operations management are playing a strategic, tactical and a vital role in satisfying customer needs and making their organizations strong international competitors.

Operations management:

Create operational systems

Manage (plan, organize, staff, direct and control) the activities relating to the production of goods and/or services with maximum efficiency (at the lowest cost) and effectiveness (in the eyes of the customer).

Improve those processes continuously to create competitive advantage.

Journal of Operations and Production Management, 20, no. 2, 2000

The operations system transforms inputs into desired goods and services:

Fred Van Bennekom 2005

Case study:

We will discuss about the operations team of Wal-Mart, how it is helping the company in getting its customers. This top most international leading retailer, Wal-Mart sources an important share of their imports to Central America from Asia. We can summarize Wal-Mart’s goals into cost and lead time reductions to make the offering of products and services at lowest price in the market & at right time.

Damco is one of the world’s leading providers of freight forwarding and supply chain, management services.

Wal-Mart is in coordination with Damco in order to reduce overall supply chain lead time. Damco suggests an alternative way of using a cross dock to avoid certain cargo from unnecessarily entering destination bonded warehouses for re-export.

This step for the profit of Wal-Mart has totally been suggested by operations team of the company.

Operations management at Wal-Mart:

They have designed a store layout which is giving a smooth, elegant and effective flow of sales.

They always ensure that the jobs of all employees in the organization are helpful in encouraging their contribution to business success.

There exists a continuous examination and improvement in the operations practice.

At all times they monitor and enhance the qualities of services provided to their customers.

There is an arrangement for fast replenishment of products and services in this organization.

They also pay attention to the maintenance, cleanliness and safety of storage area within the company.

They have sited their stores of an appropriate size and in the most effective locations all over the world.

They always design elegant and effective flow products which can be flat-packed efficiently.

http://www.walmart.com

The important strategic role of the operations function:

3 key functions

of Operations

Contributions of Operations function

Implementation

They are dependable and operationalize strategy, also explain practicalities.

Support

They are appropriate and understand strategy and contribute to decisions too.

Driving force

They are innovative, provide foundation of strategy and also develop long-term capabilities.

Fred Van Bennekom 2005

Case study:

An international research and teaching suggests that the strategic issues which are involved in operations management of an organization are assuming greater importance in many commercial sectors (both public and private).

It also suggests that the operations management holds the key role in competitive advantage for many organizations. In fact, it is increasingly recognized as a significant contributor to the effective strategic management of organizations whether it is large and small, domestic or international or both profit and non-profit.

An international research on Wal-Mart gives the clear understanding of the importance and nature of operations management. It suggests that this knowledge, when combined with the correct strategic implementation, allows organizations to provide a diverse range

of services and goods in their increasingly demanding, complex and dynamic market places or market spaces.

An organization’s performance goals can always be achieved through proper operation management. An effective performance measurement and management system connects individual and teamwork behaviors to the firm’s business strategies, goals, and values. To achieve the goals and objectives of an organization, it is essential for each employee to understand individual roles and responsibilities for goal achievement, and there must be proper operations management.

Theory of Slack Ropes:

Flexibility

Quality

Service

Source: Duncan McDougall

According to the theory of Slack ropes, all the functions in an organization are interdependent. Pulling off even a single function results into the changes in other functions also. So to run an organization profitably, all the functions should be given equal importance.

Following are the competitive priorities for the operational function:

Price or Cost

Quality

Short Run: Conformance, Design (Fitness for Use)

Long Run: Continuous improvement through the learning organization

Flexibility

Product Mix: make various products and adjust mix

Handle volume Surge

Time

Dependability

Speed of Delivery (Lead Time)

Speed to Market (New Product Development Time)

Service

Delivering a comprehensive solution, products & augmenting services to the customer’s needs

Slack Nigel-5th editions

By analysing the whole system of Wal-Mart (from the perspective of Theory of Slack Ropes), we can say that it is facing the following problems and the areas which are hindering its ability to supply a product which meets the customer’s needs:

Saturation at domestic level:

Generally it happens that when an organization like Wal-Mart dominates a market, it searches for other locations where it can expand further. Unfortunately in case of Wal-Mart, its untapped markets tend to be in thickly populated cities where the company’s big-box format is a wrong fit. By worsen the problem, cities have stricter laws and property is more expensive. Once a site is selected, the company often faces stiff opposition from neighborhood associations concerned about traffic congestion and negative impacts on local traders, as well as labor groups who turn out against Wal-Mart’s union-free policy.

Slow-moving sales:

When domestic saturation becomes a problem, big companies like Wal-Mart often try to get more and more sales from the stores they already have. But Wal-Mart’s customer base which is very price-conscious makes that difficult to do.

Many of the Wal-Mart’s customers lie into moderate to low income group. These customers are among the first to go back when even a simple gas prices rise or the job market tightens. Then the company appeals to high income group customers as Target and Costco have done, they would reduce sales volatility while also increasing sales of bigger-ticket items. The problem is, the Wal-Mart brand is a turn-off to many up market consumers.

Mixed International Results:

Expanding internationally is also a way to offset domestic saturation. In 1991 Wal-Mart started its first international stores in Mexico. By 2005, it had around 6,200 facilities in

15 different countries. If we see these numbers, they look very impressive on paper, but in fact Wal-Mart hasn’t been able to gain the upper hand against its international

competition. The company has still a foothold in Mexico, Canada and Britain, but in the rest of the world, Wal-Mart has experienced mixed results at best and failure at worst.

Image Problems:

No other company of United States comes close to Wal-Mart’s beating public relations. Labor activists are complaining the company that they are underpaying its workers. Local activists have complained that Wal-Mart stores kill off mom-and-pop retailers firm.

Operational Efficiency:

As Wal-Mart has its commitment of everyday low prices, it has developed a reputation for logistics perfectionism. That zeal extends to Wal-Mart’s suppliers, who are constantly prodded to remove inefficiencies from their own operations. There is a condition that if suppliers can’t drop their prices then Wal-Mart will just take its business elsewhere.

Day, George (1994), ‘The capabilities of market-driven organizations’, Journal of Marketing, 58 (October)

Case study:

Operations management has proved to be the foundation stone to Wal-Mart’s success and its position in today’s market place and remains its primary competitive advantage in the retail/department store industry.

Its distribution system is always regarded as the most efficient and effective and it has an approach to supply chain management that has long emphasized visibility through the sharing of information with its suppliers. Though there are thousands of logistical

functions which allow Wal-Mart to be the leader of price and logistics, today primarily the focus is on the company’s newly adopted strategy of making logistical processes

“green” and more environmentally conscious. According to the Operations management Review, Wal-Mart CEO Lee Scott has committed the company to three

chief goals i.e., to create zero waste, be supplied 100 percent by renewable energy and to

sell products that sustain Wal-Mart’s resources and the environment.

Adam Heying Whitney Sanzero MGT 520 Operations Management May 4, 2009

Benefits of good inventory management:

It helps in reducing purchasing and inventory costs. It also helps in connecting inventory control, purchasing, and sales order processing with preplanning on demand and helps in reducing cost. It improves cash

flow within the organization and help in ensuring that we have the right stock

available, whenever we need it as per demand of the customers.

It helps in gaining visibility into inventory processes. It effectively balances the availability with demand and keeps track of items and their possible expiry dates throughout the production and delivery of the products, just in order to minimize on-hand inventory, optimize replenishment, and improve warehouse efficiency.

It also helps in improving customer satisfaction. It provides more accurate order promises to the customers and smarter last-minute exceptions with access to up-to date inventory information.

It always responds quickly and knowledgably to customer queries and requirements in order to improve customer service.

It reduces total time to market the product. With all inventory, integrated order, and distribution processes, as well as item tracking capabilities, our business is reducing manual data entry and getting our goods to market fast in today’s market place.

Lovelock, Christopher H., Classifying services to gain strategic marketing insights, journal of marketing, 47 (Summer 1983)

Wal-Mart’s Inventory management:

With all the knowledge of Just-In-Time talk, better management and understanding of inventory, we can say that the average levels would be decreasing. But still it is a fact that the well-managed companies like Wal-Mart are quite capable of maintaining their levels. In an international poll, it has been declared that over 60% of companies have expectations to see their inventory levels rising over the next year.

The most noticeable fact is that, Wal-Mart’s Just in Time efforts are leaving their suppliers with more inventories. It’s really making a lot of sense. Wal-Mart is not willing to hold inventory. At the same time, they do not want backorders as well. The only way left to do this is to refill their stock at a moment’s notice. So the question arises that what will it do to their suppliers? According to Logistics Management, it shoots supplier’s inventories straight up in the organization.

The demands that Wal-Mart has placed on its suppliers are completely unbelievable, it is only because of the power Wal-Mart places on its suppliers.

Not even this, also in the mean time; suppliers are enforced to hold incredible safety stocks to make sure they can satisfy Wal- Mart’s demands and requirements at any time.

Basically, we can say that the suppliers don’t have any choice left in this matter. Wal-Mart’s business is good enough to pass up even with the demands on service. But, the fact is that, Wal-Mart is not about to have a stock out because some suppliers are not able to provide a 99% service level. Like many other huge companies Wal-Mart is not going to wait for so long. Most of the companies just require shorter lead times even as more companies implement ‘zero tolerance’ policies for late shipments.

For the companies that know service level, Zero tolerance is a hell of a statement. In comparison to a 95% service, providing even a 97% service level can result in a huge

increase in inventory. Zero-tolerance is a wild figure. In fact it is actually not possible, if we see practically. It does not matter what a company holds in inventory, there is always a possibility of Wal-Mart ordering one more than that. Combine this with a shorter lead time to Wal-Mart and inventories are staggering.

It’s not like Wal-Mart always demands what it wants when it wants it, but also, according to a Logistics Management survey, regarding why he has to hold more inventory:

Now Wal-Mart has started ordering fewer cases more frequently

We can see, for a growing company like Wal-Mart, this means that they can either produce smaller batches, or hold onto more inventory. Because if a company is not able to produce less and faster, then they will have to produce a large amount at a time and then, instead of producing a large amount and getting rid of it all at once, they have to get rid of it slowly over time, which results into increase in average inventory.

If we can see, Wal-Mart may be getting the better end of the deal, one thing is for sure at the other part, there’s a reason suppliers put up with these demands, and it’s not because the business with Wal-Mart is bad.

Journal of Charles Atkins/April 09

Wal-Mart’s Interfunctional Strategies:

Improvements which are align with the organisation’s objectives and goals:

As Wal-Mart is a cheap products retailer, it needs to reposition its name to cover other area of the market share by study the customers needs and adapt those needs to attract most of them by changing its techniques and tools like employee style, training, rewarding ,benchmarking to other, soft skill etc. .

At this time, Wal-Mart should review the Best Buy experience when applying of customer centricity model and become the market leader electronics retail business. Wal-Mart also needs a visionary like B. Anderson, CEO of Best Buy.

Wider implications of proposed changes within the organisation:

New changes such as new policies, new structures, targets, acquisitions, disposals, re-locations, etc., creates a new system and an environment, which should be explained to

people as early as possible, so that people’s involvement in validating and refining the changes can be gained by the organization. When an organization imposes new changes on employees, difficulties like participation, involvement and full communication arise. It may result into low participation, no involvement, no job satisfaction in the employees.

So the changes should always be planned. In Wal-Mart, if we propose a change in its price strategy i.e., increasing the prices of the products by taking current market into consideration, then it might decrease the sales as the major part of Wal- Mart’s customers lie into medium to lower income group.

Contemporary services marketing management, Gabbott Hogg(eds) , Dryden (1997), ISBN

CONCLUSION & RECOMMENDATIONS

There is an effective role of marketing and operations management which are contributing to formulate an effective strategy for the business. There are both the technological developments and the changes in management perspectives. Management has always got from technology- an increased flexibility in the strategic positions available in the market place. Some of the researchers argue that technological developments have been viewed as opportunities and ways to increase productivity rather than to shift the organizations into strategic direction. An increasing application of value and quality as a customer requirement has resulted in a business value proposition, which gives a statement of asking how superior value is being created and delivered. Operations management has typically been described as the supportive to the overall organizational development and also it is said that it is being considered as an exceptionally as a major element of an organizations competitive advantage. A number of international researches have identified operations strategies which have linked manufacturing operations and strategic management. A missing link is just an exploration of the relationship between marketing and operations strategies and how they are going to lead to an effective value based strategy.

Before implementing a performance strategy or management system, we should first conduct a background work to check whether is adaptable to the organization structure or not.

Communication of performance information among relevant stakeholders and employees of the organization is crucial to the success of any organization’s performance or management system

REFERENCE AND BIBLIOGRAPHY

Text referencing:

Slack Nigel-5th editions

Human resource management/K Aswathapa/5th edition

Marketing management/Philip Kotler Kevin Lane Keller/12th edition

News paper articles

Electronic sources:

Websites

http://www.walmart.com

Publications available from websites

Journal of Operations and Production Management, 20, no. 2, 2000

Fred Van Bennekom 2005

Journal of Charles Atkins/April 09

Adam Heying Whitney Sanzero MGT 520 Operations Management May 4, 2009

Day, George (1994), ‘The capabilities of market-driven organizations’, Journal of Marketing, 58 (October)

Source: Duncan McDougall

Lovelock, Christopher H., Classifying services to gain strategic marketing insights, journal of marketing, 47 (Summer 1983)

Contemporary services marketing management, Gabbott Hogg(eds) , Dryden (1997), ISBN

Unpublished works:

Personal communication