Introduction to Operations Management

Discuss about the Service Operation Functions in Industrial Equipment.

Operations Management can be defined as the activity of the business which is accountable for handling the procedures related to manufacturing  of products and services. It comprises of planning, arrangement of things, maintaining synchronization amongst various departments and regulating all the resources required to produce the goods and services of the company. Since it is a managerial function, it comprises of   regulating human resources, machinery, technology, data and all the other important resources which are required to produce goods and services.

It is the core function of every organization. It is a universal concept applicable in all types of organizations irrespective of their size, industry, manufacturing or service or profit or nonprofit. Operations Management performs a critical role in transforming the inputs into completed goods and services. The inputs comprise of human resources such as managers, employees, staff and procedures such as building, machinery, technology, information and materials (Majukwa  & Haddud, 2016).

The critical components of Operations Management are selection of the product and its design, the planning and selection of the procedure to manufacturing or create the product or service, location, layout   of the plant and the material handling and capacity planning. So, in this article ,  the  operational management of a coffee shop ‘ Vinci’s Café ‘shall be evaluated with the help of a diagram   and the relationship of the critical components of  operations management  between the decision making and value chain shall be analyzed . The quantitative methods shall be evaluated    in the light of decision making in the procedures of operations management and its role in the strategic management of café and its supply chain  shall also be discussed.

Vinci’s Café is situated in the central location of New South Wales, Australia. It deals in  variety of  snacks ,fast foods ,  soft drinks and mock tails   comprising of  cold and hot  coffee pizzas, burgers,  ice tea , lemonade , desserts , pastries, cakes, other bakery items  and products such as coffee powders, mugs, coffee filter  etc.  It has become a place where youth is the most frequent visitor. Friends, colleagues and students of the age group of 16-35 years come in groups of 3-4 to spend time and have snacks and coffee in the café.

The average footfall of the café is around 100 per day. It has also become a venue for small business meetings and celebrating special occasions. The type of service process is business to customer. The targeted market segment  is 16-35 years and its business strategy  is becoming a third place for youth which is away from school, college and office  and where it can hang out with  friends, colleagues and college mates .  It has a large area for serving coffee and other snacks with the facility of free Wi-Fi. Its major characteristics are its affordable price and proximity from the schools and colleges because of its central location in the city.

Overview of Vinci’s Café

Its ordering time is 5-10 minutes and the service capacity is approximately 20 customers at a time. The working hours are from 10.00 a.m. to 11 p.m. The premium consumer price is AS$300 and the discounted price is AS$100. The funds for running the café are procured through own and owed capital. Apart from the funds invested by the owners of the company, bank loans and financial assistance from other institutions is retrieved in order to run the daily operations of the café (Ho, Zheng, Yildiz & Talluri, 2015).

The primary activities consist of procuring raw materials to the café, cooking and serving  food as per orders  and developing marketing strategies to attract the target  consumers .The supporting activities consist of procurement  which is concerned to  logistics and transportation with the help of which the raw materials are procured from the market. It consists of buying trucks, leasing of warehousing space and buying equipment and machinery to execute the operations of the café. Other supporting activities are technological development, infrastructure and human resource management. Technological development is improving truck routing and warehousing methods and infrastructure pertains to procuring funds for carrying out all the administrative activities. Human resource management is related to supervising the personnel and staff carrying out all the undertakings of the café and other activities such as marketing, logistics etc (Higdon, 2016).

The key elements of the operation management function of Vinci’s Café can be described as product selection and design. It is one of the crucial elements which amount to the selection of the right kind of product and services which are essential for the success of the organization. Inappropriate selection of the products or services can render the operations of the café ineffective and uncompetitive. So, the products and services should be selected after analyzing that the products and services are in conformity with the objectives of the café (Walker, Chicksand, Radnor & Watson, 2014).

Secondly, the selection of the optimal conversion system which is essential regarding the choice of products, services and their design. The selection related to judgments related to the products and   comprise of choice of equipment, machines, technology, automation and material handling systems (Espino, 2017).

Thirdly, the plant layout and material handling are one of the main aspects of operations management. It is related to the relative location of one department of the café from the other.  It is analyzed with the intention to help in the smooth flow of materials and processing of products efficiently and in the shortest possible manner. The good decision regarding the layout decreases the handling cost of materials, removes delays and congestions, provides good housekeeping facilities and improves coordination amongst various departments (Stevenson, 2015).

Key Components of Operations Management in Vinci’s Café

Fourthly, production planning and inventory control are yet another crucial components of operations management. Production planning is a method for formulating the production process which    helps to attain the desired result in a given time at the optimal cost. Inventory control deals with analysis of the optimum levels of raw materials and    finished goods to make sure that the appropriate goods are available along with minimum requirement (Tran, 2015).

Lastly, quality assurance and design are important aspects of production system and it must ensure that the   goods and services confirm to the declared standards of quality and that to at the least cost. The decision making regarding the quality assurance system includes setting standards of quality, control of quality during the process of manufacture and examining the finished goods produced by the café (Fo, 2016).

Decision making is essential for the success and survival of the café. The managerial authorities of café have to make decisions regarding the operation process planning, inventory management and scheduling. One of the decision making models is optimization modeling process. It is evaluated in three stages viz. explaining the problem, describing the solution and regulating the problem (Vanharanta,  Kantola  & Seikola,2015) .

The optimized problem pertaining to first step can be categorized as linear and nonlinear   which are dependent upon the nature of variables. The problem has three features namely: An objective function which is to be maximized or minimized such as expanding the operations of café or minimizing the defects in the manufacturing process.  A set of uncontrollable factors which are called parameters such as  rise in the price of the raw material and impact of the government policies on the service sector of the country . A set of variable factors which create an impact on the value of the objective function. Thus the solution to the optimized problem which satisfies all the parameters and obstructions is known as feasible solution (Neff, 2015).

The second method is linear programming which pertains to the use of mathematical procedure for determining the linear allocation of business variables. Since all the    businesses are confronted by   the problem of limited resources comprising of facility space, supplies, labor and machinery required for production. It makes optimal allocation as a challenge for the café. Thus linear programming is a   famous technique   to achieve the optimal results   like highest profits or lowest operating costs which are subject to many restraints such as restricted supplies or labor. For the purpose of creating linear program the following factors are crucial viz. it is necessary for the objective function to be linear.  The objective should increase or decrease the linear function and the constraints in the program should be linear. This technique is often used to evaluate and resolve the issues related to planning, scheduling and distribution (Anderson, Sweeney, Williams, Camm & Martin, 2011).

Decision-making Models for Operations Management

The third method is scenario modeling. As the business environment is always unpredictable and is often confronted to unexpected situations. So, the organizations are often stuck in the midst of dynamic environment.  The  decision  making  models such as stability  analysis, sensitivity analysis , scenario modeling  and what if analysis  are used in this context (ICAI,2012).

So, the decision making models which are used under uncertainties are worst case analysis. It assumes the extreme case scenario in calculating different variables. Through the Monte Carlo model, the uncertainty is assumed through statistical distribution.  Scenario Analysis model assumes various scenarios in which a business may find itself with various values of parameters ( Sampe,  & Ruiz, 2017).

Theory of Constraints assists the organization to deal with various situations which creates an obstruction in the growth. It motivates the organization to deal with one obstruction at a time and considers the following steps. Recognizing the   obstructions of the existing system and analyzing the ways to exploit those obstructions. As the company resolves one constraint, it should look forward to resolve other issues confronted by the company (Monczka, Handfield, Giunipero & Patterson, 2015).

Factor Analysis is related to data reduction  and analysis  and it is used to explore correlations  in the  available data  which is used to recognize  the underlying  and unmeasured factors that  would describe the associations . For example  factor analysis is used to evaluate  the data on spending habits of consumers  to assess the factors related to  their purchasing patterns  and their preference to a particular  kind  of  product (Touboulic & Walker,2015).

Data mining is a blend of computer programming skills and statistical .It refers to systems which are used for assessing large data sets, uncovering patterns and correlating large amount of data. Vinci’s Café uses data mining methods to evaluate the profile of the buying habits of consumers and utilizing the data for recommending particular products based on the past purchases of the consumers.

Regression Analysis is yet another technique for analyzing the effect of one or more aspects called as predictors or independent variables on the dependent variables. This method is used to predict the impact of advertising on the profits of café. It is also used to estimate if correlation happens between the two factors and if the association is statistically substantial.

With respect to the inventory management, the managerial staff should utilize the resources in the most efficient manner. Thus inventory management comprises of analyzing   and monitoring the amount of raw materials    required to be kept by the café   in order to operate effectively and efficiently (Berglund & Stohm, 2015).

Optimization Modeling

In order to resolve the issues related to inventory, the managers can use economic order quantity (EOQ) model which can be expressed in the form of a mathematical formula:

EOQ= √ (2SD / H)

EOQ= Economic Order Quantity

S= Set up costs (cost per order including shipping and handling charges.

D=Demand Rate (Quantity sold per year)

H= Holding cost per annum and per unit

Thus Economic Order Quantity is the appropriate order quantity which a company should buy for maintaining its stock at a given cost of production, demand rates and other variable factors. It is done to reduce the variable inventory costs and it also takes into account the ordering, storage  and shortage costs. It is an important tool to decrease the cost of stock  and cash which is  blocked in the stock.  

Apart from this, ABC analysis is yet another method of inventory optimization in supply chain. It comprises of diving the items into three classes viz A, B and C. A is the class comprising of the most valuable items and C being the least valuable ones. B is the item of the medium consumption value.

Thus A items are material whose consumption value is the highest. The 70-80% of the annual consumption value of the organization accounts  for 10-20 % of the total items of the stock.

B items are the items comprising of medium consumption value. The items of 15-25% of yearly consumption value amounts to 30% of the total value of inventory (Fahimnia, Sarkis & Davarzani, 2015).

C items are the items of the lowest consumption value.  The 5% of the yearly consumption value accounts for 50% of the total items of the stock.

The yearly consumption is derived by the formula: Yearly demand of items *  cost of  the item per unit. Thus on the basis of above evaluation, the items of category A should  have strict inventory control  There should be more secured storage areas and must have  better sales predictions. The reorder level should be as frequent as daily or weekly reorders.

B items should be monitored carefully and they should be evaluated with the context of items of classes A and C . C category items should be should be reordered less frequently. They should be reordered only when their actual purchase is made (Battistoni, Bonacelli, Colladon & Schiraldi, 2013).

 Supply chain management regulates the costs and makes sure that the efficiency of all the processes   starting from the procurement process, industrial processes and distribution of the goods and services to the consumers. Supply chain management focuses on the activities which act external to the organization such as planning of goods as per the needs of the consumers. Sourcing of raw materials and labor in accordance with the planning and transportation and warehousing of the goods and services. It also comprises of delivery of the goods and services to the consumers as well (Shin, Hwang, Lee & Cho, 2015).

Linear Programming

Supply chain management and operations management are interconnected to each other and they are dependent on each other. Supply chain management is a part of operations management. Operations managers   work with  various departments  to achieve common goals  such as ensuring  that the products are  created as per the specifications , packed properly  , sold to the appropriate person and their marketing is done successfully( Gallien, Graves & Wolf,2016).

Thus the activities of the operations management comprise of estimating sales, initiating steps to improve the overall productivity in the organization, increasing responsiveness to the probable risks and hazards in the company. Meeting the expectations of the consumers and contributing to the bottom line (Li, 2014).  

Thus operations management can be tactical, operational and strategic.  The operations management is accountable for evaluating where the manufacturing plant of the company is situated and analyzing its communication network. It also comprises of designing the production plant and choosing the appropriate machinery for production along with regulating the quality of produced goods and managing the inventory of the company. In the service industry, the role of operations management is to analyze and regulate the various processes involved regarding the comprehension of the needs of the consumers and to get a feedback on the service. When a company is offering a product or service then it has to ensure that it is able to fulfill the needs and demands of the consumers at all times. Thus operations management is a portion of the business which is related  with the conversion of the inputs   into the required outputs with the desired quality. It is a combination and transformation of various assets which are used in the operations   subsystem   for value additions in the services in a regulated manner which is as per  the procedures of the organization (Iansiti ,2015).

Operations management involves various activities such as planning, staffing, regulating, directing , motivating and  managing. The scope of operations management is wide and it covers all the aspects  of organization as a part of tactical and strategic operations . The role of operations management extends to fulfilling the objective of the company viz. consumer services and resource optimization. Fulfilling the needs of the consumers and satisfying their wants is the ultimate priority of the organization as  if the consumers are not satisfied with the products and services , then the purpose of  the whole strategy would be  failed (Manzini & Urgo,2015).

Scenario Modeling

Hence operations management ensures that all the needs and demands of the consumers are fulfilled along with ensuring that all the resources are utilized effectively. If the resources are not utilized judiciously then the cost of production shall increase thereby reducing the overall profit margin and the failure of the objectives of the enterprise. So, the role of operation management is to ensure that both the objectives are met in a complementary manner so that the organization can derive maximum benefits out of it. Operations management also plays an significant role in the strategic planning of the company. The strategic decision making and strategic planning are important parts of operations management (Carvalho, Paiva  & Vieira,2015).

Conclusion

Hence, to conclude, it can be said that operations management    uses the supply chain to analyze the various processes going on within the company. It helps the managers to comprehend the interrelation of the processes and how the variation in one of the processes will impact on the overall profit margin of the whole enterprise.

Operations management considers all the activities ranging from primary activities, support activities, supply chain management and infrastructure of the firm. It manages the processes underlying in each of the above mentioned aspects. It also talks about outbound logistics which is responsible for receiving all the inputs from the stores and supplying them to the consumers. Thus operations management is crucial for the company and in the absence of an effective system, it would not be able to accomplish its objectives.

References

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