Business Operations and Systems
1.Briefly define business operations planning. Discuss likely content of a business operations plan and the problems in collecting data.
2.Discuss both the internal and external factors that impinge on the business operations plan.
3.Discuss the impact of environmental and technological change on the process of business operations planning.
4.Discuss the importance of good business operations planning to the overall success of the business.
5.Discuss the managerial qualities and resources that are necessary for effective business operations planning.
Business operation management which is mainly dealt with producing goods and delivering services has become an essential part in determining the final performance of the business. In order to conduct a successful business operation management, a detailed and precise plan must be available first as the guideline for the whole operation process. It is the aim of this essay to critically discuss various important aspects of a business operation plan (BOP). Initially, the definition, main content of BOP as well as the problems in collecting data will be introduced. In the following sections, the essay will take turns to analyze the internal and external factors affecting BOP, the impact of environmental and technological change, the importance of good BOP to the overall success of the business and the managerial qualities and resources that are necessary for effective BOP.
2.Definition, content and problems in collecting data
According to Walters (2002), strategic operations are defined as a series of activities along the value chain of all the organisations. The aim of studying operations is to identify who and where can perform each of these activities best in order to maximize organisational profits and sustain competitive advantage in this competitive business environment. Business operations planning as the beginning of the operations process plays an important role in determining the final performance of the operation since it determines the quantitative and qualitative objectives of the operation process (Walters et al, 1997). Together with controlling, it transforms inputs into outputs in a most efficient and effective way so that the value it creates can be maximized.
Numerous scholars have identified quite a few contents in a typical business operations plan, including capacity, location, layout, product design, process, scheduling and quality control. First of all, capacity refers to the maximum rate of output for any given process (Walters, 2002). Therefore, capacity planning is related to the forecast of the production capacity, either proactive or reactive to customer demand. Second, location planning explains where the operations process is being conducted, including the rent of plant and factories. Next, an operations plan also includes the layout of production process, for instance, the movement of raw materials, people and even information. Today, with high degree of automation, organisations are far more concerned with information movement rather than physical movement of materials and people (ibid). Moreover, product design planning determines the linear layout of the final product, for example, whether we are going to produce self service checkout or client-based checkout for supermarket chains like Tesco. Process planning, on the other hand, deals with the detailed process that translates inputs into outputs. It is the core function of a business operation plan. Sometime similar processes are suggested to locate together which is called as ‘cellular layout’, and different processes should be designed in a logical way (Business Dictionary, 2011). Finally, organisations should make a timetable to ensure that every task is finished on time and they are all in good quality. Quality testing team should be available to test some of the products randomly (Anupindi et al, 2008).
Planning is essential to the success of business operations. However, it is not an easy task to develop a precise plan, partly due to the problems in collecting data. Planning needs accurate data from both internal and external sources, and therefore the quality of planning largely depends on the quality of these data. If the information supplied by other departments of the organisation such as production, marketing and finance or outside experts and sources is unreliable, the planning process will be adversely affected. More importantly, planning based on incomplete information is likely to lead to even more dangerous outcomes, which further results in the failure of the whole operation process (Akrani, 2010). The risk of unreliable data makes the issue of data security extremely important. Companies need to carefully secure reliable information, though it is always difficult to ensure the accuracy of the business operation plans.
3.Internal and external factors affecting BOP
Both internal and external factors play an important role in affecting the effectiveness of the business operations plan. According to the literature, major internal factors include human resource management (HRM), marketing, information technology (IT), organisational structure and external factors consist of competition, customer, legal and governmental policies, product and price.
Internal factors are those rising from the inside of the organisation and firms themselves can influence and positively adjust their strategies (Johnson, Scholes and Whittington, 2008). Primarily, HRM deals with the human aspect of an organisation and includes various aspects such as trade unions, work satisfaction, training & development and recruitment & selection so on and so forth. It is important for organisations to have sufficient number of skilled and high-motivated employees to finish all kinds of tasks. Otherwise, the operations plan can never turn to reality (Ivancevich, 2010). In addition, marketing is also an important internal factor whose objectives are mainly twofold: to (1) identify and (2) to satisfy customer needs. Before the operation planning is conducted, marketing research should be conducted to identify what consumers want and figure out the differences in their shopping behaviours and patterns. The product development department then translates these customer preferences into new or modified products since it will be a huge waste if the product or service is not desired by customers, and the whole operation process becomes useless (Barlow, 2005). Furthermore, organisational structure must fit the particular strategies of the firm so that the process, relationship and structure can lead to cohesion and organisations can thereby function effectively. Strategy and structure are closely inter-related, just as Mintzberg (1990) argued, ‘structure follows strategy as the left foot follows the right’. Different organisations should build structures on their own internal resources and external challenges. For instance, for smaller companies with low product ranges, a functional structure which divides responsibilities according to the organisation’s primary roles such as production, sales and marketing and finance should be fine. However for larger companies with different product lines and competing in various markets, a multidivisional structure is more suitable. It is built up of separate divisions based on products, services or geographical areas. Each division has the power to use its own resources to respond to different customer needs (Johnson, Scholes and Whittington, 2008).
External factors on the other hand, are those wider variables that are largely beyond the reach of individual businesses to change yet which govern their competitiveness and strategy, and it may be the same for all the firms competing in the sector (ibid). First of all, the level of industrial competition to some extent determines the profitability of firms competing in this sector. Firms competing in a high degree of rivalry often engage in frequent price wars, high-cost competitive actions and reactions and intense advertising campaigns to try to push competitors out of the industry (ibid). Hence, the business plans of these firms will be very aggressive and a significant percentage of the organisational expense will be used to do advertising campaign. Secondly, the legal and government regulations also directly affect the operations, either positively or negatively. For example, if government publishes regulations concerning energy-saving and emission-reduction, companies have to adjust their business operation process to meet this requirement, though it may increase some development cost. Otherwise, they will be badly fined. Finally, it is essential for companies to adjust their product or service based on customer preferences. Today customers are more concerned with health and environment protection, therefore an increasing demand for organic food emerged. Consequently, for food companies, their operation plans should be adjusted to produce more organic food so that they can sustain competitiveness in the market.
4.Impact of environmental and technological change on BOP
The traditional business operation planning strategies were developed and applied in manufacturing industries where the majority of goods were largely standard. Moreover, these products were mainly assembled manually and consuming similar amounts of labour and material costs as well as other supporting activities (Coulthurst, 1999). However, the nature of business activities today has changed significantly. First of all, the manufacturing processes have become much more complex with a wider and more complicated product range in order to meet the diverse demands of individual customers. In addition, modern technology has allowed mass automation to replace manual work (ibid). Therefore, the cost structure of the operation process has shifted dramatically as there is a sharp decline in terms of direct labour cost which is replaced by an increased portion of overhead costs. This leads to the necessary changes on business operation plans. For instance, because of mass automation, companies need to buy advanced machines and computers to accelerate the manufacturing process. At the same time, skilled workers should be recruited to ensure that the system is working under control. These costs can be much higher than the traditional labour cost but they are able to significantly increase the production efficiency and create more value for the company, and thereby should be paid more attention on the planning stage. Furthermore, the impact of technological changes also affects the design and process of the business operation. On one hand, the designing stage at present takes more time than that in previous years because as stated above the customer needs are more diverse. A detailed marketing research should be conducted to find out what are the preferences of customers and then transfer these ideas into design. On the other hand, information movement has replaced physical movement of materials and personnel in the production process stage (Walters, 2002).
On the other hand, environmental issues also play an important part in the business operation plans. Traditionally the unique focus of the operation plan is to realize profit maximization. However, companies today have to think much more broadly so that all of their stakeholders are taken into consideration. As Business Dictionary (2011) has defined, stakeholders are those have direct or indirect stake in an organisation as it can affect or be affected by the organisation’s actions, objectives and policies. Hence, customers, suppliers, government and even environment are all regarded as stakeholders of the company. Especially since the 21st century, there has been increased pressure on companies to acknowledge the importance of environment and their responsibilities to the society. In other words, besides pursing revenue and profit for own purposes, companies should bear a range of social responsibilities such as protecting the environment and shortening the gap between the rich and the poor as these non-financial performances also create great value for the company and shareholders (Riceman, Cahan & Lal, 2002). Consequently, companies must adjust their business operation process to minimize pollution discharge during the production process and ensure that their products are healthy. Nevertheless, the process of purifying products can be quite costly. Companies thereby need to conduct a correct budgeting during the planning stage to make sure that the fund of purchasing equipment is sufficient. In addition, when designing the operation process, companies need to add one stage – sewage treatment as the terminal of the production process. Finally, as consumers’ environmental consciousness increases, there is an increasing demand from the public for environmental-friendly products. For instance, research conducted by Tesco (2010) has found that the majority of customers are willing to pay higher prices to purchase green products and using recycling shopping bags in place of previous plastic bags. This leads to huge pressure on companies producing plastic bags. Unless they adjust their industry structure and production process, otherwise there is no room for their survival in the market.
5.The importance of good BOP
Good business operation plan is essential to the overall success of the business because it directly determines the performance of operation process, while the operation process is closely linked with other business functions of the firm and together creating value and leading to a competitive advantage. Just as Schroeder (2008) has pointed out, business operation is the most costly part of an organisation while it is also the main one that generates revenue. The operations function can provide a competitive advantage through its performance at the five competitive objectives – quality, speed, dependability, flexibility and cost (ibid). In this section, each of the objectives will be discussed in detail with the real life examples (see Figure below).
Source: Schroeder (2008)
Primarily, quality simply means that the product or service produced is the right one that is able to meet certain requirement of customer needs. From externally point of view, products or services with good quality can enhance their position and increase their shares in the market, or at least avoids customer complaints. On the other hand, it also brings other internal benefits to the operation. For instance, it prevents errors slowing down throughput speed, causing internal unreliability and low dependability and causing wasted time and effort and thereby saving cost (Anupindi et al., 2008). Quality has a variety of interpretations in different sectors. In hospitals it means that patients can receive the most appropriate treatment and staff are courteous, friendly and helpful, while in an automobile plant it refers to the idea that all assembly is to specification and product is reliable, attractive and blemish-free.
Secondly, speed which means being fast, also has different external and internal interpretations. Externally, it means the elapsed time between a customer asking for a product or service and getting it, and internally it not only helps to overcome internal problems by maintaining dependability, but also reduces the need to manage transformed resources as they pass through the operation (Schroeder, 2008). For instance, Wal-Mart with its excellent distribution network and logistics is able to distribute goods to each of its store within one day, which enables the company to use only 10% of its stores square footage for inventory, compared to rivalries’ 25%, and reduces costs to a large extent (Selko, 2007). Similarly, the low cost airline Ryanair also implemented many steps to increase speed in matters like turnaround time of aircrafts, reservations, luggage handling and aircraft maintenance since all of them have a direct impact on costs (Ryanair, 2011).
Thirdly, dependability is related to being on time in business operations. Again it has both external and internal meanings. Externally, it is similar to quality in terms of its function of enhancing product or service market share and avoiding customer complaints, and internally it prevents late delivery slowing down throughput speed and therefore saves cost (Anupindi et al., 2008). Take Ryanair as the example again. The company achieved an 89% on-time flights and 0.3 missed bags per 1,000 passengers according to the data in 2009. This compares very favourably with competitors and is achieved due to the fact that Ryanair offers only point- to-point flights, thereby eliminating the risk of luggage mismanagement during flights connections (Ryanair, 2010).
Furthermore, Flexibility has several distinct meanings but is always associated with an operation’s ability to change. It includes product or service flexibility, product mix flexibility, volume flexibility and delivery flexibility. For instance, flexibility in hospitals reflects at introducing new treatments and the ability to adjust the number of patients treated, while in an automobile plant it refers to the ability to introduce new models and adjust the number of vehicles manufactured (Schroeder, 2008).
Finally, the cost of production during the operation process is influenced by numerous factors such as the labour and material cost, the technology and facilities costs as well as other expenses. However, the proportion of each cost varies among different industries. For example, in hospitals the majority of cost is staff costs while in an automobile plant it is the material costs that occupies the biggest proportion (ibid).
6.Discuss the importance of managerial qualities and resources on BOP
The relationship between managerial qualities and business operation performance has become a popular topic in management studies. Numerous researches have proved that managers play an important role on the operational performance. Among these studies, Crilley and Sharp (2006) developed a famous model which critically examined this relationship. Although their study was mainly focusing on the leisure facilities in Australia, many of the findings are still rather valid for our topic.
According to Crilley and Sharp (2006), there are eight main managerial qualities that are essential for companies to achieve good operational performances (see table below). Primarily, whether the managers have professional leadership skills ranks the first. Together with problem solving and decision making, it is extremely important that managers are able to lead their team or the whole organisation and make quick but right decisions concerning the operation process. In addition, managers should also be able to persuade or encourage employees to maximize their potential and solve any problems or conflicts between employees, which is partly dependent on managers’ communication and negotiation skills. Finally, the ability to manage administrations and facilities is also of vital importance since they are supportive functions that ensure the success of the whole operation process.
Source: Crilley and Sharp (2006)
Nevertheless, qualified managerial skills alone cannot necessarily result in the effective business operations planning. They must be complemented by other physical resources such as machinery and computer programs, as well as supporting functions like logistics, assembly and quality testing so on and so forth.
To sum up, this essay has successfully discussed several key aspects of a business operation plan (BOP). As the start of business operations, it determines the qualitative and quantitative objectives and includes contents like capacity, location, layout, product design, process, scheduling and quality control. The quality of a BOP is largely relied on the availability of data, and there are numerous internal and external factors that impinge on it. Main internal factors include HRM, marketing, IT, organisational structure and competition, customer, legal and governmental policies as well as product and price are external factors. The advanced technology which allows mass automation and the increasing demand on environmental protection have significantly changed the structure and process of BOP. Furthermore, good BOP can provide a competitive advantage for the organisation by achieving five competitive objectives, namely quality, speed, dependability, flexibility and cost. Finally, there are certain managerial qualities and resources that are essential to achieve effective BOP. However, other aspects such as logistics, assembly and quality testing also should not be neglected.
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