On Operations Management and successful cases

This article has an ambitious goal: the dissemination of the concept that operations management, if well-executed, provide competitive advantages to companies. However, because strategy, marketing, and M&A are sexier than operations, executives tend to overlook the benefits of managing well the operational part of a business.

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In general, there is a misunderstanding between strategy and operations management. While the former includes the direction and scope of an organization over the long term, the latter is the transformation of an organization´s inputs into finished goods services using processes [1], [2].  Ideally, operations management matches companies´ resources to its changing environment, to meet stakeholder expectations´, which are defined in a chosen strategy. Therefore, while operations management deals with allocation of resources to support infrastructure and production, strategy consists of competitive moves and business approaches to produce successful performance

Although different, strategy and operations management are solidly interconnected. A successful strategy often depends on an efficient operational management within the company, where elements such as employees, software and inter-departmental divisions are all working at their maximum output with little ineffectiveness and superfluity. Efficient operations include well-managed time, resources, and funds. This happens because operations management involves planning, organizing, and supervising processes, and making necessary improvements for higher profitability. The adjustments in the everyday operations have to support the company’s strategic goals, so they are preceded by deep analysis and measurement of the current processes. In the past, operations management was previously called production management, clearly showing its origins in manufacturing. However, as the economies in the developed world were gradually shifting to be service-based, all the corporate functions, including product management, started to integrate them. The service side also began its approach by applying product management principles to the planning and organizing of processes, to the point where it made more sense to call it operations management

In the past, the traditional role of production or operations was to design the product/services based on the marketing information provided by the marketing department and to convert the design into products within financial constraints stipulated by the finance department. In the past, Marketing, Sales of Finance could exert more influence on top management in the formulation of business strategies. However, currently, Operations management is now a multidisciplinary functional area and requires familiarity with a wide range of disciplines, on top of the traditional approach of production and cost control principles. It incorporates general management, along with finance and marketing views of a business.

A question arises here: What are the tasks of operations management in its pursuit of becoming more strategic? First, Operations can position the production system in regards to flexibility, cost-reduction, or responsiveness. Production systems cannot be everything to everyone and decisions should be made regarding its capabilities. Second, operations have a say in product and service design because the type of solution to be delivered to the market should be manufactured/designed in specifically-designed plants. Finally, there is the issue of technology selection & Process development. The path-dependency occurs here and after a specific technology selection is made, sometimes there is no way to reverse decisions.

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The real world, which companies fight each other to in uphill competition, provides some examples of superior practices of operations management.

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The first example comes from Embraer, a company that developed a cohesive network of suppliers through highly innovative risk-sharing agreements. This approach culminated in the development of a new configuration of Embraer´s supply network and led to the development of the ERJ-145 regional jet, thus beginning a close race with the Bombardier, a Canadian competitor. After this successful experience, the new model of the supply chain was consolidated and expanded to the development of new commercial aircraft (E-JETS models and most recently E-JETS E2) as well as the new aircraft defense and security KC-390 (Information about Embraer can be found here and here).

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Walmart provides a second example of the match between operations management and strategy. Walmart is known for low costs because of its generic strategy of cost leadership. To address company´s strategy, the firm focuses on the maximum efficiency of its retail service personnel and emphasizes minimal production costs, especially for its own brands like Great Value brand. For example, the firm’s goods are designed in such a way that they are easy to mass-produce. To address the process and capacity design, important parts of operations management, the firm utilizes behavioral analysis, forecasting, and continuous monitoring.  Behavioral analysis of customers and employees, such as in the stores, serves as the basis for Walmart’s process and capacity design of store processes and capacity, personnel, and equipment. Forecasting is the basis for the firm’s ever-changing capacity design in operations management. Also, to satisfy concerns in this decision area of operations management, the company uses continuous monitoring. Continuous monitoring of store capacities informs Walmart’s corporate managers to keep or change current designs. [3] Additional information about Walmart can be found here.

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Finally, the largest Coca-Cola bottler in Brazil presented an interesting case in operations management. In the 1990s, several factors hit simultaneously the soft-drink industry in Latin America: the increase of purchasing power of consumers, who demanded more sophisticated products, the arrival of new technologies embedded in the soft-drink bottling equipment, which allowed increase in production capacity, innovation in packaging, which increased the number of Stock Keeping Unit (SKU) and increase in requirements for food safety. The company responded through a reconfiguration of its supply chain philosophy, a new organization of its bottling capacity and a new reconfiguration of its internal processes, in a necessary pursuit of economies of scale. Given the specificity of this example, a rich, detailed explanation of the events that reshaped that company can be provided by Mr. Paulo Kikuo.

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In conclusion, an effective management of a company´s operations increases the effectiveness of the strategic path pursued by an organization. Embraer´s operations are highly dependent on a sophisticated web of a specialized supplier who is risk-takers. Walmart´s operations specialized in an intense struggle to reduce cost. Finally, the example provided by the Coca-Cola bottler presents that operations management respond to increase of competition and demand from markets.

References

[1] Johnson G, Scholes K, Whittington R. Exploring corporate strategy: text & cases. Pearson Education; 2008.

[2] Slack N. Operations strategy. John Wiley & Sons, Ltd; 2015 Jan 6.

[3]http://panmore.com/walmart-operations-management-10-decisions-areas-productivity-case-study-analysis

 

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