Operations Management
Operations management is the management of processes that transform. inputs into goods and services that add value for the customer. The goal of. operations management is to maximise efficiency while producing goods and. services that effectively fulfill customer needs.
Operations management (OM) is the administration of business practices to create the highest level of efficiency possible within an organization. It is concerned with converting materials and labor into goods and services as efficiently as possible to maximize the profit of an organization. Operations management teams attempt to balance costs with revenue to achieve the highest net operating profit possible.
Operation function is responsible for producing products and delivering services (Wolniak, 2019; Wolniak and Skotnicka-Zasadzień, 2014; Wolniak et al., 2017). But it needs support and input from others areas of the organization. In the standard business organization we can distinguish three basic functional areas where we can include; finance, marketing and operations. Regardless of type of the business there are three mentioned functions within (Pacana et al., 2014; Skotnicka-Zasadzień et al., 2017a; Skotnicka-Zasadzień et al., 2017b; Szczucka-Lasota and Wolniak). In the Table 1 we described basic function of mentioned areas.
The basic role of operation management in the company is its transformation role in the process of converting inputs such as raw materials into finished goods and services (Domingues and Machado, 2017; Fiorentino, 2018). The transformation role of operation management makes this function very important part of the whole organization. As a result it is directly responsible for many decision within the company and activities that give rise to product design and delivery problems (Peinado et al., 2018). The design and management of operations strongly influence how much material resources are consumed to manufacture proper goods or deliver a service to customer.
PROCUREMENT FUNCTION
In order to do business, a company needs the raw materials to produce its goods or offer its services. It also must have machinery, office supplies, and any other supplies it uses. Obtaining raw materials, machines, and supplies is the purchasing function of the production process and involves getting the best deal for the company. The people who buy goods for a business have to decide what to buy, from whom, and at what price.
Procurement planning is undertaken as part of the program/service planning process. The primary concept of procurement is that advanced planning, scheduling and bulk purchasing result in cost savings, efficient business operation, and increased value for money. The public sector is expected to use procurement planning as an opportunity to evaluate/review the entire procurement process so that sound judgments and good decision making will facilitate the success of the overall project implementation in the procurement of goods, works and services.
Group buying is the process of combining the total resource requirements for different departments and creating one procurement order. The departments can be physically located in a range of buildings, with the delivery dates, quantities, and conditions listed in the procurement order. This practice is increasingly common in government and public sector firms, where the same item can be procured for a range of different institutions.
Bulk pricing and negotiating is very important when completing procurement planning. Organizations that combine the total quantity required for a specific period of time are able to get lower pricing, based on a specific level of ordering.
Companies involved in manufacturing and related sectors, typically incur about 60% to 70% of their total spend on the procurement of material and services. These materials and services directly impact the quality of the end product, final product price, timely product delivery, and customer satisfaction. Thus, Procurement is a strategic function that impacts operations, supply chain, quality, cost and profits of manufacturing companies. Hence it is crucial to have a good procurement strategy in place. A good procurement strategy involves understanding & consolidating the procurement needs of all departments/units of an organization, finding suitable vendors, evaluating their terms and conditions, carrying out negotiations or bidding, identifying the right vendor/suppliers. This ensures, procurement of quality goods and services at optimum prices. This ultimately results in a lower cost of manufacturing and improves the bottom line. Procurement Function plays a crucial role in helping organizations achieve their overall business objectives such as optimum inventory, healthy working capital, reduced cycle times, improved supplier loyalty, cost reduction and savings, increased profitability and so on.
Capacity planning
Includes choosing a location for the business and scheduling production. Where a business is located is directly related to how successful the business will be. This fact is as true for a company that is opening its first factory or store as it is for an older business that is expanding into a new area. Among the factors to consider are nearness to markets, raw materials, labor supply, and transportation facilities.
Capacity planning is the process of evaluating all available production resources, including machinery, staffing, and work centers to understand if the manufacturer will be able to meet customer demand now and in the future. An important subset of capacity planning is resource capacity planning, which is the process of deciding how to optimize the function of existing resources, which resources to add, and which resources to downgrade or remove.
Capacity planning based on the timeline is classified into three main categories long range, medium range and short range.
Long Term Capacity: Long range capacity of an organization is dependent on various other capacities like design capacity, production capacity, sustainable capacity and effective capacity. Design capacity is the maximum output possible as indicated by equipment manufacturer under ideal working condition.
Production capacity is the maximum output possible from equipment under normal working condition or day.
Sustainable capacity is the maximum production level achievable in realistic work condition and considering normal machine breakdown, maintenance, etc.
Effective capacity is the optimum production level under pre-defined job and work-schedules, normal machine breakdown, maintenance, etc.
Medium Term Capacity: The strategic capacity planning undertaken by organization for 2 to 3 years of a time frame is referred to as medium term capacity planning.
Short Term Capacity: The strategic planning undertaken by organization for a daily weekly or quarterly time frame is referred to as short term capacity planning.
Just about every element of production of a specific product needs to be taken into account for effective capacity planning. Even factors that don’t seem important can impact operational efficiency. For example, many crown beverages have discovered that seemingly irrelevant factors like office decor and layout can impact worker productivity. This means that a factory with offices or break rooms that are decorated in an attractive matter and laid out in a way that facilities effective communication can actually inspire the workforce to be more productive and improve capacity across the board.
Away from your business facilities, crown beverages also need to consider the product or service you offer. Variety is the spice of life, but too much in terms of what the business offers and output will be slowed down. How streamlined is the business is in terms of what they can offer customers will directly affect how quickly and how efficiently crown beverages can get things done.
The ultimate goal of capacity planning is to meet the current and future level of the requirement at a minimal wastage. The three types of capacity planning based on goal are lead capacity planning, lag strategy planning and match strategy planning.
Effective capacity planning is dependent upon factors like production facility (layout, design, and location), product line or matrix, production technology, human capital (job design, compensation), operational structure (scheduling, quality assurance) and external structure ( policy, safety regulations)
There would be a scenario where capacity planning done on a basis of forecasting may not exactly match. For example, there could be a scenario where demand is more than production capacity; in this situation, a company needs to fulfill its requirement by buying from outside. If demand is equal to production capacity; company is in a position to use its production capacity to the fullest. If the demand is less than the production capacity, company can choose to reduce the production or share it output with other manufacturers.
Inventory Management
Inventory management is an approach for keeping track of the flow of inventory. It starts right from the procurement of goods and its warehousing and continues to the outflow of the raw material or stock to reach the manufacturing units or to the market, respectively. The process can be carried out manually or by using an automated system.
Almost all manufacturers and many service businesses, such as dry cleaners, need inventories, or stockpiles, of the materials they use for making their products or offering their services. Manufacturers and businesses, such as supermarkets, also keep inventories of finished goods on hand for sale, but inventories are costly. The more inventory a business has, the less capital it has for other activities. In deciding how much inventory to keep on hand, those in charge of inventory control also have other costs to consider. If the price of a raw material is expected to rise, a business may stockpile it to keep future costs down. Often a supplier will discount large orders. Some businesses may decide that the discounts outweigh the other costs of maintaining a large inventory.
The key activities in inventory management included;
- Preventing Dead Stock or Perishability: With an optimal inventory level, the chances of wastage in the form of goods spoilage or dead stock.
- Optimizing Storage Cost: It reduces the chances of maintaining excessive stock, even the requirements are pre-determined, which ultimately cuts done the unnecessary warehousing costs.
- Maintaining Sufficient Stock: Now, the production department need not worry about the shortage of raw material or goods because of its constant supply.
- Enhancing Cash Flow: Inventory has a significant impact on the cash flow of the company. With effective inventory management, the organization can ensure sufficient liquid cash to enhance its operational efficiency.
- Reducing the Inventories’ Cost Value: When there is a constant purchase of goods or stock, the organization can ask for discounts and other benefits to decrease the purchase price.
- Receiving , storing and issue goods
- Manage stock levels and distribute supplies from stock
- Maintain stock records using manual or computerized systems
Inventory management system used in crown beverages limited
Bar-code Inventory Management
The barcode system is its automated and simplified version. The management can find out the stock remaining with just one click on a computer device. The scanned barcodes enable the software to maintain a track of all the purchases and the flow of inventory.
Continuous Inventory Management
It links the barcode and radio frequency identification with the accounting inventory system, inventory received, and point of sales systems along with the production system, to trace the path of inventory movement. It is mostly beneficial for accounting purpose. This is also termed as perpetual inventory management.
Periodic Inventory Management
It is a manual process, which is used for determining the closing inventory value, for putting it up in the ledger at the end of a financial year. Depending on the organizational need, it can also be analyzed quarterly. However, it is a time-consuming way, since the inventory has to be physically counted.
Challenges faced in inventory management
Lack of Knowledge: The personnel at the receiving and warehousing departments may lack the required expertise and adequate knowledge of segregating the regular and seasonal goods out of the whole stock.
Expanding Product Portfolios: The customers’ demand and requirements for a wide range of products have tremendously increased the inventory size, making it difficult to manage, manually.
Supply Chain Complexity: The organization, at times, fail to track the stock or goods during the supply chain process. Moreover, it is not necessary that the business partners also maintain an inventory management system, creating hurdles.
Inventory Management Process
Since it is a process of identifying and resolving inventory-related obstacles. Given below is the step by step method of improving the organization’s inventory management system.
Human resource management
Operations involves setting beginning and ending times for each step in the production process. It includes planning and checking the use of labor, machinery, and materials so that production moves smoothly. Scheduling ensures that work will be finished on time whether it is manufacturing automobiles or books or dry cleaning a blouse or shirt. Is responsible for producing the goods or providing the services offered by the organization.
Optimizing quality control
The word quality does not mean the quality of manufactured product only. It may refer to the quality of the process (i.e., men, material, and machines) and even that of management. Where the quality manufactured product referred as or defined as “Quality of product as the degree in which it fulfills the requirement of the customer. It is not absolute but it judged or realized by comparing it with some standards.
Fundamental Factors Affecting Quality
Market: Because of technology advancement, we could see many new products to satisfy customer wants. At the same time, the customer wants are also changing dynamically. So, it is the role of companies to identify needs and then meet it with existing technologies or by developing new technologies.
Money: The increased global competition necessitates huge outlays for new equipments and process. This should be rewarded by improved productivity. This is possible by minimizing quality costs associated with the maintenance and improvements of quality level.
Management: Because of the increased complex structure of business organization, the quality related responsibilities lie with persons at different levels in the organization.
Men: The rapid growth in technical knowledge leads to development of human resource with different specialization. This necessitates some groups like, system engineering group to integrate the idea of full specialization.
Motivation: If we fix the responsibility of achieving quality with each individual in the organization with proper motivation techniques, there will not be any problem in producing the designed quality products.
Materials: Selection of proper materials to meet the desired tolerance limit is also an important consideration. Quality attributes like, surface finish, strength, diameter etc., can be obtained by proper selection of material.
