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Operations Management in

Business

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Executive Summary
Operations Management department mainly oversees the designing of product while
controlling the production process. It ensures that business operation are both effective with
respect to meeting customers requirement and efficient in terms of utilizing fewer resources
to produce the required output. It converts the inputs into outputs through transformation
process by adding values to the former. The operations of the company must be monitored
and managed properly so as to reap maximum benefits out of minimum investments.
The aim of this study is to understand the role and importance of operations management for
the efficient and effective production of the goods and services. Extensive research through
books and websites has been done.
The study has been divided into two tasks. The first task explains the importance of
operations management for Baumhaus Wholesale Furniture and analyzes the operations
function of the given organization. It has also explicated the Three Es and tension between
cost minimization and quality maximization. Evaluation of five performance objectives has
also been carried on. The second task elucidated the linear programming, evaluated critical
path and network planning and explained the need for operational planning and control of
production process. The layout has been designed for the Baumhaus Furniture and Critical
Path Method has been employed for preparing bathroom unit At last, Quantity Management
techniques have been discussed.

Table of Contents
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Executive Summary...................................................................................................................3
Introduction................................................................................................................................3
Task 1.........................................................................................................................................3
LO 1 Nature and Importance of Operational Management.......................................................3
LO 1.1 Importance of Operations Management for organization..........................................3
LO 1.2 Analysis of Operations Management.........................................................................3
LO 1.3 Evaluation of Operations Management through Process Model...............................3
LO 2 Relationship between operations management and strategic planning............................3
LO 2.1 Importance of Three Es..........................................................................................3
LO 2.2 Impact of Tension between cost minimization and quality maximization.................3
LO 2.3 Significance of the five performance objectives........................................................3
Task 2.........................................................................................................................................3
LO 3 Organizing typical production process.............................................................................3
LO 3.1 Linear programming..................................................................................................3
LO 3.2 Evaluation of Critical Path Analysis and network planning......................................3
LO 3.3 Importance of Operational Planning and Control......................................................3
LO 4.1 Application of relevant techniques for the production of an operational plan...............3
LO 4.1 Define operational outcomes and possible Layouts of Furniture..............................3
LO 4.2 Network plan for resultant critical path.....................................................................3
LO 4.3 Project Management and Quality Control Techniques. improve operations.............3
Conclusion..................................................................................................................................3
References..................................................................................................................................3

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Introduction
Operation management practice has been key to achieve competitive advantage for
organizations no matter they are in service or manufacturing industry. It addresses the various
questions encountered by them in its choice of manufacturing technology, maintenance of
quality etc, by establishing performance measures using scientific tools and techniques. It
main aim is to control the costs and keep it at its minimum and increase the revenue through
careful planning and control (Mahadevan, 2010).
For the current study Baumhaus Wholesale furniture supplier has been selected. They have a
great range of furniture designed in-house and provides services to retail outlets, Internet
Traders and drop-shippers, Hotels and Hospitalities and also to commercial buyers
(Baumhaus wholesale Furniture, 2014).

Task 1

LO 1 Nature and Importance of Operational Management


LO 1.1 Importance of Operations Management for organization
Operations Management is a management of processes or sub-processes which consists of
well-defined inputs and process that adds value through conversion leading to a value-added
output. However, it can be defined as an effective and efficient way of carrying out a business
process such that it leads to the accomplishment of the goal/ objective usually related to an
organization for the creation of maximum feasible surplus with the stipulated time (Kachwala
& Mukherjee, 2009). Its principle can be uniformly applied to both manufacturing as well as
service industry.
Value Addition for Baumhaus Furniture

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Figure: 1; Source: Made by Student (2014) based on Kachwala & Mukherjee (2009)

The key elements of an operations system, for the Baumhaus Furniture, are as follows:
Input: To start off with a production process one requires inputs like land, labour, capital,
raw material etc. The Baumhaus Furniture must have a sufficient capital, to support their
everydays requirement and relevant manufacturing processes and technologies so as to
produce high quality products (Tomar, 2009).
Transformation Process: They are central or focal point of the operations system and ensure
the conversion of inputs into useful outputs by either acting upon or carrying out
transformation of other elements. The main transforming resources for Baumhaus Furniture
will be staff and facilities i.e. equipment and process technologies etc. (Mahadevan, 2010)
Output: The operation system uses inputs to produce a value added product/ finished goods
as an output required by the customer through the process of transformation. It may include
finished goods, maintain good relations with furniture retailers etc.
Operations management is important for the Baumhaus Furniture as no strategy will be
successful without proficient operation management as it need to understand how the goods
and services, they are manufacturing/ fabricating, are produced and delivered, and how the
various activities of operations should be established.
LO 1.2 Analysis of Operations Management
The Baumhaus furniture company supplies doors, wall units, bathroom unit etc. to the
retailers (Baumhaus wholesale Furniture, 2014). With the advent of process concept,
managerial function at Baumhaus focuses on continuous improvement and elimination of
errors. They have achieved it by following the PDCA (Plan, Do, Check and Act) Cycle, a
concept given by Wlater Schewarts and popularized by Edward Deming. The key
components of PDCA Cycle of Baumhaus furniture are as follows:
Plan: The Baumhaus Furniture spends considerable amount of effort, data and time to work
out plan before starting their work for the bulk orders like furniture for offices, furniture
rework for the house etc. They choose the best alternative which consumes the least amount
of resources on a time phased manner while satisfying the maximum wants.

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Do: Once they prepared the plan they execute it. However, they always made it sure that
resources like woods, machines and labours are available as decided and calculated at the
planning phase which must be available in right quantity, quality, time, place and cost. The
plan is executed with the help of sequential process flow chart.
Check: Even during the execution phase, they keep a check on the process, by periodically
measuring the defined control points, that it is as per the planning or any deviation is being
noted. In case of deviations, Baumhaus Furniture has back up actions so that deviations can
be rectified with required corrective actions.
Act: In case they have identified the deviations, they check out the root cause of the same and
take preventive and corrective actions so that it can be brought back to the track. However,
they note these deviations and its cause so that it can be avoided in the planning phase of next
order.
Besides, following the PDCA Cycle, they also ensure the safety of their workers and are
within the laws and regulations of UK.
LO 1.3 Evaluation of Operations Management through Process Model
All operations, producing goods and services, use the process of transformation to do the
same and so are used by the Baumhaus Furniture. They use the available resources to change
the condition or state to produce outputs. This process model works on the concept of system
theory. System can be defined as set of components and inter-relations between them which is
so configured that it produces desired outputs while operating in the context of its
environment (Gibson, 2006). A thorough analysis of systems will help managers of
Baumhaus Furniture to deconstruct a process and make improvements in the same or
introduce a new system with due regard to planning, structure and relevance.
Open and Closed System: Open system takes into account the interaction of environment,
and considers that as environment changes continuously, the operations must also change and
adapt to the environment change. Whereas closed system view treats operations as an
independent of its environment (Brown, et al., 2013). The Baumhaus Furniture follows the
concept of open system where they collectively take into account the changes of
environment, trends, requirements etc.
Probabilistic and Deterministic System: Probabilistic system states that the occurrence of
given events cannot be predicted. However, there behaviour can be described in terms of their
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probability, with certain degree of errors attached to the predicted behaviour. On the other
hand, deterministic model states that occurrence of all events for the given situation is known
with certainty. The Baumhaus Furniture follows the deterministic model as if they plan for set
of work.
Sub-Systems and System-Interfaces: Every system has sub-functional or components
called sub-system, that full-fill the condition of system itself. At the same time, they also play
a specialized role in the operation of main system. System Interface is the area of contact
between one system and other having well defined boundaries (Sauber & Vetter, 2013). The
Baumhaus Furniture works in its sub-systems wherein inputs, through transformational
process, are converted to output.

LO 2 Relationship between operations management and strategic planning


LO 2.1 Importance of Three Es
Value, added to the product in transformational process and also after that, has been the main
reason for choosing a particular brand by customer over another. For the Baumhaus
Furniture, the reliability, durability of their goods, novelty, designs, products features and
functions including the staffs courtesy in selling customer support services can make a big
difference to customer value (Murthy, 2006). However, this relies upon effective operational
strategy whose performance can be determined by following factors:
Economy: It covers the financial element as need of cost reduction has always dominated
the market so that the organization, in operation, can remain competitive.. Operation
Management helps in reducing the costs by planning the whole production process wherein
quantity and quality of product and labours are pre-determined (Saxena, 2009). Hence,
Baumhaus Furniture can reduce the inventory cost, waiting time cost, labour leisure cost etc.
to attain economy.
Efficiency: It can be referred as maximum output with minimum inputs or the optimal
utilization of available resources. This can be achieved, by the Baumhaus Furniture by
reducing the downtime like machine breakdown, waiting time etc to the optimum level (Roy,
2007). Operational efficiency for Baumhaus Furniture will be the ratio of outputs to the
inputs.

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Effectiveness: It has more dimensions than efficiency Operational effectiveness measures


how well organization runs in the given environment and takes into account both, efficiency
of resource inputs and usage and further effectiveness of overall management involved in
achieving the desired sets of goals and objectives (Langabeer, 2008). The inventory control
management of Baumhaus Furniture must ensure the effective material management and
quality control.
Hence, the economy, efficiency and effectiveness can be measured through four dimensions
i.e. Reliability, Quality, Dependability and Cost
LO 2.2 Impact of Tension between cost minimization and quality maximization
To excel in the business, organization has to produce goods on time and at minimum cost so
as to gain the comparative advantage over their competitors in the industry. In doing this,
however, they need to maintain the quality of goods and services they are delivering to
customer, while working within the framed laws so as to avoid interface with legal bodies.
Operations Management plays significant role in achieving the said strategic objective of the
firm as it overlaps the various functions like finance, marketing, HR etc. where each
component has a defined role aimed at cost minimization and quality maximization.
Baumhaus believes in maintenance and further enhancement of their established and reputed
standards for their customers especially with regard to quality of the product. To ensure the
achievement of the same without incurring losses on quality part, they recycle the screws and
unused/ distorted nails and also use the small pieces of useless woods in the fabrication or
designing of their furniture. This reflects their commitment of delivering quality products to
their customers.
However, there exists great thrift between minimization of cost and maximization of quality
as usually high quality comes with additional cost. There are other companies also in same
industry who are competing to win the huge customer base. Hence, cost minimization must
be backed by economies of scale wherein all business activities must be centralized so that
costs like transportation, loading etc. can be curtailed (Sharma, 2006). Baumhaus Furniture
has all its facilities located at one place and also they prefer to take bulk orders so that
economies of scale can be achieved. The advent of globalization has also facilitated the
purchase of raw material from different parts of the world at affordable price. The businesses
can also apply the concept of flexibility by bringing in various sub-assembled products which
will help them in cutting cost.
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Hence, Baumhaus tries to maintain and improve its quality by incorporating some practical
efforts of reducing costs.
LO 2.3 Significance of the five performance objectives
All businesses frame strategies to seek survival and competitiveness within its environment in
the long run. Operations Management provides a proactive approach within the organization
to achieve the said objective through its fiver performance objectives represented below:
Five Performance Objectives

Figure: 2; Source: Waters (2007)


Cost: It is the ability of the Baumhaus to produce goods on low cost and hence, it is the
requirement of finance to obtain the requisite inputs (which can be transforming or
transformed resources) and further management of the transformational process to produce
finished goods. The major costs involved are employees (avg. 15%), facilities (avg. 30%) and
raw materials (avg. 55%) (Neely, 2007).
Flexibility: It can be classified into range flexibility and response flexibility wherein former
is the ability of the company to cope with wide range of requirements of the market while
later is the ability to change quickly (Neely, 2007). The Baumhaus Furniture should maintain
flexibility in its operations and adopt according to the market situation quickly.
Quality: Being multi-dimensional, it is not only conformance to specification given but
covers wide range of other dimensions like performance and features of products, reliability,
technical durability, perceived quality, serviceability etc (Galloway, et al., 2012). Hence,
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Baumhaus Furniture has to assure that they are fulfilling most of the dimensions perceived
important by their client.
Dependability: It indicates the reliability that Baumhaus Furniture owns towards its
customer i.e. doing things consistently and delivering it on time (Brown, et al., 2013).
Baumhaus must fulfil its adherence towards price performance, Safety, Schedule, delivery
performance and must keep its promises towards its customers.
Speed: It shows the ability of the Baumhaus Furniture to deliver its products with as short
time delay as possible between the order placed by the customer and delivery made by the
company (Jones & Robinson, 2012). However, there are five kind of speed i.e. Quote
generation, Delivery Speed, Production Speed, Delivery frequency and New Product
development Speed (Jones & Robinson, 2012).
The analysis of above five performance objective will help the Baumhaus Furniture in
understanding their performance with respect to the set standard.

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Task 2

LO 3 Organizing typical production process


LO 3.1 Linear programming
Linear Programming helps in optimum allocation of available resources and hence, act as a
successful decision making aid in all industries (Mahadevan, 2010). Linear Programming is a
methodology wherein linear relationship between the various system elements can be
modelled enabling the study of system behaviour and find the best decision set that manager
should make to optimize the systems performance while considering the constraints
(Mahadevan, 2010).
Linear Programming can be effectively used in the production and operation management,
transportation etc. wherein the objective is profit maximization through cost minimization
(Chary, 2009). There are many constraints in the operation of Bauhmaus Furnitures like
capacity in terms of making furnitures, quality, saleability etc. For ex. For making chairs and
tables, they can calculate the raw material available like wood planks, logs etc. and their
skilled labour.
Using Linear Programming they can decide that how much labour they can use to produce
the required sets.
LO 3.2 Evaluation of Critical Path Analysis and network planning
Network Planning is planning through forming network of inter connected activities. It can be
either through or PERT. Critical Path Analysis or Network Analysis is a management
technique which has been developed for planning, scheduling and controlling any project
(Galloway, et al., 2012). It prepares list of activities involved in a project and fixes the interrelationship between them, establishes optimum sequence and draw the schedules of the same
(Karanjkar, 2008).
The benefit of using Critical Path Analysis as scheduling technique within the planning
process of the given project is that, it helps in developing and testing the plans robustness, it
identifies the task which must be completed on time or tasks that can be delayed in case
reallocation of resources is required to catch the missed or over running task (Jessop, 2014).
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The Critical Path Analysis will help the Baumhauss managers in allocating the resources in
best possible manner and hence, can minimize the time and cost for the given order.
LO 3.3 Importance of Operational Planning and Control
Planning and control are the two most important of the managements process wherein
planning involves consideration of input allocation at various junctions of production
management so as to achieve the defined output (Chary, 2009). On the other hand, controls
are the corrective measure taken by the Baumhaus Furniture when there is variable in actual
output from the desired one by aligning the actual with the planned output. Hence, planning
mainly consists of evaluation and determination of utilities and products inputs to achieve
the desired goals and objectives (Chary, 2009). Some important techniques of operational
planning and control are as follows:
Techniques of Operational Planning and Control

Figure: 3; Source: Made by Student (2014)


The Baumhaus Furniture must incorporate the above mentioned techniques for planning and
control as it will help in managing the cost related to inventory storage and carriage, building
more capacity and utilizing the current one in best possible way while maintain quality of the
processes.

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LO 4.1 Application of relevant techniques for the production of an operational plan


LO 4.1 Operational outcomes and possible Layouts of Furniture
There are two type of layout designing i.e. product and process layouts (Mahadevan, 2010).
In process layout the arrangements are done on the basis of the process characteristics
associated with resources and each department will be organized into functional groups
whereas in product layout the product are placed to exactly follow the process sequence
ordered in product (Mahadevan, 2010). Hence, Baumhaus Furniture should use product
layout for making Open Bathroom Unit (Tall).
Product Layout for Baumhaus Furniture

Figure: 4; Source: Made by Student (2014)


It will help them to achieve their operational outcome (the outcomes that deals with
functions, demands, resources and efficiencies) which is speed, flexibility, cost, quality and
dependability for Baumhaus Furniture. The pre-decided work flow will help in increasing the
speed and quality, as due to work specialization of labour on same machine, reducing the
cost, as the same machine will be used to drill the different furniture. Flexibility and
dependability will be enhanced by work and product specialization.
Hence, product layout will help the Baumhaus Furniture to achieve their performance
objectives.

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LO 4.2 Network plan for resultant critical path


Critical Path technique is very important for identifying that critical area of the project which
must be executed on the given time frame and identifies the important activities and activities
that can cause delay to the project (Chary, 2009). The network Plan, for making 50 bathroom
furniture (Open Bathroom Unit Tall), is as follows:
Network Plan

Figure: 5; Source: Made by Student (2014)


Description of Activities
Number
1
2
3
4
5
6
7

Activities
Design open bathroom unit
Get approved from the client
Order and receive the raw materials
Build open bathroom unit
Select Colour
Select Style
Finish Work

Time Reqd. (Days)


3
2
1
3
1
1
1

Table: 1; Source: Made by Student (2014)


As, the critical path has the longest duration of time path A comes out to be the critical path.
Activity Scheduling:
Once critical path has been identified, now the earliest start time (ES), Latest Start time (LS),
earliest finish time (EF), Latest finish time (LF) and slack can be calculated.

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Critical Path Analysis


Activity

LS (LF-t)

ES (max. of

immediate
predecessor)

LF (Min. of
LS)

EF

ES+t

Slack
(LS-ES;
LF-EF)

1 (Critical Path)

2 (Critical Path)

4 (Critical Path)

7 (Critical Path)

Table: 2; Source: Made by Student (2014)


It can be inferred from the critical path method that there is no slack time for the activities on
the critical path of the network. Hence, Baumhaus furniture has to be critical about the
asterisk actives as any delay in them will delay the whole project.
LO 4.3 Project Management and Quality Control Techniques
There are various qualities managing tools and techniques available in the market.
Fish Bone Analysis: The primary and secondary cause and effect relationship can be derived
through Fish-bone Analysis or Ishikawa diagrams. There are four steps involved in the
analysis of cause and effect (Mahapatra, 2010). Lets take the example of degenerating sales
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for Baumhaus Furniture. The first step will be to identify the problem which will be written at
the head of the fish.

Fish Bone Analysis

Figure: 6; Source: Made by Student (2014)

This step will followed by Brainstorming Session of sales team, managers, field workers etc.

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Figure: 7; Source: Made by Student (2014) based on Rudy (2014)


Once the chart has been prepared, the third step is Chart Analysis followed by Action Plan.
Quality Circles: Baumhaus Furniture can form the group of four to ten employees (working
for same line manager). These employees can meet once in a week and identify, analyze and
solve their work related problems (Jones & Robinson, 2012).
Using above quality management techniques, Baumhaus can control quality in its production
system.

Conclusion
Being a manufacturing firm, Baumhaus furniture has to control its production while
converting inputs into outputs through transformational process so as to maximize profit and
reduce costs. They can use the performance objective to check their performance against set
standards. It can control quality through quality circles, fish bone analysis, six sigma etc.
critical path method will help in finding critical path and avoiding any delays in production.

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References
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[Accessed 22 September 2014].
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Practice and Performance Improvement. New Jersey: Routledge.
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Delhi: PHI Learning Pvt. Ltd.
Karanjkar, A., (2008) Manufacturing and Operations Management. Pune: Nirali Prakashan.

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Langabeer, J. R., (2008) Health Care Operations Management: A Quantitative Approach to


Business and Logistics. Sudbury: Jones & Bartlett Learning.
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[Accessed 23 September 2014].
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Tomar, R., (2009) Commercial operations management: Process and Technology to Support
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