Chapter 13

OPERATIONS MANAGEMENT:
OPERATIONAL DIMENSIONS

Chapter Objectives

To describe the operational scope of operations

management
To examine several specific aspects of operating a
retail business: Operations blueprint, store format,
size, and space allocation, personnel utilization;
store maintenance, energy management and
renovations; inventory management; store security;
insurance; credit management; computerization;
outsourcing and crisis management

Operating a Retail Business

OPERATIONS BLUEPRINT systematically lists all

operating functions to be performed, their characteristics and
their timing.

When developing a blueprint, the retailer specifies in detail,

every operating function from the stores opening to closing
and those responsible for them.

A large or diversified retailer may use multiple blueprints

and have separate blueprints for such areas as store
maintenance, inventory management, credit management and
store displays.

STORE FORMAT, SIZE AND SPACE ALLOCATION

A key store format for decision for chain retailers is whether

to use PROTOTYPE STORES, whereby multiple outlets
uniform construction, layout and operations standards.
Some chains use RATIONALIZED RETAILING programs
to combine a high degree of centralized management control
with strict operating procedures for every phase of business.
Most of these chains operations are performed in a virtually
identical manner in all outlets.
Many retailers use one or both of two contrasting store-size
approaches to be distinctive and to deal with high rents in
some metropolitan markets.

Retailers often focus on allocating store space. They use

facilities productively by determining the amount space and
its placement, for each product category. Sometimes, retailers
drop merchandise lines because they occupy too much space.

TOP-DOWN SPACE MANAGEMENT a retailer starts

with its total available space (by outlet and for the overall
firm, if a chain), divides the space into categories and all
company levels.

These are among the tactics that some retailers use to improve
store space productivity : Vertical displays, Open doorways,
mirrored walls and vaulted ceilings give small stores a larger
appearance.

PERSONNEL UTILIZATION

1.
2.
3.
4.
5.
6.

Efficiently utilizing retail personnel is vital :

Labor costs are high
High employee turnover means increased recruitment,
training and supervision costs.
Poor personnel may have weak sales skills, mistreat
shoppers, mis-ring transactions and make other errors.
Productivity gains in technology have exceeded those in
labor yet, some retailers are labor intensive.
Labor scheduling is often subject to unanticipated demand.
There is less flexibility for firm with unionized employees.

These are among the tactics that can maximize personnel

productivity:
Hiring Process
Workload forecasts
Job standardization and cross-training
Employee performance standards
Compensation
Self-service
Length of employment

STORE MAINTENANCE, ENERGY

MANAGEMENT & RENOVATIONS

STORE MAINTENANCE encompasses

all the activities in managing physical
facilities.

ENERGY MANAGEMENT
To manage their energy resources more effectively, many retailers
now:

Use better insulation in constructing and renovating stores.

Carefully adjust interior temperature levels during nonselling hours. In
summer air-conditioning is reduced at off-hours; in winter, heating is
lowered at off-hours.
Use computerized systems to monitor temperature levels. Some chains
systems even allow operators to adjust the temperature, lighting, heat and
air-conditioning in multiple stores from one office.
Substitute high-efficiency bulbs and fluorescent ballasts for traditional
lighting.
Install special air-conditioning systems that control humidity levels in
specific store areas, such as freezer locations to minimize moisture
condensation.

Retailers need decision rules regarding renovations:

How often are renovations necessary?
What areas require renovations more frequently
than others?
How extensive will renovations be at any one time?
How much money must be set aside in anticipation
of future renovations?
Will renovations resulting higher revenues, lower
operating costs, or both?

INVENTORY MANAGEMENT

Retailer uses inventory management to

maintain a proper merchandise assortment
while ensuring that operations are efficient
and effective.

STORE SECURITY

Many shoppers and employees feel less safe at retail shopping locations than
before.
These are among the practices retailers are utilizing to address this issue:
Uniformed security guards provide a visible presence that reassures
customers and employees and it is a warning to potential thieves and
muggers.
Undercover personnel are used to complement uniformed guards.
Brighter lighting is used in parking lots, which are also patrolled more
frequently by guards.
TV cameras and other devices scan areas frequented by shoppers and
employees.
Some shopping areas have curfews for teenagers.
Access to store backroom facilities has been tightened.
Bank deposits are made more frequently often by armed security guards.

INSURANCE

Insurance decisions can have a big impact on a retailer

1. In recent years, premiums have risen dramatically.
2. Several insurers have reduced the scope of their

coverage.
3. There are fewer insurers servicing retailers today than
a decade ago; this limits the choice of carrier.
4. Insurance against environmental risks is more
important due to government rules.

CREDIT MANAGEMENT

These are the operational decisions to be made in the

area of credit management:
What form of payment is acceptable?
Who administers the credit plan?
What are customer eligibility requirements for a check or

credit purchase?
What credit terms will be used?

COMPUTERIZATION

Many retailers have substantially improved their operations

productivity through computerization.

Software provides computerized inventory control and order

tracking.

COMPUTERIZED CHECKOUT is used by both large and small

retailers so they can efficiently process transactions and monitor
inventory.

ELECTRONIC POINT-OF-SALE SYSTEM, which performs

all the task of a computerized checkout and verifies check and
charge transactions.

OUTSOURCING

A retailer pays an outside party to undertake one or

more of its operating functions.

The goals are to reduce costs and employee time

devoted to particular tasks.

CRISIS MANAGEMENT

Although many crises may be anticipated and some adverse effects

may occur regardless of retailer efforts, these principles are important:
1. There should be contingency plans for as many different types of
crisis situations as possible.
2. Essential information should be communicated to all affected
parties, such as the fire or police department, employees,
customers and the media, as soon as a crisis occurs.
3. Cooperation not conflict among the involved parties is
essential.
4. Responses should be as swift as feasible; indecisiveness may
worsen the situation
5. The chain of command should be clear and decision makers given
adequate authority.
Crisis management is a key task for small and large retailers.

SUMMARY

Operations management efficiently and effectively seeks to

enact the policies needs to satisfy customers, employees
and management.
An operations blueprint systematically lists all operating
functions, their characteristics and their timing, as well as
the responsibility for performing the functions.
Store format and size considerations include the use of
prototype stores and dimensions. Firms often use prototype
stores in conjunction with rationalized retailing. Some
retailers emphasize category killer stores; others open
smaller stores. In space allocation, retailers deploy a topdown or bottom-up approach. They want to optimize the
productivity of store space.

Personnel utilization activities that improve productivity

range from better screening applicants to workload
forecasts to job standardization and cross-training.
Store maintenance includes all activities in managing
physical facilities.
Good inventory management requires that retailers
acquire and maintain the proper merchandise while
ensuring efficient and effective operations.
Store security measures protect both personal and
merchandise safety.
Among the insurance that retailers buy are workers
compensation, product liability, fire, accident, property
and officers liability.

Check and credit payments generally mean larger transactions than

cash payments.
A growing number of retailers have computerized elements of
operations. Computerized checkouts and electronic point-of-sale
systems are quite useful. Electronic point-of-sale systems perform all
the tasks of computerized checkouts and verify check and charge
transactions, provide instant sales reports, monitor and changed
prices and send intra- and inter-store messages, evaluate personnel
and profitability and store data.
With outsourcing, the retailer pays another party to handle one or
more operating functions. The goals are to reduce costs and better
utilize employees time.
Crisis management must handle unexpected situations as smoothly
as possible. There should be contingency plans ,information should
be communicated to those affected, all parties should cooperate,
responses should be swift and the chain of command for decisions
should be clear.