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Transformation Process and the Five Performance Objectives of Operation Management: A Case Study on Coffee Manufacturers

Introduction

In the competitive business environment, operations strategies as well as the overall business strategies for a particularly firm must be mutually supportive and internally consistent should the company want to achieve competitive advantage in the marketplace (Chase et. al., 2005). However, operations strategy or strategy by itself is a complex subject in which researchers or scholars have their own definition and philosophy. Often, strategy is defined differently by one expert from the other experts. In this context, however, operations strategies will be discussed from the context of five objectives of operation management, namely: (1) quality, (2) speed, (3) dependability, (4) flexibility, and (5) cost. It is also worthy to point out that all of these five elements are often regarded as the performance imperative for a firm. They are constantly shaped and affected by the operation transformation process in an operation setting (Heizer & Render, 2006).

In this writing, the transformation processes for two companies in the food industry will be analyzed, and the structure and nature of the transformation process will be

Literature Review on Operation Management

Transformation Process in Operation Management

Operations management is the core managerial discipline in all kinds of operation, from private sector manufacturing through to public sector services. It is about the human capacity to organize all of the operations that underpin the modern world: transportation, the generation of energy, retailing, and the production of goods, the provision of medical care and education, and so on (Chase et. al., 2005). Part of this discipline is analytical: being able to formalize measure and understand operations problems such as congestion, under-capacity and failure. It is also crucial to understand that operations management is the business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s goods and services. Operations management is directly responsible for managing the transformation of a company’s inputs (e.g., materials, technology, and information) into finished products and services.

For operations management to be successful, it must add value during the transformation process. We use the term value added to describe the net increase between the final value of a product and the value of all the inputs (Davis et. al., 2000). The greater the value added, the more productive a business is. An obvious way to add value is to reduce the cost of activities in the transformation process. Activities that do not add value are considered a waste; these include certain jobs, equipment, and processes. In addition to value added, operations must be efficient. Efficiency means being able to perform activities well, and at the lowest possible cost. An important role of operations is to analyze all activities, eliminate those that do not add value, and restructure processes and jobs to achieve greater efficiency. Today’s business environment is more competitive than ever, and the role of operations management has become the focal point of efforts to increase competitiveness by improving value added and efficiency (Krajewski & Ritzman, 2008).

The Five Performance Objectives of Operations Management

            Objective #1: Quality. Perhaps quality is the most important aspect in the modern business environment, and this is true as well for the coffee industry. Definition wise, doing things right by providing error free goods and services, which will satisfy the customers, is known as ‘quality’. Often, quality is also discussed largely in terms of it meaning ‘conformance’. That is, the most basic definition of quality is that a product or service is as it is supposed to be. In other words, it conforms to its specifications (Heizer & Render, 2006).

            Objective #2: Speed. Another performance objective is speed, which means by doing things fast, to minimize the time between the order and the availability of the product or service that gives the customer speed advantage. Speed does have both internal perspective as well as the external perspective (Heizer & Render, 2006). Externally speed is important because it helps to respond quickly to customers. Again, this is usually viewed positively by customers who will be more likely to return with more business. The internal affects of speed have much to do with cost reduction.

            Objective #3: Dependability. Third performance objective is dependability that means doing things in time for customers to receive their gods or services when they are promised. In short, dependability means: ‘being on time’. In other words, customers receive their products or services on time. Again, it has external and internal affects. Externally (no matter how it is defined) dependability is generally regarded by customers as a good thing. For the coffee manufacturing industry, certainly, being late with delivery of goods to customers can be a considerable irritation to customers. Internally dependability has an effect on cost. We are able to identify three ways in which costs are affected – by saving time (and therefore money), by saving money directly, and by giving an organization the stability which allows it to improve its efficiencies (Heizer & Render, 2006).

            Objective #4: Flexibility. Some researchers argue that we must learn to love change and develop flexible and responsive organizations to cope with the dynamic business environment (Krajewski & Ritzman, 2008). This is a more complex objective because we use the word ‘flexibility’ to mean so many different things. The important point to remember is that flexibility always means ‘being able to change the operation in some way’. Some of the different types of flexibility are product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility (Chase et. al., 2005).

            Objective #5: Cost. Last but not least, one major operations objective, especially where companies compete with prices is ‘cost’. Low price is a universal attractive objective to customers, which can be achieved by producing goods at lower costs. There are two main key points here. The first is that the cost structure of different organizations can vary greatly. Second, and most importantly, the other four performance objectives (mentioned above) all contribute, internally, to reducing cost. This has been one of the major revelations within operations management over the last twenty years (Davis et. al., 2000).

Case Studies and Analysis

Introduction to the Organizations Under Researched

In the following paragraphs, two of the coffee manufacturing firm will be analyzed. The first coffee manufacturing firm is called Seng Seng Coffee Manufacturer while the other is Ipoh White Coffee. Both of the firms operate in China, and are manufacturing instant coffee for the local consumption in Beijing, China. Both are medium sized businesses and are selling 3+1 instant coffee powder to local supermarket and departmental stores. Although both of the companies are operating in the instant coffee industry, both of the companies have different business process and operational procedures. This causes both the companies to manifest different performance on five of the key operational performance in five of these dimensions – quality, speed, dependability, flexibility and cost. Both of the firms are selected in this research design because the founder of Seng Seng Coffee Manufacturer is a relative of the author, and similarly, the management of Ipoh White Coffee also has some personal relationship with the author.

Operation & Transformation Processes for Coffee Manufacturers

Transformation Processes in Seng Seng Coffee Manufacturer. Seng Seng Coffee is a company concentrating on the mass market, in which the instant 3 in 1 coffee they company is selling, is designed for the mass market with reasonably cheap pricing. As such, the operation management in the company has a strong focus on efficiency of the manufacturing process. Thus, cutting costs become very critical, and the management is seeking ways to cut costs, to the extent that customers will need to place a minimum order quantity before the factory able to send the products out to the customers’ office or store houses. The reason it to save on the transportation costs. Besides, as the margin is low, the customers are not expected to demand for special orders or requirement, such as requesting for different packaging, design of new carton box, addition of new ingredient in the coffee powder or etc. The entire operation process is already being standardized and optimized, and any changes will cause the process to become inefficient, which may in turn causing the manufacturing line to suffer loses.

Transformation Processes in Ipoh White Coffee. In contrast to Seng Seng Coffee, Ipoh White Coffee is a company selling premium grade of coffee with special and thick aroma for the medium to up market. Thus, the transformation process in Ipoh White Coffee is focusing on producing high quality coffee powder with nice aroma and consistency in the end products. Besides, as the coffee manufactured by Ipoh White Coffee is of a premium grade, the margin is much higher, but the issues now lie with the lower sales volume. To ensure the firm’s profitability is secured, the company needs to be highly responsive to market needs, and able to fulfill varies customers’ demand. For that reasons, the Ipoh White Coffee may need to customized the packaging in order to sell the coffee to other specialized coffee shops.

The Impacts of Transformation Process on Quality, Speed, Dependability, Flexibility and Costs

In the following section, the five dimensions of operational performance, namely, quality, speed, dependability, flexibility and cost that are influenced by a firm’s transformation process is discussed.

            Objective #1: Quality. In this context, both the coffee manufactures are particularly paying detail attentions on the coffee manufactured, in terms of the fragrance, flavor, the consistency of aroma, and the packaging of the coffee as well. Although coffee is highly undifferentiated commodity, the special aroma and the refreshing fragrance could be unique from different manufacturer to other manufacturers. In this, it is observed that the management often asks feedback from the customers on how the coffee taste and if the customers truly satisfied with the quality of the coffee. It is also noted that when the management realize that different soaking methods could produce different quality of coffee, the management even approach the various coffee house to teach them the correct methods of making a cup of quality coffee. For example, the water must be hot enough to ensure that the aromas, which mainly come from caffenol from the roasted coffee bean, could be released. Nonetheless, it is obvious that although both Seng Seng Coffee and Ipoh White Coffee are trying to improve the products quality, it is observed that Quality is used as the competitive advantages for firm such as Ipoh White Coffee (that compete on the premium grade coffee being produced).

            Objective #2: Speed. If a coffee manufacturing company could not cope with the order, the large retailers could just buy the coffee beans from other coffee manufacturing producers. In order to ensure speed advantage in the manufacturing plant, it is observed that the management does arrange the layout of the manufacturing plant in an efficient way, where the different stages of coffee processing are arranged closely with each other, while the workers still have a convenient space to move around without disturbing the manufacturing process. This is the case for both Seng Seng Coffee and Ipoh White Coffee. However, it is observed that to lower costs and to enhance operational efficiencies is the core competency of Seng Seng Coffee, and thus, Seng Seng Coffee may be forced to lose out to competitors such as Ipoh White Coffee in terms of speed to the market. In fact, it is observe that responsiveness to market is the key success factor of Ipoh White Coffee, as the management also has close network and relationship with the various retailers and the coffee shops owners, as such, the products are selling fast, the management can quickly schedule their production to cope with the market demand, to avoid stock-out situation. Besides, when the retailers or the coffee house do have complaints regarding the coffee of the manufacturers, the management is also fast to pay required attentions and feedback to the customers quickly.

            Objective #3: Dependability. For the coffee manufacturing industry, certainly, being late with delivery of goods to customers can be a considerable irritation to customers. Internally dependability has an effect on cost. We are able to identify three ways in which costs are affected – by saving time (and therefore money), by saving money directly, and by giving an organization the stability which allows it to improve its efficiencies. Both coffee manufacturers are indeed dependable. It is observed that the both the company management and the various workers are very knowledgeable and some are still able to trouble shoot the coffee manufacturing machine should the machine goes down. This dependability of people as well as machine has cause the company to face very little issues on the production line.

            Objective #4: Flexibility. For the Seng Seng Coffee manufacturing plant, flexibility is the areas that the company has weakest competitive advantage. Perhaps, the coffee manufacturer does not required extensive flexibility in product line to compete in the marketplace, as the product manufactured are mainly roasted coffee, but not high technology product which need mass customization or demand special productions to meet unique customers’ needs. This is different from the case for Ipoh White Coffee, where the flexibility for the production line to changes in market demand is give more emphasize.

            Objective #5: Cost. For a Seng Seng Coffee manufacturer, the most critical aspect of operation objective is to reduce cost, cut down the expenses and then to save more money for further expansion of diversification purpose. In the company, management will always try to reward workers that can come out with any ideas that can help the company to save money, where a portion of the money saved will be rewarded back to the employees as a mean of motivation and encouragement. In fact, Seng Seng Coffee is famous as the low costs leader in the coffee manufacturing industry.

 

Conclusion

As discussed above, the five elements of quality, speed, dependability, flexibility and cost are constantly being affected and shaped by the design of transformation processes in any organization. Two coffee manufacturers had been used to investigate how the different structure and nature of the transformation process can affect the five operational performance objectives – quality, speed, dependability, flexibility and cost. Five of the areas are important, i.e., quality, speed, dependability, flexibility and cost, are crucial success factors that management should concentrate on, to achieve competitive advantage in the ever challenging business environment. These areas are often interrelated and interdependent. The key point is, if the management could excel in those areas, customers’ needs will be fulfilled and this will translated into customers loyalty and satisfaction, which in the long run, means sustainable growth rate and above average economic profit for a particular company. In short, if the management would like to further improve the financial performance of the company, these are the key factors that management should concentrate on, and with continuous and never ending improvement, the company would excel and stand out as a differentiated and unique business entity despite competitive or turbulent business environment.

References

Chase, R. B., Aquilano, N. J., and Jacobs, F. R. (2005). Production and operations management:  manufacturing and services.  Boston, MASS.:  Irwin/McGraw-Hill.

Davis, M. M., Aquilano, N. J., and Chase, R. B. (2000). Fundamentals of operations management. Boston, MASS.: Irwin/ McGraw-Hill.

Gaither, N., and Frazier, G. (1999). Production and operations management.  Cincinnati, OH: South-Western.

Heizer, J. H., and Render, B. (2006). Operations management. Upper Saddle River, N.J.: Prentice Hall.

Krajewski, L. J., and Ritzman, L. P. (2008). Operations management: strategy and analysis. Reading, MASS.: Addison Wesley.

Markland, R. E., Vickery, S. K., and Davis, R. A. (2001). Operations management: concepts in manufacturing and services.  Cincinnati, OH:  South- Western College Pub.

Montana, P. J., and Charnov, B. H. (2000). Management. Barron’s, New York, USA.

Stevenson, W. J. (2007). Production/operations management. Boston, MASS.: Irwin/ McGraw-Hill.

 

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