4.1 Setting operational objectives
Operational management
Definition:
– involves utilising resources from staff, materials, equipment, and
technology to maximise efficiency
Production
Definition: the process of turning raw materials into finished goods
Operational objectives
– Costs
– Quality
– Speed of response
– Flexibility
– Dependability
– Environment
– Added-value (not in spec)
Costs
– fixed and variable costs, hence break-even point
– unit costs: total costs / units of output
Quality
Definition: features of a good or service that satisfy customer needs and wants
– lower defective output to reduce waste
– can measure by customer returns, surveys, questionnaires, etc.
Speed of response
Definition: the time it takes for a business to various stimuli or situations
– higher labour productivity from more motivated staff —> quicker
response to customer inquiries
○ increases customer loyalty, the likeliness of repurchase —>
perhaps securing market share?
○ better word of mouth and reputation
Flexibility
Definition: the ability of an organisation to change its operations
– having more production capacity leads to more flexible operations
○only produce to meet demand —> less stock held (JIT stock
control)
– modifying machinery to produce more variety of products or in more
models
○ however production might be halted to modify the machinery
Dependability
Definition: reliability of operations of the business
– for instance, reliable delivery time prevents dissatisfaction that might
lead to poor reputation
Environmental
, – using ethical materials
– adopting environmentally-friendly production practices
– using reusable / recyclable packaging
– waste management —> zero-waste policy
○ lean production to reduce defects, therefore less waste
Added value
– having USPs for more value-for-money (e.g. personalised products)
○ however may be more costly and may reduce profit margins
Reasons why businesses set operational objectives (not in spec?
– Improving operational efficiency to minimise waste, reduce costs, and
maximise productivity
○ To get the most out of their resources —> efficient utilisation of
resources available
– Provides a benchmark against success and failure
– Motivates workforce
– To ensure high levels of customer satisfaction, loyalty, and retention
– To increase market share
– Mitigating operational risks
Internal influences on operational objectives
Corporate objectives
– operational and corporate main objectives should not conflict
– objectives should be:
○ Specific
○ Measurable
○ Achievable
○ Realistic
○ Time manageable
Finance
Definition: operational decisions involving investment and cost
– decisions involving investment and costs, and the financial position of
the business
– considering profitability, cash flow, liquidity, budgets and how it
influences choices available
– availability of funds influence what objectives the company prioritises
Human Resources
Definition: management of people within an organisation
– the quality and capacity of workforce (e.g. how much training
received? amount of automation in production?)
– how motivated staff are directly influences labour productivity and
efficiency of the firm as a whole
○ demotivated staff may cause more defects produced and hence
more waste —> lower efficiency
, Nature of the product
– consistent or changing operations? constant changes on marketing
mix?
– nature of the product affects what market the business targets
Resources available
Definition: access to factor inputs
– influences production capacity, quality, productivity, efficiency, etc.
External influences on operational objectives
The market
– the growth and decline of a market affects demand —> businesses
may have to change production level
○ firms could widen product portfolio to cope with declining markets
Competition
Definition: the rivalry between business operating in the same market or
industry
– quicker, more efficient or better quality competitors will place pressure
on operations to deliver at least comparable performance
○ monopolistic and oligopolistic firms likely doesn’t have this
problem :)
Technological changes
– influences level of quality, ways that waste can be reduced, and level
of productivity in production
– in markets where product life cycles are short, innovations are
common and production processes are costly
Economic factors
– short-term / sudden changes impact on capacity utilisation,
productivity
– change in interest rates and inflation impact the cost of financing
capital investment on operations, as well as price levels
Political factors
– political shocks affecting supply of raw materials (e.g. wars, cartels,
change in governments, Brexit)
Legal factors
– laws and regulations influences prices, costs, and supply of goods
(e.g. sugar tax)
Environment
– pressure groups and increase in ethical consumers —> businesses
have to be more aware of their packaging, production processes,
emissions..
Operational management
Definition:
– involves utilising resources from staff, materials, equipment, and
technology to maximise efficiency
Production
Definition: the process of turning raw materials into finished goods
Operational objectives
– Costs
– Quality
– Speed of response
– Flexibility
– Dependability
– Environment
– Added-value (not in spec)
Costs
– fixed and variable costs, hence break-even point
– unit costs: total costs / units of output
Quality
Definition: features of a good or service that satisfy customer needs and wants
– lower defective output to reduce waste
– can measure by customer returns, surveys, questionnaires, etc.
Speed of response
Definition: the time it takes for a business to various stimuli or situations
– higher labour productivity from more motivated staff —> quicker
response to customer inquiries
○ increases customer loyalty, the likeliness of repurchase —>
perhaps securing market share?
○ better word of mouth and reputation
Flexibility
Definition: the ability of an organisation to change its operations
– having more production capacity leads to more flexible operations
○only produce to meet demand —> less stock held (JIT stock
control)
– modifying machinery to produce more variety of products or in more
models
○ however production might be halted to modify the machinery
Dependability
Definition: reliability of operations of the business
– for instance, reliable delivery time prevents dissatisfaction that might
lead to poor reputation
Environmental
, – using ethical materials
– adopting environmentally-friendly production practices
– using reusable / recyclable packaging
– waste management —> zero-waste policy
○ lean production to reduce defects, therefore less waste
Added value
– having USPs for more value-for-money (e.g. personalised products)
○ however may be more costly and may reduce profit margins
Reasons why businesses set operational objectives (not in spec?
– Improving operational efficiency to minimise waste, reduce costs, and
maximise productivity
○ To get the most out of their resources —> efficient utilisation of
resources available
– Provides a benchmark against success and failure
– Motivates workforce
– To ensure high levels of customer satisfaction, loyalty, and retention
– To increase market share
– Mitigating operational risks
Internal influences on operational objectives
Corporate objectives
– operational and corporate main objectives should not conflict
– objectives should be:
○ Specific
○ Measurable
○ Achievable
○ Realistic
○ Time manageable
Finance
Definition: operational decisions involving investment and cost
– decisions involving investment and costs, and the financial position of
the business
– considering profitability, cash flow, liquidity, budgets and how it
influences choices available
– availability of funds influence what objectives the company prioritises
Human Resources
Definition: management of people within an organisation
– the quality and capacity of workforce (e.g. how much training
received? amount of automation in production?)
– how motivated staff are directly influences labour productivity and
efficiency of the firm as a whole
○ demotivated staff may cause more defects produced and hence
more waste —> lower efficiency
, Nature of the product
– consistent or changing operations? constant changes on marketing
mix?
– nature of the product affects what market the business targets
Resources available
Definition: access to factor inputs
– influences production capacity, quality, productivity, efficiency, etc.
External influences on operational objectives
The market
– the growth and decline of a market affects demand —> businesses
may have to change production level
○ firms could widen product portfolio to cope with declining markets
Competition
Definition: the rivalry between business operating in the same market or
industry
– quicker, more efficient or better quality competitors will place pressure
on operations to deliver at least comparable performance
○ monopolistic and oligopolistic firms likely doesn’t have this
problem :)
Technological changes
– influences level of quality, ways that waste can be reduced, and level
of productivity in production
– in markets where product life cycles are short, innovations are
common and production processes are costly
Economic factors
– short-term / sudden changes impact on capacity utilisation,
productivity
– change in interest rates and inflation impact the cost of financing
capital investment on operations, as well as price levels
Political factors
– political shocks affecting supply of raw materials (e.g. wars, cartels,
change in governments, Brexit)
Legal factors
– laws and regulations influences prices, costs, and supply of goods
(e.g. sugar tax)
Environment
– pressure groups and increase in ethical consumers —> businesses
have to be more aware of their packaging, production processes,
emissions..
