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Operations management is one of the most sensitive parts of management in every organization. Together with financial management, operations management determines the performance of the company in terms of the amount of profits and losses to be made. Generally operations management refers to the area of management in a company that is responsible with designing, redesigning and monitoring business operations related to production of goods and services. Managers in this department normally ensure that corporations are able to use the little resources to maximize their returns and ensure that customers’ requirements are met to their expectations. Generally, operations management is concerned with converting raw materials into finished goods that meets the expectations of the company’s targeted market satisfactions and competitiveness. The U.S department of education defines operations management as an area in management that is involved in directing and monitoring factors of production of a firm to ensure optimal production. According to recent definition by management researchers, operations management is concerned with managing the process of producing and distributing goods and services of a firm or an organization.
According to the available operations management theories, this area include major production processes such inventory management, facilities management, distribution channels, enterprise resource planning, logistics and transportation management, supply chain management, product and service management, purchasing, production monitoring and coordinating function among other production processes. Research shows that operations managers play a major role in ensuring that firms or organizations are in position to meet all their production goals at a reasonable cost in order to ensure all its stakeholders are satisfied.
In order bring into light corporation operations management activities and how these practices affect production in a company this paper take a case study of Coca-Cola Company. The idea is to identify the company’s production processes in order to evaluate whether they are in cohesion with operation management principles mentioned above. This way it will be possible to determine whether these principles are of any impacts to firm’s competitiveness and quality production. By evaluating Coca-Cola operations and its weakness and effectiveness, it will be easier to determine whether modern operations management outweighs traditional management concepts in terms of efficiency.
To begin with, Coca-Cola Company is an American Multinational beverage company whose activities involve manufacturing, retailing and marketing of non-alcoholic beverages. Although the initial product of the company was Coca-Cola, just like the name of the company, currently Coca- Cola produces over 500 brands and serves over 1.6 billion people every day in over 200 countries. Simply Coca-Cola is one of the world biggest companies that have been in market for a long period and still commands a big market. The Cola-Cola Company owns its mother bottler in North America, Coca-Cola Refreshments. However the company operates a franchised distribution system since 1889 but it only produces syrup concentrates which is then sold to various bottler in different parts of the world. Although Coca-Cola Company has its headquarters at Atlanta, Georgia, the company commands a substantially big territory globally with several branches and companies affiliated to it. The operations management of the company runs from the head office in Atlanta down to retail distributers in different countries. This makes its operations so complex since the management has the obligation to ensure that products distributed to customers in different parts of the world reflect the good quality of the products produced in the company’s head bottler plant in North America.
Operations management principles/concepts
Total quality management (TQM)
Total quality management (TQM) is an integrative management thinking currently used around the world to continuously improve the quality of products and make production processes economical through reduction of costs. For this philosophy to be applicable, ensuring quality of goods and services should be the responsibility of everyone involved in the production and distribution of products and not a few employees or a single department (Adam & Ebert 2008). Generally TQM calls for total involvement of management, employees, suppliers, marketers and even customers in order to ensure that expectations of all stakeholders are met. According to scholars, TQM has nine common practices to ensure product quality. These practices include strategic planning, committed leadership, information and feedback, supplier quality management, customer involvement, process management among others.
Considering the fact that Coca-Cola Company is a multinational company, TQM cannot be fully appropriate for managing operations of the company. The company has global bottlers who operate independently and this make is difficult to ensure that all the parties involved in production and distribution of its products are committed to quality improvement. For instance, it is difficult to standardize Coca-Cola products bottled in Africa and those bottled in Europe and USA due to environmental condition and nature of raw materials available in these regions. On the other hand, corruption is a serious evil in developing countries and this has made it difficult for bottlers and distributors to practice committed leadership that assure end users quality products. This has been a major challenge to the company especially in Asian countries where the company has not managed to fully secure market for its products. It is therefore not possible for such a large multinational with subsidiary companies that operate independently to ensure that all the parties involved in production and distribution of goods and services are quality oriented. It is therefore clear TQM concepts cannot fully be implemented in management, production and distribution process of Coca- Cola Company.
Theory of constraints (TOC)
Theory of constraints (TOC) is another new concept in operations management that is widely used in many corporations to manage production processes. According to this concept, “a chain is no stronger than its weakest link” (Li 2007).This means that all organizations or processes in an organization are vulnerable since they have weaker parties or departments that can always lower their production abilities or lead to their collapsing. According to this concept, the weaker sections in management of an organization or a firm have the ability to adversely affect the outcomes of the company in question. The concept advocates that there are very small number of constraint that hinders every manageable system from achieving more of its goals and objectives. In operations management TOC process seeks to identify the constraint and restructure the organization in a manner that most of the goals and objectives can be achieved.
The concept normally achieves is management effectiveness through the use of five focusing steps that are established after identifying the objectives of organization. The focusing steps are identification of the constraint, decision on how to exploit the constraint, ensure that other processes are subordinated to the decision made on how to handle the constraint, elevation of the constraint and lastly ensure that there is no establishment of new constraints after moving the existing one. This way the organization is able to maintain ongoing improvement efforts towards its constraints hence enabling it to achieve most of its goals and objective.
However, it worth noting that this concept works under the assumption that operations efficiency in organizations can be evaluated and regulated by use of three measures namely operational expenses, inventory and throughput. Operations in this concept refer to all the money that a system spends in the process of converting inventories into throughput. If an organization is able to determine its expense then it is possible to measure its effectiveness in production. Throughput in this case refers to the rate at which a system generates money through sales. Lastly, inventory refers to the money that a system invests in the process of purchasing things that it intends to sell. Therefore organizations need to measure all their total expense and expected sales in order to determine the impacts of the constraint to achievement of their preset goals and objectives (National Association of Purchasing Management 2010).
Considering the current performance of Coca-Cola Company, most of its operational activities are running well. This is evident by the fact that Coca- Cola has been doing significantly well for a long period of time. However, it is worth noting that the company has been experience few constraints that have hindered it from achieving all it intended goals and objectives. Coca-Cola Company has been involved in several allegations concerning violation of human rights and other unethical practices within its line of operations. Some of these issues include the allegations that Coca-Cola was involved in monopolistic and other discriminatory practices hence hindering fair competition with other market players.
The company also experienced human rights violations where authorities in India allegedly claimed that its products had chemical components that caused cancer. Still in the Asian continent, the company has poor relations in Middle East countries whereby it is accused for not respecting religious provisions in the region. Additionally, the U.S foreign policy has affected the operations of the company especially in countries that differ with US foreign policies. These are some of the small constraints that hinder Coca-Cola Company from achieving all its objectives in terms of sales maximization and global expansion. Therefore, theory of constraints (TOC) is appropriate for managing operations in Coca-Cola Company since it concentrate its resources on the weaker areas in order to improve its returns. Similarly, this concept will enable the company to ensure that all the decisions in the whole company are in cohesion with those aiming at the removal of the constraints from its system.
Supply-chain operations reference model (SCOR).
The above model is a management tool that is normally used to address, improve and ensure communication of supply management within a company and to the company’s suppliers and customers. Basically the models aims at establishing all the business activities that a company needs to involve itself into in order ensure that all its customers are satisfied. The model was developed by a management consulting firm (PRTM) and it was approved by the Supply-Chain Council (SCC) as tool in supply chain management (Li 2007).
The theory is believed to address, improve and communicate supply chain management practices within and among all other parties interested in the activities of the company. The model is based on three pillars all that are aimed at improving customer’s demands. These pillars include performance measurements, process modeling and best performances.
Considering the case of Coca-Cola Company, Supply chain operations reference model (SCOR) can be very appropriate in managing its operations. As explained in the introduction part, Coca-Cola Company is one the multinational company that commands large markets globally. The fact that Coca-Cola operates in over 200 countries although major raw materials are manufactured in USA is a reason enough conclude that the company has large supply chains before its products reaches to its end users in different part of the world. For instance, syrup concentrates are manufactured in the company’s mother plant in the USA, then to bottlers located in different parts of the world where water is added before bottling , distributors then move the bottled products to the wholesalers who the sell to retailers where the consumer buys from. In some cases the products might fail to meet the demands of the consumer and they are returned back to the retailer, to the wholesaler all the way back to the bottling company. There is also another supply chain where Coca- Cola Company obtains raw materials that are used to manufacture the syrup. This too has a chain of middle men before the raw materials reach the company. There could be times in this supply chain when a backward flow could take place if Coca- Cola is not satisfied with raw materials supplied to them.
Therefore supply chain operations reference model (SCOR) can be very appropriate in managing operations in Coca-Cola Company in order to ensure customer satisfaction. Since the Company is a multinational, it is very crucial for the company to monitor all its supply in all countries where its products are consumed (Adam & Ebert 2008). This will help in elimination of all unnecessary costs that are imposed by middlemen hence making goods expensive to customers (Li 2007).There is likelihood of the company’s products to be distorted while in the hand of distributors before reaching the end user. There, implementation of supply chain operations reference model will enable Coca-Cola Company to monitor their products all through the supply. Consequently, the company will be able to restructure their existing supply chain in order to meet the ever changing demands of their customers.
Economic Order Quantity (EOQ)
The Economic Order Quantity (EOQ) refers to the level of inventory that ensures that total inventory holding costs is minimized. The framework is also known as the Wilson EOQ model or Wilson Formula. Actually this is one of the oldest and traditional models that are used in scheduling production. EOQ therefore refers to an inventory related equation that a company uses to determine the optimum order quantity that it should hold. The equation can be represented as follows: EOQ= √ (2SD/PI) where S = setup cost, D = demand rate, P= production cost and I = interest rate (considered an opportunity cost, so the risk-free rate can be used). It is worth noting that EOQ is applicable only when demand for products is constant all through the year and additional order is delivered in full when inventory reaches to zero.
This concept enables companies to maintain fixed cost for each order placed regardless of the number of unit’s orders. Therefore there is also a cost for every unit in the warehouse that is normally expressed as a percentage of the purchasing cost of that item. By doing so the company is able to reduce unnecessary cost associated with purchase, delivery and storage of the product. To do so, a firm needs to determine the purchase cost for its products, to total annual demand, fixed cost for placing an order and the storage cost for each item on annual basis. However the equation is only applicable under the following assumptions:
1)The rate of demand should be determinable and constant.
2)The purchase price of an item should be quantifiable constant throughout the year.
3)Item ordering costs should determinable and constant.
4)The lead time should be fixed and calculable.
5)The replacement is made instantaneously and the whole ordered batch is delivered once.
By doing so, the EOQ can be determined in order to determine the minimum ordering costs. Therefore it is crucial for a firm to have a well structured organization that enables the management to predict the expected operations of the company for the next financial year using the database available from the previous years.
Looking at the Coca-Cola scenario, this concept can be appropriate in managing its operations. Only a few operation that take place in the company’s headquarters in Atlanta and it mother bottler plant. Most of the company’s operations take place in regional offices situation and different parts of the world. For instance, Coca-Cola Company has a regional office in charge of African market, Europe, Australia, South America and Asian market. The company extends its administration down to the consumer whereby there is an office in charge of its products in every country and every region. Actually there are bottling companies in charge of distributing Coca- Cola products in every region within countries where people consume its products.
Consequently it is possible for each regional distributor to determine consumption rate in their area before making orders. Similarly regional bottlers are able to determine the consumption rate and therefore it is easy to process on products that are required by the market. This flow of events goes back to the head office and it is possible to determine the amount of syrup concentrates to manufacture. This enables the top management to reduce storage costs that could be associated with manufacturing more syrups than the quantity required by its bottlers globally.
These collections of data over a certain period of time will also enable the company to predict increases in demand throughout the years due to market changes as a result of variable factors such as climatic changes or other factors that could result to either increase or decline in consumption of it products. Additionally, Coca-Cola Company has allowed its bottling companies in different parts of the world to run their businesses independently making it easy to determine market changes in every part of the world. Therefore it is possible for the company to determine the purchase cost for its products, the total annual demand, fixed cost for placing an order and the storage cost for each item on annual basis. Hence the principle is appropriate in management of Coca- Cola operations to maximize profits by reducing costs.
P and Q inventory control systems
An inventory control system refers to a process for managing objects in situation where there is a continuous outflow and inflow objects. In business organization inventory control systems normally relies on barcodes and RFID tags that provide identification of inventory objects atomically hence no need for physical recording of inventory. In Q inventory control system, each stock item is reordered at different times. This system is normally complex and does there are no economies of scale. On the other hand, in P inventory system inventory levels for multiple stock items reviewed at same time. Normally this is economical since several items can be reordered together. However, it is worth noting that p- system has higher carry costs but most practical in many organizations.
Considering the operations of Coca- Cola Company, both systems can be used but the P- system is the most appropriate. The company is able to review all its stocks at the same time and therefore it can order all of them at the same time. There is well established administration structure between the head office in Atlanta and other regional offices all over the world. Therefore, the end office is able to communicate with all its regional branches making it possible to collect accurate information on inventory movement. Consequently, the company is able to plan for its stocks making it easy to reorder them at the same time other that ordering every item differently. By doing so, the company is able to enjoy economies of stock that are associated with bulk purchases and costs of transporting the inventory to the company’s premises. When the reordering costs are minimized, the company is able to ensure that the customer gets the end product at a reasonably low price. This increases the satisfaction of customers resulting to more sales and increased returns to the company. Therefore though both P and q inventory systems can be used in the management of operations in Coca- Cola Company, P system is the most appropriate. The other system does not enable the organization to enjoy economies of scale hence increasing the cost of operation.
Impacts of the above concepts/frameworks on the competitive priorities of Coca-Cola Company
The above concepts/ frameworks of operations management have different impacts to the competitive strategies of Coca-Cola Company. Since it is not possible to implement all of them at the same time, the company needs to prioritize those that are more influential to it competitive strategies. Therefore it is important to evaluate which concepts have impacts to the company and which are not. Considering the concept of total quality management (TQM), it was clear that it is not possible to implement it in the context of Coca-Cola Company due to the nature of the company. Being a multinational that is not completely run from the head office, it is not possible to ensure that everyone in the company is committed to customer satisfaction. There is a large possibility that some of regional companies affiliated to Coca-Cola could operate in against the directives from the company’s headquarters. This could be due to different political systems and level of corruption in different countries. Therefore this concept is not fully applicable and therefore cannot be prioritized when developing the company’s competitive strategies.
On the other hand the concept of Theory of constraints (TOC) has immense impacts to the competiveness of Coca-Cola Company. According to this concept, every organization has limiting constraint that hinders it from achieving all of its goals and objectives. On the context of Coca-Cola Company, there are several constraints that prevent it from achieving all of its goals and objectives. For instance, the company has experienced allegation of violation human right whereby in some countries there are claims that its products are harmful to human beings and could lead to dangerous diseases such as cancer. The company has experienced poor relations with Middle East countries due to the U.S foreign policies and claims that it goes against the Islamic religions provisions. This could be a big blow to future Coca- Cola market diversity if it does not respond quickly. Therefore the concept is very crucial in prioritizing competiveness strategies. The concept will enable the company to concentrate its resources to efforts that aim at removing all constraints in its system.
Another model that could very important in establishing the competitiveness of the Coca-Cola Company is the supply chain operations reference model (SCOR). This models advocates the need for maintain communication of supply management to both internal and external stakeholders of the company. It is of paramount importance for every business organization to ensure that there is good communication in all it supply channel in order to ensure that its goods are reaching to the customers at the right time and form. Otherwise goods from the competing companies will flood the market and customer will be left with no alternative other than consuming them since some of our needs cannot be postponed. Similarly, Coca- Cola Company does not ensure good communication in its supply chains; it cannot be removed from market by its competitors.
Other concepts discussed above include Economic Order Quantity (EOQ) and P and Q inventory systems. The EOQ does not play a very direct role in determining the competitiveness of Coca-Cola Company. However it will enable the organization to minimize its operations costs by ensuring that the company does not hold stocks behold its optimal order quantity. P and Q inventory systems also cannot play a big role in competitiveness priorities of Coca- Cola Company. However the concept will enable the company to control how it reorders its stocks hence reducing its operational costs.