Operations strategy turns business objectives into decisions about how goods and services will be produced. This topic links operations with marketing, finance and human resources, then develops the role of technology, flexibility, innovation, enterprise resource planning, lean production and project planning.
You should be able to explain the strategic role of operations, evaluate how IT and AI affect operations, distinguish product and process innovation, assess ERP and lean production, and complete and interpret critical path analysis including EST, LFT, free float, total float and the critical path.
Operations management controls the transformation process that produces the business's goods or services. Operational decisions should not be made in isolation because what operations can do affects the other functions, and decisions in those functions also affect operations.
Marketing may identify an opportunity, but operations must judge whether enough can be produced, at the required quality, speed and cost. If the proposed price is too low to cover the operational cost, the design, sourcing, specification or price may need to change.
The production method determines how many employees and what skills are required. Equally, shortages of labour or specialist skills may restrict capacity or change the production method selected.
Investment in equipment, capacity, technology or new facilities has to be financed and justified by likely returns. Some technically attractive options may be unaffordable or fail to generate a sufficient return.
If functions plan independently, a business may discover too late that a marketing promise cannot be produced, the required people are unavailable, or finance cannot fund the operational plan.
Email, cloud systems and video meetings can speed decisions, support remote working and reduce some travel or premises costs. Productivity effects depend on how well the work is organised.
Faster sharing with suppliers can improve ordering, timing, quantity and quality of inputs. Better links with retailers can also improve inventory control.
Managers can analyse operational costs, demand, capacity and resource use more quickly, improving planning and control.
Radio-frequency identification tags allow items to be identified and tracked through operations, improving visibility of where inventory or components are located.
Computer-aided design uses computers to create, explain and modify designs. It can reduce the need for physical prototypes and improve speed, accuracy and flexibility when designs change.
Computer-aided manufacturing uses software to control manufacturing machinery. It can improve speed, consistency and accuracy, potentially reducing unit costs.
AI allows computer systems to undertake tasks involving learning, pattern recognition, prediction and problem-solving. In operations, it can monitor systems, identify emerging faults, forecast demand, support production scheduling and solve operational problems. This may free employees for other activities and improve the speed and quality of decisions.
Operations targets normally include output quantity and timing, required quality and expected cost. Businesses must also decide how much flexibility to offer customers.
Customers may be offered different pack sizes or quantities rather than one standard amount.
The customer may be able to influence when the product or service is delivered, reducing waiting or lead time.
Customers may be able to choose features, colours, components or other specifications.
The business may need to alter the amount it produces quickly as demand rises or falls.
One standardised product, produced efficiently in long runs. This can support economies of scale and low unit costs.
More choice over quantity, timing and specification. This can meet customer needs more precisely but can add complexity and cost.
Flexibility can increase customer value, but the firm may be limited by technology, employee skills, capacity and the extra cost of switching between products. Shorter production runs can make economies of scale harder to achieve. If internal capacity is insufficient, the business may consider subcontracting.
Mass customisation combines large-scale production with customer choice over selected features. A customer may choose from a controlled set of options, producing an item that feels personalised while the business still retains some efficiencies of standardisation.
Developing a new or improved good or service — changing what the business offers.
Developing a new or improved way of producing or delivering — changing how the business operates.
Process innovation may involve changing an existing process, such as enabling online ordering, or adopting a different production method, such as automation. CAD, CAM and other technologies can allow operations to become faster, more accurate and less expensive.
Enterprise resource planning (ERP) uses software to integrate the collection, storage and use of information across a business. Instead of separate databases for different functions, data is held centrally in a common format so authorised users can access consistent information.
ERP can include accounts, supplies, projects and compliance information. A component can be uniquely identified with data on quantity ordered, specification, delivery dates, cost and use. The objective is to give decision-makers reliable and relevant information when they need it.
Better visibility of demand and current stock helps managers decide what to reorder and when, reducing excessive inventory and stockouts.
Less over-ordering, fewer shortages and better resource scheduling can improve efficiency and reduce operating costs.
Lower costs may support lower prices. Better demand information may also support more responsive pricing decisions.
Real-time information on resources can help managers judge whether orders can be accepted and how production can be reorganised.
Better information allows managers to identify what is feasible and respond more quickly to changing demand or constraints.
Real-time data can support staffing, inventory, production and cash-flow decisions across functions.
Employees can be deployed more accurately to tasks, but this may require multi-skilling, training and flexible employment arrangements.
Greater operational visibility can improve estimates of availability and delivery times.
ERP can support JIT, integration and fast decisions, but software, implementation and training cost money. The data must be accurate and employees must use the system effectively. A poorly implemented system can create disruption instead of efficiency.
Lean production aims to remove waste from operations so that the business becomes more efficient. The focus is not simply on making a cheap product; it is on producing the required quality using as few wasted resources as possible.
The lean ideal is to move towards zero delays, zero inventories, zero mistakes, zero waiting and zero accidents. Achieving this requires reliable processes, trained people and close relationships with suppliers.
Kaizen is the idea of continuous improvement through many small, regular changes rather than relying only on occasional dramatic changes. Improvements should be monitored and evaluated so the business knows whether performance actually improved.
A quality circle is a group of employees working in a particular part of operations who meet to identify ways to improve quality. Their direct experience can generate practical ideas. Quality circles work best when employees feel valued, believe managers will listen and operate in a culture that encourages participation.
Simultaneous engineering means undertaking as many product-development activities as possible at the same time rather than completing each stage strictly in sequence. Designers, engineers and other specialists collaborate earlier, reducing development time and helping the business respond quickly to shorter product life cycles.
Cell production divides production into stages undertaken by teams. Each cell is responsible for a complete unit of work rather than each worker performing one narrow task repeatedly.
These features reflect the job-design ideas of skill variety, task identity, task significance, autonomy and feedback. A well-designed cell may therefore support both efficiency and employee motivation.
JIT production means producing in response to orders and receiving components and supplies as they are needed, rather than building large inventories. The aim is to keep inventory as low as possible.
With little or no buffer inventory, a late supplier, employee dispute, poor-quality component or other disruption can stop production quickly. Lean systems therefore increase dependence on reliable suppliers and employees.
Lean thinking also applies to materials after and during production. Waste management aims to reduce material use, reuse resources where possible and recycle materials, while minimising environmental damage. Regulation and customer expectations increasingly influence how firms design products, packaging and end-of-life arrangements.
| Issue | Likely lean impact |
|---|---|
| Inventory | Lower levels and lower holding costs. |
| Quality | Greater emphasis on getting it right first time because there is less buffer inventory. |
| Efficiency | Less wasted time, material and obsolete stock. |
| Suppliers | Greater reliance on reliable, high-quality and punctual suppliers. |
| Capacity | Output follows demand more closely; downtime may be used for maintenance. |
| Employees | Greater flexibility, responsibility, multi-skilling and involvement may be needed. |
Introducing lean production may require significant training, technology, new supplier relationships and changes in culture. Employees must be willing to take on additional responsibilities, and managers may need time to build trust.
Operations planning sets out how the business will meet operational targets. A plan should identify what must be done, how it will be done, how progress will be monitored, what corrective action will be taken, what resources are required and who is responsible.
Businesses may create temporary project teams for a new product, market opportunity or process. Other firms may keep permanent project teams that move from one project to another. Project management aims to complete the required task on time, to the required standard and within the agreed resource or budget constraint.
People need to know what must be done, by whom and by when.
The manager must select an appropriate team and maintain cooperation.
Activities, sequence, timing and resources must be organised realistically.
Progress must be reviewed and corrective action taken if the project moves off target.
Network analysis, also called critical path analysis (CPA), organises the activities in a project to identify the most efficient sequence and the shortest possible completion time. Managers first identify all activities, estimate their durations and determine which activities depend on others.
An activity cannot start until one or more previous activities have finished.
Activities can take place at the same time, reducing total project duration.
A circle in an activity-on-arrow network that marks the start/end event around activities.
A line/arrow representing a task; the activity name and expected duration are shown with it.
A network should begin and end with a single node, activities should follow their dependency order, and activity lines should not cross. Before adding an end node to an activity, check whether another activity must also be completed before the following stage can start.
Illustrative route: A → B → C → E. In a full network, other parallel activities may join or leave these nodes.
The earliest start time is the earliest point at which the next activity can begin. Work from left to right. Add the duration of the activity to the EST at its start node. If several routes feed into a node, the project must wait for all required preceding activities, so use the largest arrival time.
The latest finish time shows the latest an activity can be completed without delaying the project. Work from right to left, subtracting durations. Where there is more than one route forward from a node, the most restrictive route determines the time available.
Float is spare time available to a non-critical activity.
Suppose activity D starts at an EST of 10, lasts 2 days and must be finished by an LFT of 15.
D could overrun by up to 3 days without delaying final project completion, assuming the rest of the network is unchanged.
If another activity starts at day 4, lasts 6 days and must finish by day 10, its total float is 10 − 6 − 4 = 0. It is therefore critical.
The critical path is the sequence of activities with zero total float. A delay to any critical activity delays the whole project unless management takes corrective action elsewhere. The finish time of the critical path gives the minimum project duration.
| Activity | EST | Duration | LFT | Total float | Status |
|---|---|---|---|---|---|
| A | 0 | 4 | 4 | 0 | Critical |
| B | 4 | 6 | 10 | 0 | Critical |
| D | 10 | 2 | 15 | 3 | Non-critical |
A dummy activity has no duration and no cost. It is inserted only to show the correct logical dependency between real activities when a network would otherwise imply the wrong relationship.
Managers must identify every activity, its order and its duration, reducing the chance that tasks are forgotten.
Managers can estimate the earliest completion date and judge whether a deadline is realistic. Faster project completion can also support time-based management and competitive advantage.
Critical activities need close monitoring because they have no spare time.
Resources may be shifted from activities with float to critical activities when necessary.
EST information can help schedule materials to arrive when needed rather than too early.
If a delay occurs, the network can be recalculated to show the effect on the project and possible corrective action.
A more complex approach, PERT, can use optimistic, pessimistic and most-likely duration estimates to reflect uncertainty.
The quickest project is not automatically the best project. Managers must define success before work begins. If people are rewarded only for speed, quality may suffer. Extra labour, money or equipment may shorten a project but increase cost. Managers may also deliberately move non-critical activities within their float so staffing and equipment are used more evenly over time.
Questions open in a pop-up. Each answer is marked immediately, with an explanation so you know why it is correct or incorrect.