Operation management is the management of the processes that produce or deliver goods or services. It directly affects the size, shape, quantity, quality, price, profitability and speed of delivery of any product or service. Processes are arrangement of resources that produce some mixture of products and services which transform inputs into outputs within any operation. Any organisation is made up of processes which are interconnected with each other. Operations management can use the idea of the input-transformation-output model to analyse business at three levels. These include level of the supply chain, the level of the operation and the level of the process. This report considers different aspects of value chain management which is used to create a value for the customer and it is used in all three operations management levels. It is the set of processes by which businesses add value to underdone inputs through transformation process and sell final product or service as an output which is valued for the customer. This business report introduces main subjects of value chain as it is a broad, multi-disciplinary field of study and than it mainly focuses on a specific topic, OPERATIONS STRATEGY of value chain management with description how is OPERATIONS STRATEGY influenced by a customer and a business process perspective with some real-world examples.
Value Chain Management
Value chain is a tool to break down a business into parts with strategically relevant activities (Walters and Lancaster, 2000). Value chain activities can be categorised into two types. Those are primary activities and support activities. Primary activities include processes in inbound and outbound logistics, operations, marketing, sales and service. These directly create the value the customer perceives. Support activities are those that assist the primary process in adding value and include infrastructure, human resource management, technology development and procurement. They are integrating functions that cut across the traditional functions of the company. Competitive advantage is derived from the way in which firms organise and perform these activities within the value chain. As Christopher (2005) mentioned, to gain competitive advantage over rivals, a company must deliver value to its customers by performing these activities more efficiently than its competitors. That could be also by performing in a unique way which can create greater differentiation. It is important for the businesses to understand what is valued in their market and though to decide which attributes to highlight, prioritise that attributes and design the operations to support these priorities. Value is though at forefront stage in businesses' decision makers to make sure that customer worth their products.
The main issue is that the configuration of the value chain should be aligned with the particular way the organisation provides value to the customer. Value chain attributes of consumer customers are cost, quality, convenience, timelines, personalisation, ethical issues, style, fashion, flexibility, and technology. The role of value chain is to link supply chain and business strategy. These links include finance, accounting, information technology and human resources.
Main subjects of value chain management are operations strategy, capacity planning, quality management, business process improvement, inventory management, product design, process technology and many others.
Strategy is the long term direction and scope of an organisation and it should match its resources to its changing environment, and, especially its markets, customers so as to meet stakeholder expectations.
Strategy decisions take place in every organisation in three main areas. The organisation's internal resources, the external environment in which it operates and the organisation's ability to add value to what it produces. Strategy appears to be complex in character due to aspects such as the high level of uncertainty and insecurity in future consequences arriving from decisions. That is why there is need for integration of long-standing and regular activities across the business. Greasley (2006) considered that strategy can exist at three main levels within the organisation. Those are functional level, business level and corporate level.
At the highest, corporate level, the main focus of whole organisation is what business they are in. The strategy at this level provide long term directions for organisation as a whole which are often expressed as a statement of its mission. Its role is to cope with issues such as where to invest and what are the priorities in terms of sales and revenue expansion. It makes fundamental decisions about the future directions of an organisation. These directions include organisation's purpose, resources and how it interacts with the market in which it operates. All parts of the organisation have role in this strategy. That means people, finances, production methods and environment.
The main questions in which corporate strategy should look for are:
- What business is the organisation in?
- What business should be the organisation in?
- What are the basic directions for the future at the organisation?
- What is organisation's culture and leadership style?
- What is organisation's attitude to strategic change?
From these questions we can conclude that corporate strategy can be explained as finding marketplace opportunities with further experimentations and developments over the time to expand advantages against competitors. As Lynch (2006) stated, corporate strategy can be seen as the linking process between the management of the operation's internal resources and its external relationships with its consumers, providers, opponents and the economic social background in which it operates. Resources of an organisation include its human resource skills, the investment and the funds in every part of the establishment. In order to optimise the usage of these resources, organisations have to develop corporate strategies. It is therefore necessary to study the sustainable competitive advantage which will allow the organisation to stay alive and prosper against rivalry. Strategy is also needed to direct activities of its people, finance, factories etc. Corporate strategy may be highly speculative and it can involve major assumptions as it attempts to predict the future of the organisation. Corporate strategy provides value for organisation's stakeholders. That means for the people involved in the organisation, even though sometimes it is senior managers who develop the view of the organisation objectives.
Business level may be for the organisation or at the Strategic Business Unit level in larger, diversified companies. For each business unit, strategic direction concerns identifying the markets in which it participate, agreeing where it aims to grow. The nature of competition and the relevant competitive criteria in its current and future markets, in terms of maintaining and growing share. Competitive advantage may be achieved by strategies such as low cost, product innovation, or customisation of a service to a niche market. Again we can see how important it is to make the product or service which customer will value.
The key types of business strategy according to Potret's KEY STRATEGIES are:
- Cost leadership
From these types we can conclude that businesses have different strategies and they are trying to be unique in some way and though create unique value to the customer. Some may be trying to keep the cost lower than competitors, which may bring lower prices for consumers against market rivals. Some may be providing services or products that are different and exclusive to be more attractive and that better match customer value, while some businesses are focusing to target a small segment on a market. What businesses should have always bear in their mind is that customers recognize value that is greater that the one offered by competitors. BUSINESS PROCESSES SEM1 LCT3 for examples!!!
Functional level strategy
Functional level strategy stands where the functions of the business make a long range plans and goals which support the competitive advantage being pursued by the business strategy. That means each business unit will comprise a number of functions that make up the total activities within a business unit. These include functions such as marketing, operations, finance, IT and others. Therefore, it sets priorities so that day-to-day decisions support business strategy. Functional strategies have to support one another, as well as higher level strategies.
We can conclude that main objectives of functional level strategy are:
- To set priorities
- To support higher level strategies
In other words, if organisation or company has more units they should be capable to offer same value for its customers.
Achieving strategy goals and performance objectives
Those are five performance objectives which can be applied to all types of operation and relates specifically to its basic task of satisfying customer requirements (Slack and al, 2007). Each one of these objectives is significant factor to any organisation. Quality is defined as consistent conformance to customer expectation. Dependability is delivering products or services when they were promised to the customer. Flexibility is the degree to which an operation's process can change what it does or how it is doing.
- Walters D. and Lancaster G. (2000) 'Implementing value strategy through the value chain.' Management decision, 38(3) pp.160-178.
- Lynch R. (2006) Corporate Strategy. 4th edn. Harlow: Pearson Education Limited.
- Christopher M. (2005) Logistics and supply chain management, 3rd edn. Harlow: Pearson Education Limited.