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performance objectives – quality, speed, dependability, flexibility, customisation, cost
Influences which can be addressed- cost-based competition, quality expectations
Description of Strategy
Description of Strategy
The performance objectives help define what inputs are required and influence all aspects of the transformation processes.
Performance objectives are goals that relate to particular aspects of the transformation processes.
These objectives are targets the business will set to enable it to become more efficient, productive and profitable.
If a business is able to achieve multiple performance objectives it would tend to be the industry leader with a dominant market share.
Consider two bicycle manufacturers. One might aim to be competitive by offering high quality bikes with a reputation for dependability.
The other might choose to focus on providing low cost bikes and giving customers lots of options for customisation, such as colour, number of gears and wheel size.
Both are valid strategies that could work very well. But it’s unlikely that operations could focus on all of these at once. As costs fall for example, quality is likely to suffer.
Setting goals might seem like an obvious thing to do, but it is an important part of operations strategies as it highlights the key areas the business needs to focus its efforts on.
The operations manager establishes performance measures and tracks performance (monitors) and controls (compares to goal and takes corrective action) in order to achieve the performance level. Lets use LEGO as an example, the attributes for performance objectives to establish are:
Quality: the dimensions, colour and clutch strength of the blocks. How long will they last? How will they perform in different temperatures?
Speed: how many bricks will be produced per hour, how many parts will be painted and packaged per hour
Dependability: how consistent and reliable will the production of bricks be- this goes to issues of maintenence and reliability of the facilities
Flexibility- how long does it take to switch moulds in the injection moulding machine so that a different brick can be made? How much flex is in the factory to cope with high demand?
Customisation: How long does it take to modify production runs to enable one-off products and designs as short order runs for commemorative or promotional sets (more evident in companies like Porsche, Ferrari etc)
Cost- LEGO CEO sets a performance objective of 2-3% reduction in costs per year.
Quality
Quality
Quality has many different meanings and is much harder to measure than physical output or costs.
Quality performance objectives relate to the physical good or service, and also to the process used to produce them.
For most businesses the fundamental quality objective is to provide customers with a product or service they like and would re-purchase.
Good quality prevents costs caused by product recalls and repairs made under warranty.
The lower the wastage and defects the better the quality.
Impact on Operations
Impact on Operations
Where current transformed resources (materials) are of insufficient quality, new supplier relationships will be required.
If quality level is too high, may be necessary to source and incorporate lower quality materials which may provide cost advantages
Quality objectives will require monitoring and controlling and may require changes to transforming resources
Speed
Speed
Speed refers to the time it takes for the production and the operations process to respond to changes in the market.
The business must aim to reduce the time between a customer requesting a product or service, and receiving it.
Speed of response is important in terms of customer satisfaction and repeat business.
Impact on Operations
Impact on Operations
Particularly relevant for transforming resources. Monitoring and controlling processes will need to be established and changes made to facilities and human resources in order to meet the speed objectives set
Dependability
Dependability
This is the reliability of the product or service.
How long are the products useful before they fail?
The greater the number of warranty claims the less reliable the business’s product or service is.
Virgin Australia: Flights must not only get people to their destination but be on time, comfortable, and reasonably meet all expectations of customers.
Impact on Operations
Impact on Operations
Where dependability is not sufficient, this may involve changes to either or both of transformed resources and transforming resources in order to achieve the level of performance set as the objective for dependability of production
Flexibility
Flexibility
Flexibility refers to how quickly operations processes can adjust to changes in the market.
This is also know as adaptability.
Time and flexibility are related: the quicker the processing time the greater the likelihood that processes can be adjusted quickly.
Impact on Operations
Impact on Operations
Increasing the capacity of production
Using plant and machinery better
Buy new technologies
Changing product design thus creating a broader variety
Customisation
Customisation
Customisation refers to creation of individualised products to meet the specific needs of the customers.
The objective of customisation essentially aims at giving customers more options by varying products in minor ways.
An example of this would be a computer company that offers laptops in a range of colours, screen sizes and with a variety of capabilities.
Managers would need to work with marketing to determine which customisations are most sought after and would appeal to new markets.
The cost of customisation is higher than the costs of mass producing standardised products.
Therefore only businesses with a product that can be easily adapted tend to customise. These often include technology companies and products that used many different parts.
Impact on Operations
Impact on Operations
An expanded range of transformed resources will need to be purchased and inventory levels managed, in addition to changes in transforming resources to enable customisation of product in an efficient way throughout the transformation process
Cost
Cost
One objective of operations management is to develop strategies to reduce the costs of production.
This involves setting cost targets and planning and implementing processes to achieve them.
Efficiency is a key objective of operations and cost objectives are concerned with keeping costs as low as possible.
Often the costs will determine the price.
The acquisition of new technology can help the business to lower costs.
Costs must be carefully managed and cost data must be collected and analysed.
Costs may be reduced by finding different suppliers and using cheaper, lower-quality materials and labour.
Managers must consider how this would affect quality.
Impact on Operations
Impact on Operations
Reduction in costs can be achieved through supply chain management (volume purchasing, sourcing products from overseas) or reducing average costs production through changes to facilities and human resources, or transport, warehousing and logistics
Metrics to determine if the strategy is effective
Metrics to determine if the strategy is effective
number of units failing quality tests reduced
reduction in wastage
number of quality unit produced in a given time increases
number of defects in customer use in a given time decreases
number of warranty claims decreases
reduced downtime for production processes when changing product type
reduction in average cost of production (either through reduction in transformed resources or other costs incurred in the transformation processes including distribution costs)
HSC Question (2013)
HSC Question (2013)
Casey owns and operates an independent discount fuel and convenience store
•Explain ONE performance objective that is relevant to the operations function of the business (3 marks)
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