Role and Importance of Operations Management

Operations Management is very important for managing large firms and running them successfully. Operation management is mainly related to production of goods and services in an organisation. The main purpose of the operations management is to run the business operations successfully, smoothly and effectively by using the minimum resources and meeting customer expectations. Thus we can say that operations management is the process of converting minimum input like raw materials, labour to produce maximum output like products, goods and services. Operations Management is very crucial factor in order to increase company’s profit. Operations management is not only responsible for producing goods but also take control of distribution of services. Operation management is just not related to organizations it can be seen in our daily activities of life also. The following quotation explains how operations management is found in our daily life

‘Operations management is about the way organizations produce goods and services. Everything you wear, eat, sit on, use, read or knock about on the sports field comes to you courtesy of the operations managers who organized its production. Every book you borrow from the library, every treatment you receive at the hospital, every service you expect in the shops and every lecture you attend at university – all have been produced.’ (Slack et al, 1995)

Some examples of operation management can be like:

• A carpenter who uses a piece of wood , cuts and planes it, and then polishes it to produce a piece of furniture
• When u want to book a holiday a tourist operator finds and provide information to you and helps by giving advices on places to visit and stay.

ROLE AND IMPORTANCE OF OPERATIONS MANGEMENT IN AN ORGANIZATION

Operations management plays a very crucial role in organisations as they produce professional managers which are capable of achieving organisation’s strategic goals in a defined period of time. Operations management is the heart of any organization as it controls the whole operation system of the organization. Operations management handles issues like design, operation, and maintenance and improvement of the systems used to produce company’s vital products and services. Operations management has clear management responsibilities like in marketing and finance. Operations management is very necessary in an organisation to manage the activities. With the help of Operations management an organisation is able to make good use of their resources like human labour and inputs are used as required. Operations management helps an organization to achieve its main goal of making profit and maximising its shareholders through its activities. Cost of production is reduced to ensure that tangible and intangible assets are not over stretched or wasted in an organisation. Organisations make good use of its product and services management through Operations management. Product management includes a wide range of activities starting from the point when a new idea for the product is developed to eventually provide customer support to those who have purchased the product. Every organisation conducts product management no matter it is done intentionally or unintentionally.

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Another important aspect of Operations management is quality management. Every organisation is very much concerned about the products which are manufactured or developed for the customers in the market. Quality management is very important to have efficient operations management, mainly if it is for continuous improvement in order to go with the consumers taste and preferences. Lately benchmarking and quality management, outsourcing and reengineering has taken operations management to an advanced level to produce high quality. Adoption of reengineering and benchmarking by the organisation helps them to be a leader in their category of products in the market. Benchmarking is considered as the best internal auditing process which the company uses to identify its weaknesses and then converting them into strength in order to increase its customers in the market.

One cannot think of Operations management in an organisation without Management control and Coordinating function. Management control and coordination includes different types of activities to make sure that the company’s goals are constantly being met in an effective and efficient way. Organizations mainly make use of organizational coordination and control in order to adopt a systematic approach to figure out if it is actually doing what it wanted to be doing or not. Some of the major approaches to the company’s organizational control and coordination include product evaluation, product distribution, advertising and promotion, sales and service and product development. Organizations use advertisements as a most important instrument to reach the customer and reorient the awareness of customers about its products. In this fast expanding and competitive marketplace, the company make certain that its products and services are significantly in the minds of their customers and clients. This takes place as a result of ongoing advertising and promotion by the organization. Facilities management is also a necessary function and is of great importance in operations management. Effective operations management in the company’s activities highly depends on a great deal of effective management of facilities, such as buildings, computer systems, signage, lighting and plants and machinery. In a situation of high demand which could call for higher or mass production, facilities needs to be managed in producing large quantities of products which must be standardized to meet the market demand at specific period. Well managed facilities like plants and machinery in the company help in production speed, lower per unit cost, ease of manufacture and control and the efficiency in the company’s production process

Task 19.1.b

The strategic objectives of Toyota are:

• Profit
• Quality and Innovation
• Image and reputation
• Social issues
• Satisfying customers
• Market power
• Survival

SWOT ANALYSIS OF TOYOTA

A SWOT analysis is a simple but widely used tool that helps in understanding the strengths , weakness , opportunities and threats involved in a project or business activity. It starts by defining the objective of the project or business activity and identifies the internal and external factors that are important in order to achieve the objective. Internal factors can be divided into strengths and weakness and opportunities and threats can be identified as external .

STRENGTHS

• Toyota is the world’s largest automobile maker by sales.
• Toyota also owns and operates Lexus and Scion brands and has a majority shareholding stake in Daihatsu and Hino motors.
• Toyota also provides financial services through its Toyota Financial Services and also builds robots.
• Toyota Motor Corporation (including Toyota Financial Services) and Toyota Industries form the bulk of the Toyota Group, one of the largest conglomerates in the world.

OPPURTUNITIES

Should increase their shareholdings in Fuji Heavy industries, Isuzu Motors , Yamaha motors, and Mitsubishi Aircraft Corporation

WEAKNESS

On May 8, 2009, Toyota reported a record annual net loss of US$4.2 billion, making it the latest automobile maker to be severely affected by the 2007-2010 financial crisis

• Manufacturers need to make sure that it is their models that consumers want versus competitor’s.
• Sales has been affected by the financial crisis
• Failure of Toyota production system based on the current recalls.
• Company needs to cautiously keep producing cars in order to retain its operational efficiency, especially in the case of the Prius, which the case study states that it needs reprogramming of its Abs system.

THREATS

In January 2010, Toyota announced it was recalling up to 1.8 million cars across Europe, including about 220,000 in the UK, following problems with defective accelerator pedals

Many Toyota models were involved, covering the 2007-2010 model years. Toyota subsequently recalled the Prius model for reprogramming of its ABS system.

The U.S. Sales Chief, James Lentz, was questioned by the United States Congress committees on Oversight and Investigations on February 23, 2010, as a result of recent recalls

On 6 April 2010, The US government sought a record penalty of US$16.375 million from Toyota for its delayed response in notifying the National Highway Traffic Safety Administration regarding the defective accelerator pedals

The company said the recalls could cost the company up to US$2 billion (GB£1.25 billion) in lost output and sales

A company main aim should be to satisfy its customers’ requirements for fast and dependable services at reasonable price, as well as helping its own suppliers to improve services they offer. There are five basic performance objectives and they apply to all types of operation:

• Quality
• Speed
• Dependability
• Flexibility
• Cost (Slack, N. et al, 2001).

These operations performance objectives are analysed here in accordance to Toyota.

Toyota’s record has been successful all around the world as it has been chosen by different market research and analysis for the car of the year for many years. Toyota’s success went on growing because of the high quality which thereby leads to the largest maker of the automobiles based on the sales throughout the world. Toyota have also produced cars which are of better qualities which are suspended and do not release unlikeable smoke. For example more than 40 emission- managing systems and equipments which has enhanced passenger car protections. (Ahmed, A., 2003,).

Another main task is speed which signifies to reduce the time between the instruction and accessibility of the product and services which thereby leads to the speed benefits for the customers.Toyota performance is focused on tasks by using small and simple machines which reduce complications which are flexible and vigorous. By rescheduling the plans and the stream to improve simplicity and the swiftness of manufacturing. In the late 1980s, it is reflected in the statistics that the productivity per employee compared to the US and European plants is as much as two or three times higher than them.

The third presentation aim is dependability which means completing the tasks in time for the customers so that they receive their merchandise and services on the date and time as been promised. The ‘Just -in-Time’ (JIT) production system allows the engineers to deliver products of highest quality through their ‘Kanban’ control system. Toyota needs to improve its efficiency and quality as it is important for managers, technicians and employees and b doing this customers will feel more reliable about the products of the Toyota.

A clear result of responding to a dynamic environment is that organisation change their products and services and changes the way they do business. This performance objective is known as ‘flexibility’.

(Peters, T., 1998) argues that we must learn to love change and develop flexible and responsive organizations to cope with the dynamic business environment.

In the Toyota plant it means the ability to adopt its manufacturing resources so that it can launch new models. The coursework analyses that, Toyota was able to achieve high level of flexibility, producing relatively small batches of different models with little or no loss of productivity or quality. Toyota during the years has provided a range of options that customers are able to choose.

One major operations objective, especially where companies compete with prices is ‘cost’. Low price is a universal attractive objective to customers, which can be achieved by producing goods at lower costs. In order to ‘do things cheaply’, Toyota seek to influence the cost of goods and services, so for the future Toyota has planned to shift their production of multipurpose vehicles and pick-up trucks on different countries around the world (e.g. Argentina, South Africa). Also, internally, cost performance is helped by good performance in the other performance objectives that Toyota has managed to produce high quality vehicles at a reasonable prices.

By using and improving quality, speed, dependability, flexibility and cost operations performance, TMC has seen a global growth and high percentage of customer satisfaction. Because of the success of these operation performance objectives Japanese style (Toyotism) of manufacturing and product developments has come to be studied and emulated around the world . TMC is world leader in supply chain management, and to keep its production at the high quality, maximum speed, on time delivery, flexibility and at the lowest cost TMC works with its suppliers to make sure that they are also the best suppliers in the industry. Shifting its operation in different countries searching for cheap inputs (row material and labour) makes it easier to produce products at a lower cost and good quality. Operating continentally also gives dependability advantage to its customers by making it easy to deliver its production in the market place. Using these operation performance objectives TMC has managed to keep its customers happy and compete successfully with others companies in global market.

Toyota uses ‘lean’ manufacturing system to produce continuous goods and services. Tools like just in time, cellular manufacturing, total productive maintenance, single minute exchange of dies. Lean manufacturing system came into Japan after World War II when they were run out of material, financial and human resources. This system is also known as Toyota Production System which is now recognized all over the world. The basic ideas behind lean manufacturing system are waste elimination, cost reduction, and employee empowerment.

Employee empowerment of Toyota can be seen through the fact that the company employs approximately 320,000 people worldwide. The lean manufacturing system aims to work in every aspect of the value stream by eliminating waste in order to reduce cost, generate capital and bring in more sales and remain in competitive in a growing global market which can be seen through the fact that Toyota is the largest automobile maker by sales.

As defined by the Praxiom Research Group, an audit is “an evidence gathering process”. The main purpose of the Quality Audit is to establish maximum evidence in order to find out whether or not the company is in control of its processes and documents. This kind of evidence is collected through observations, interviews, and requests for documentation. Full training is provided to auditors so they can exactly find out if corporate quality management systems are in compliance with preset standards. Toyota’s recall problems indicate that there has been a general quality defect because of poor decision making and supply chain management. In my view Toyota should have third part audit which is done by an external because I think as company has some malfunction in their production system so it is better if a professional agency do their audit so next time there should be no flaws in the models which are going to be developed and it can be assured that the raw materials and products which are manufactured are safe.

Quality culture generally means inclusion of quality in the overall system of an organization which creates a positive internal environment and provides guarantee customer satisfaction. A good decision making at all levels of management is very necessary for maintaining such quality culture in the organization which can be attained by self realization at the top level or by trainings and workshops or following of benchmark organizations.

Toyota’s quality culture is to produce best products in the very first attempt. Innovation also forms a very important part of quality culture in Toyota and meet challenges with courage and creativity for the continuous improvement. Customer satisfaction is also a very important aspect of quality culture in Toyota. Another important aspect of the quality culture is keeping track of consumer complaints and analysing them for quick fix. In my view Toyota should not compromise with quality of their product and give growth more importance over quality. In a run to make more products they are not giving 100% in the manufacturing of their products. In order to achieve their growth targets and to become the world’s largest automotive manufacturer Toyota lost sight of the key values that gave company the reputation in the first place.

Toyota Motors Corporation all throughout its history – from Kaizen to Toyota Production System to further Kaizen – has strived not only to maintain its current market position, but to improve it as well. The engineers should make sure that they make best products in the very first attempt. The organisation should not make haste in manufacturing the products just in order to increase the growth.

In Toyota Motors Corporation’s 2008 Annual report, the company said that “As the automobile industry faces a turning point in its history, Toyota aims to achieve sustainable growth by building a more flexible and stronger corporate structure to meet the challenges ahead” (p. 1). The real question remains. That is, what specific strategies shall Toyota adopts in order to build a more flexible and stronger corporate structure when time and business environment dictate that it’s ‘Kaizen’, Further ‘Kaizen’, and Toyota Production System are no longer enough for the current and future demands of the marketplace?

Blue Ocean Strategy

In the preface of their book, Blue Ocean Strategy, W. Chan Kim and Renee Mauborgne, succinctly wrote that “there are no permanently excellent companies, just as there are no permanently excellent industries” (2005, p. x). Hence, no matter how successful Toyota Motors Corporation is over its 70 years existence does not guarantee the same success in the next 70 years. The authors, therefore, proposed a new management theory – blue ocean strategy. The Blue Ocean Strategy is, according to Kim and Mauborgne,

“Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing-and often shrinking-demand and benchmarking competitors, blue ocean strategy is about growing demand and breaking away from the competition” (2008, p. x)

The most startling conclusion of the blue ocean strategy is well depicted by the authors’ conclusion on Cirque du Soleil’s circumstances: the circus company “succeeded because it realized that to win in the future, companies must stop competing with each other” (Kim & Mauborgne 2005, p. 4). In Toyota’s history it is clear that its management has not arrived at the same conclusion. This can be ascertained from the Chairman’s, Fujio Cho, message in Toyota Motors Corporation’s 2008 Annual Report: “Toyota aims to achieve sustained, long-term growth by providing high-quality vehicles to people everywhere, and by contributing to the realization of a bountiful and nurturing society” (2008, p. 6). What is not aligned with the blue ocean strategy in this phrase is that every other automobile company – Ford, GM, Honda, etc. – are also saying the same thing or the likes of it. Clearly this strategy is not going to work in the long run at all if Toyota wants to remain as one of the top ten in Fortune Global 500.

In contrast, the blue ocean strategy goes out of just mere providing high-quality vehicles which are what everyone else is providing. As shown in the figure below blue oceans have the most impact on profit though least impact on revenue compared to red oceans.

Figure 1 Blue Oceans vs. Red Oceans

Source: Kim & Mauborgne 2005, p. 7

The changing environments as presented by Toyota in its presentation for its financial results for 2008 and as discussed in the earlier part of this paper, and as outlined by the Blue Ocean Strategy presents several “driving forces behind a rising imperative to create blue oceans” (Kim & Mauborgne 2005, p. 8). These driving forces, unfortunately, will not disappear, hence Toyota must act now and create its own undisputed market in the automobile industry. To fully realize the benefits of the blue ocean strategy a strategy canvas must be created. The canvas is “the central diagnostic and action framework for building a compelling blue ocean strategy” (Blue Ocean Strategy 2008).

Total customer experience is now the “new differentiator” (Mascarenhas, Kesavan & Bernacchi 2006, p. 397) which is exactly the point in the blue ocean strategy. Toyota Motors Corporation, in its current and future business environment, must deliver total customer experience. However, there is a need for care in interpreting each customer’s total experience: “Obviously, by definition, TCE is customer-dependent and hence, is different for each customer. Compared with service outlets such as restaurants, hotels or banks, there is potential for great diversity in customer experience, because the customer may seek a wide variety of different services or products. Each stage of this consumption-journey involves an experience that the provider must try to optimize and the customer must [capitalize]” (Mascarenhas, Kesavan & Bernacchi 2006, p. 415). The key therefore is to attain an accurate understanding.

More than ever, the human resource strategies, objective, systems and processes of the organization must be integrated and synchronized with the overall Toyota Motors Corporation’s strategies, objective, systems and processes and the rest of the organization. Human resource as one of the key success factors in implementing the blue ocean strategy must be able to support and not detract the company from it. Hence, the personnel selection, training and development, and performance appraisal processes should be seamlessly integrated into the whole organizational structure ad systems to ensure that all these systems are working towards the same goal: creating uncontested market space and making the competition irrelevant.

Mondy & Noe defined recruitment as the “process of attracting individuals on a timely basis, in sufficient numbers, and with appropriate qualifications, and encouraging them to apply for jobs with an [organization]” (2005, p. 199). The objective of the selection process for any type of [organization] is selecting the best “individual suited for a particular position and the organization” (Mondy & Noe, 2005, p. 162). Hence, for TMC the goal of the organization’s selection process should be selecting the best individual suited for the vacant position and have the necessary capability to help the company in its quest in making the competition irrelevant.

On the other hand, the performance appraisal system is a “formal system of review and evaluation of individual or team task performance” (Mondy & Noe, 2005, p. 252) “to determine who should be promoted, demoted, transferred, or terminated (Anthony, Kacmar & Perrewe, 2002, p. 354). Several of the factors that affect the effectiveness of an appraisal system are job-related criteria, performance expectations, standardization, trained appraisers, continuous open communication, performance reviews, and due process (Mondy & Noe, 2005, pp. 270-272). Managing employee performance is one of the more difficult and complex activities within an organization. Unlike the other resources of a business, the human resource is not very easy to control: people think and act accordingly.

Anthony, Kacmar & Perrewe wrote that an effective performance appraisal system are “not only tools for evaluating the work of employees but also for developing and motivating employees” (2002, p. 351). These benefits are central to why the performance appraisal system was developed in organizations: employees need to be motivated and developed in order to perform their jobs effectively and efficiently. Furthermore, the appraisal system of a company can also be used to “determine who needs formal training and development opportunities” (Anthony, Kacmar & Perrewe, 2002, p. 354). In the end, all of these will result to a better equipped human resource. Hence, for Toyota Motors Corporation its performance appraisal system must be redesigned to fit the blue ocean strategy of the company. As a vital component in motivating its employees, the human resource performance appraisal system of TMC should not operate in a vacuum, rather it must support the goal of developing organizational competencies to make the competition irrelevant.

What had Toyota Motors Corporation done for its worldwide human resource management is admirable – it developed HRM practices to sustain the Toyota Production System (Winfield 1994, p. 41). However, today it is no longer enough. It is time that Toyota models its human resource management practices to sustain the blue ocean strategy. The researcher believes that TPS is a component of blue ocean strategy; hence it should not be the end goal in designing the company’s human resource management system and its other systems. The four goals as promoted by the company’s existing human resource management practices are “employee commitment, workforce flexibility and adaptability, quality” (Winfield 1994, p. 50) in the blue ocean strategy perspective are only several of the factors needed in creating an uncontestable market as opposed to the current practice (these four goals are the main goals).

As competition become more and more intense, companies such as Toyota Motors Corporation which are leaders in their industries can not afford to become complacent. Rather they must again pioneer developments in their fields. These companies have to integrate all their resources, use these resources efficiently and effectively to attain organizational goals.

As the workforce becomes varied and as competition within industries becomes more intense, the need to effectively and efficiently manage human resources to gain, develop and sustain competitive advantages is becoming more important. In integrating the blue ocean strategy to its overall strategy, Toyota Motors Corporation must not forget that the most important factor in order for such strategy to succeed is its human resource.