Generally speaking, process efficiency is the most important to manufacturing operations while production and marketing are inseparable to service operations. (Yavas & Yasin, 1994)
Manufacturing’s tangible output can be consumed overtime (Kumar, 2008), less labour and more equipment are used in production, since automation has increased capital intensity while as a result reduced customer contact (Collier, 1983). Consumers rarely take part in the manufacturing process, many manufacturing operations have emphasized efficiency while compromising flexibility (Jelinek & Goldhar, 1983), the methods for monitoring and using resources are sophisticated while producing.
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On the other hand, service operations are different from those of manufacturing operations. Consumption and production of services takes place simultaneously or closely (Arja and Seliina 2008), and there are more labour and more customer participation, which means service businesses, usually are more customer-oriented (Chase & Erickson, 1988; Heskett, 1987). while elementary methods are frequently used for monitoring and using resources.
To be specific, there are mainly 6 differences between manufacturing operations and service operations.
1.1, Basic organize style in operation.
Basically, manufacturing companies usually make production and purchase plans based on the demand of the market and their customers. Then human resources and equipment are settled to produce. So the manufacturing companies’ operation management is mainly product-cantered the aim is to control the process of production, keep the quality of outcomes and reduce cost. Yet the service organizations seem organized differently as they have greater amount of interaction with their customers (Voss et al., 1985). There are more uncertainties in the process, so specific plans cannot be made in advance, and the results are diverse if the service personals or the customers change. For that reason, the service operations are human-centred.
1.2, Design of products and operation systems.
In manufacturing factories, the products and production systems can be designed separately because one same product can be produced by different manufacturing systems (i.e. two equipments with different automation degree). However in the service operations, the service provides system is part of the whole “service” itself. Different service provides system have different characteristics which make the service not the same, so those two systems must be designed together within the service operations.
1.3, The use of inventory in adjusts supply and demand.
Since the companies cannot decide the demand of the market while their productivities are controllable, the manufacturing companies can use their inventory to deal with unexpected demand increases. So those companies should pay more attention to plan reasonable inventory strategy. To most of those service companies, their products cannot be inventoried as readily as goods (Thomas, 1978). They cannot produce service in advance and store them for later customers, so what they can do is to make better use their service abilities while the demand happens.
1.4, Customers’ effect.
The production systems in the manufacturing companies are usually enclosed to customers, manufacturing firms generally evaluate their products’ quality from internal perspective rather than external (customer’s) perspective (Buzzell & Gale, 1987).thus they can have few influences on the manufacturing operations. However, customers take part in the service operations; they may have positive and negative effects to the process. So the service companies need to make full use of those good effects and try to minimize the undesirable ones.
1.5, Boundaries of function division and human resource characteristic
In the manufacturing companies, there are clear boundaries within the operation, marketing and human resource management. The time and places are different between producing and selling the goods. Besides most products need to transport through a complex channel before the customers get them. As a result, there must have different people take response of different departments. Moreover, since the manufacturing operations are product-centred, the working process and quality are strictly controlled, which means human’s behaviour will have few influences to the results. Nevertheless, to the service companies, the human factor is critical while operating. Managing people must become a critical part of line managers’ job in service operations. (Boudreauet al., 2003) So the three parts which had been mentioned at the beginning have to be integrated while managing.
1.6, Measure the output
Clearly, the output of the manufacturing operations can be easily measured through count the yield and test the product quality. However, in the service operations, the quantitative indicators are unsuitable for measuring the output service. Gupta (1995) indicated that productivity measurement it is more complex in service industries owing to the inherent characteristics of services. Besides, the qualitative indicators of service are more difficult to define than those of manufacturing operations. Furthermore, as a lot of service organizations have multiplex goal such as long-term benefits and social benefits, evaluating these organizations could be even harder.
In a word, although there are some basic features in common, different type of output of manufacturing and service operations lead to dissimilar emphasis of the two operations. As a result, while dealing with these two kinds of operations, the management methods would not be the same.
2. Top-down perspective of operations strategy and Hangzhou Chengcheng Handicraft Limited’s performance objectives
As discussed in many literatures, there is a vertical relationship between operations strategy and business/ corporate strategies in the company’s hierarchy. Meanwhile, other functional strategies such as the marketing strategy are horizontally connected with operations strategy. When talk about business and corporate strategies, operations strategy may turn up in a bottom-up or a top-down procedure. Likewise, either market requirements or the capabilities of the operations resources can lead to operations strategy. Appendix 1 (Slack and Lewis, 2002) illustrates 4 perspectives on operation strategy. Each aspect differently stresses on the character of operations strategy process.
The top-down perspective is one of those perspectives that operations strategy comes from. It supports the organization’s business strategy and the corporation can use this to make its business strategy come true. From this point of view, to develop an operations strategy is in line with Skinner’s methods of identifying an operation’s “task” (Skinner, 1969). Thus the business strategy will logically determine the operations task. The operations task can be expressed by five operations performance objectives (Slack et al. 2004). As a result, while the business strategy is one of the providing high quality products, the operation’s task has to be one of carefully design the process. If the business strategy is based on offering low prices, the operation’s task, in this context, need to consider achieve lower costs.
In diversified companies, the top-down perspective suggests a link between operations strategy and the corporate strategy through each business unit’s business strategy. While using the top-down hierarchical approach, there would be three main strategy levels: corporate, business and functional (Hollins & Shinkins, 2006). Under this model, corporate goals are passed down to the functional areas via business areas (see Appendix 1). The direction of the whole company is set by the corporate level strategy which acknowledges the key internal and external stakeholders who the company is seeking to satisfy. Such a strategy illustrates what the corporation wants to achieve in details. The business level, in some large multi-business organizations, is at the Strategic Business Unit level. The business level strategy decides the way of business units contributing to the whole company by dealing with its customers, markets and competitors properly. In the business functions, the operations, together with finance or marketing, will help to support the goal of business strategy. Operations strategies may have diverse priorities due to the distinct business aims. Hayes and Wheelwright (1984) developed a four-stage model (see Appendix 2) to help explain the role of the operations function. This model supports the idea that overall operations capability will lead to the success of the company.
Hangzhou Chengcheng Handicraft Limited (HCHL) is a Hangzhou based manufacturing company whose main products are handcrafted slippers. The main customers of the company are from Japan. The company owns a factory in Xiaoshan, Hangzhou, and has a workforce of about 200.
For the corporate strategy decisions, the company’ business in clearly manufacturing slippers and the accessories of slippers, and export them to the foreign customers. Since the payment will be transferred once the delivery has completed, there will not be any cash flow problems for the company if nothing too terrible happens. Besides, as the company has only one business, they just need to focus on how to improve the performance, and they will not worry about deal with relationships between different businesses.
For the business strategy decisions, the company aim at provide the slippers with best quality and lower price, in this way the company will keep the customers and keep growing at business and profit. The growth targets of the company are 10% per year while the profitability targets are 28%. The competencies of the company are good relationship with suppliers and customers, on-time delivery and guaranteed quality, but they just do better than other competitors, improvements are still needed in these aspects.
For the functional strategy decisions of the company, the performance improvement priorities for the firm is to make all the employee anticipate in to the whole operation as much as possible.
The company devotes to provide high quality products to its customers. Since most of its slippers are sold at several main supermarkets in Japan, the company is aim at achieve zero faulty goods. Reduce the time between the order and the availability of the product as much as possible is the speed & dependability objectives of the company, while it is going to minimize the cost of raw material by purchasing globally.
3. Capacity strategy and capacity control of HCHL
There are about 160 contracted workers making slippers in the workshop of the factory. 10 of these workers are quality inspectors whose job is to get rid of the spots of glue on the surface of the slippers, check the quality of the slippers and pair them in a proper way. Apparently, the capacity of the whole factory depends on the other 150 skilled workers’ productivity.
3.1 Classify the orders
The company has divided its products into two parts. One is called “Normal orders” which means those slippers are ordered and manufactured regularly every year. Other slippers are belonging to the “Special orders”. These slippers usually have either or both of the following features: 1, the slippers use new models which are provided by foreign importers; 2, the time for delivery is often not long.
So it can be concluded that these “Normal orders” can be forecasted and prepared in advance, while “Special orders” are usually unpredictable.
The good news about those “Special orders” is that most of them are usually ordered follow the season changing. For example, the importer will provide a new slipper model which has a bamboo-made sole at the summer and the leather style slipper are often ordered during the cold days. Nevertheless, some slippers will be ordered as soon as the models are developed. These including the one that can help female customers shape their bodies, especially their legs, the one have the function of feet massage or those have cartoon characters’ pattern or shaped slippers for children.
3.2 Capacity of the factory.
As an order-driven production company, the yield of the company is often depending on the amount of orders it gets. According to the historical statistics, these skilled workers can make about 300 pairs once they are familiar with the operational processes for a particular sort of slippers. While the qualification rate for the “Normal orders” is about 93%, the result is that the factory has the capacity of about 280 pairs per day. Normally, each order from the international buyers is for 1000 pairs of slippers, since there are usually about 5 “Normal orders” for each month, the capacity of the company will not fully used for the period without any “Special orders”. The workers will get two day weekend for rest, and they can go home as early as they have finished their jobs in the weekdays. While there are several “Special orders”, consider that the study of the new model and the time for workers get used to the new products, it will take several days for the factory to get to the normal output. In the case of a month with two “Special orders”, the factory’s capacity will be fully used, and sometimes the company need to hire temporary workers to help. While the capacity of the factory is improved temporary, the total cost and the fault rate are also higher than it was due to the temporary workers who are not familiar with the working process.
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In order to improve the capacity of the factory, the company has made some changes. Several workers have been trained to learn how to cut the raw material including upper and soles of the slippers. In this way, workers on the pipeline will not have to wait for long. With more workers have different skills each, they can help with the particular work stage of one special model which might cost more time than other models. Push money is provided if workers can finish their jobs on time. Moreover, records and statistics are made in order to monitor the performance of the workers, managers will check the records regularly and discuss with workers who have problems with their works.
4. The impact of product life cycle to HCHL
Clearly, the slippers are in the maturity stage of the product life cycle. For the HCHL itself, the cost is lowered due to the great amount and steady production volumes and the experience curve effects. Competitors are increasing, although the customers may not the same, at the upper side of the supply chain, competition happens when purchasing raw materials, besides, there is a threat of the loss of skilled workers. Generally, the price and profit of the products tend to drop, especially in the “Normal orders”; the importers keep using different reasons to cut the price. However since there are always “Special orders” which have new features, the company can get a chance to recover the loss on the “Normal orders”.
Because the slippers are in the maturity stage of the product life cycle, HCHL is now trying to give new concept for its products. The company is seeking the chance to get into the markets of unconventional slippers such as pocket slippers for travelling use, cleaning slippers and so on. Besides, slippers aim at new target customers (i.e. “BabaPapa family slippers set” for children and their parents) are developed for improve the company’s revenue.
5, Quality management
Slippers’ quality is important for HCHL. There are mainly four aspects of judging the quality of the slippers. Firstly, the outlook and the shape of the slippers need to fit the standards which are agreed by both the HCHL and its customers. Secondly, small blemish such as spots of glue on the surface are not allowed. Then, if there are patterns especially stripes on the upper, two slippers in one pair need to be matched. Finally for the pack process, no sundries such as needle or even scissors are allowed left in the boxes. Usually, it is the 10 quality inspectors who need to take care of those quality problems. The HCHL did apply some rules and standards for their jobs.
Since there are many factories whose business are almost the same as HCHL, the customers have more choices in choosing partners, so they are really strict about the quality of the product. In the summer of 2007 when there are news about bad quality food made in China, the Japanese customers even required a zero faulty rate of product to their Chinese suppliers. In order to get rid of the gap between customer expectations and perceptions, HCHL had made a lot of improvement.
First of all, the company released the its own QEMS with dozens of documents including the standards of finished and semi-finished shoes, QC flow chart, waste disposal management rules and so on. Forms are sent to each employee and need to be filled regularly.
Besides, witness points and break points are set up to assist the quality control. There are people who are responsible for monitor the working process and deal with the important process.
Thirdly, since the producing of handicraft slippers has higher requirement about the physical fitness of the workers, regular medical examination are took before go on duty.
In addition, the “6s” rule has been introduced to the workshop; however it seems that the workers are not quite understand the meaning of doing this.
Finally, when it is necessary, the company will hire professional inspection companies to do the inspection job, although it may cost a lot.
6, Recommendations on operations management to HCHL
There are a lot of ways of improving one company’s operations management. However consider that the HCHL is a kind of companies that is not a large business, those methods such as ERP or invest heavily on the equipment which cost too much are not suitable for the company. Take the real condition of the firm into account; there are several aspects that can be improved.
For the capacity management, except for what the company is doing, other efforts can be made for making it works better. Firstly, the company need to realize that although it has several fixed main customers, it does not mean that the company is the subsidiary of those customers. When there are not many orders from the customers, which does not equal to the capacity of the firm, the company should not leave part of its capacity unused. One way to solve this problem is to keep working in full capacity and set up other flexible channel of selling its products. An example of such channel is online shop. There are many benefits of keeping the full capacity: the average cost of every slipper will be lower since the fix costs are fully allocated; and the employees can make more money.
To re-consider the relationship with the customers has another meaning. To avoid some pressing “Special orders”, the HCHL need to be more active than it is. They need to contact the customers frequently enough to follow the trend of the market and make forecast based on the information and historical data. The more important thing is independently development. To accept the models provided by the customers are always too passive, if the company can develop its own model series, it will improve the company’s power while bargaining with customers, and the period of getting used to the new model will be reduced since then. Besides, creation is always good for the life cycle of the products.
What is more, since the word “co-petition” has been put forward as a new relationship between competitors, the company can make agreements with other factories that do the same work as the company does. While one of the factories has a need for extra workers, other factories will send workers to the factory. The yield and quality of those skilled workers are much better than the former temporary workers; besides, they are much easier to manage.
The main advantage of a well managed capacity system is that “more time can be spent on the business analysis and forecasting,” (Dithmar, 1985) by which the needs of the firm will be supported.
Because the cost of the production is at a low level, the proper way for the HCHL is to implement product differentiation. For the quality management, introduce the total quality management is necessary. According to Prajogo, and Sohal (2006), “TQM is shown to have a significant and positive relationship with a differentiation strategy.” Research also supports the positive relationship between three organizational performance measures (including product quality, process innovation and product innovation) and both differentiation and TQM.
The HCHL can follow the PDCA cycle to implement the TQM. On the plan stage, the company need to negotiate with it customers about the details of the orders, quality aims and quality plan have to be made. Then on the do stage, training might be the most important part, workers need to be taught and communicate about the skill of producing the slippers. On the check stage which is after the exercise of the plan, adjusts will be made to let the process more efficient. Last on the action stage, the result will be examined and it is the start of the next cycle as well.
The benefits of TQM for HCHL will show in different ways. Since all the stuffs are required to enter the progress, the problems and faults can be spotted quicker, and workers will be motivated by extra responsibility. Improvement made by TQM is not only with output, but also with improving processes and capabilities to produce better results in the future.
The essay first gives the critical review of the differences between manufacturing operations and service operations, and the top-down perspective of operations strategy is explained. Then the HCHL’s case is introduced to evaluate the operations function in a product-based organisation. As a small business, the company has its own features, and the Performance objectives are given in the essay. After analysis the capacity, product life cycle and quality management of the company, the essay gives some recommendations to the HCHL to help it improve its operational performance. These recommendations including improve the capacity and make full use of it through several methods and introduce the TQM for improving the product quality.
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