Operations Management: Theories and Processes

Operations Management and Strategy

Operations management is the activity concerned with controlling the process of production and business operations to ensure that the business operates efficiently and the least amount of resources is used. The main processes of operations management address the choice of raw materials and manufacturing technology, utilization of the workforce, maintenance of quality, and customer-handling policies. In short terms, operations management uses resources to create outputs which fulfill defined market requirement appropriately (Slack, Brandon-Jones & Johnston 2016). Therefore, the successful application of management strategies is the key to achieving a competitive advantage for both manufacturing and service organizations.

Theory of Operations Management

Operations management theory is the study of strategies that are used in structuring and administering business practices for an organization to perform its functions as efficiently as possible. Maximization of profit is usually obtained through the rational and well-designed conversion of materials and labor into services provided for customers. Modern operations management considers four theories, which are business process redesign (BPR), reconfigurable manufacturing systems, six sigma, and lean manufacturing.

BPR is a complete reorganization of a company’s main business processes to achieve a significant increase in key performance indicators, such as investment potential and quality of services. This theory is concentrated on analyzing and designing workflow and processes within an organization. BPR is often used by companies that need to restructure organization radically by reconsidering its business processes.

Reconfigurable manufacturing system (RMS) is a manufacturing system paradigm that emphasizes the need to evolve and change rapidly to adjust productivity and functionality cost-effectively. Incorporation of RMS allows organizations to respond to sudden changes in the market or intrinsic system changes quickly (How can your business thrive by using operations management theory? 2016).

Six sigma is a project-driven approach for improving the quality of operations management, in particular, the organization’s outputs by identifying and removing errors, saving time, and reducing costs. According to lean theory, all the resources which do not add value to an organization should be reduced. Elimination of waste within the manufacturing process is preceded by the identification of customer values and all the processes for which the customer will pay. Apart from waste minimization, other goals of lean include quality improvement and total costs and time reduction.

IKEA’s Operations Management

Operations management is an important part of IKEA’s success as it allows the organization to manage the network of its operations to effectively design, create, and deliver the products to consumers. If IKEA had not had effective operations management, it would not have survived in the long term. Important responsibilities of operations managers of IKEA include:

  • Deciding how to use the least amount of resources to meet the requirements of customers to the highest standards economically viable.
  • Managing the processes to transform input resources, such as materials, information, and customers into output products and services.
  • Designing stylish products.
  • Deciding on where to locate stores and their appropriate size.
  • Inventory management.
  • Determining the physical form, composition, and dimensions of the operation’s services, products, and processes.
  • Planning and controlling the delivery process.
  • Permanent improvement of operations.
  • Utilization of the latest technological advances into operations.
  • Enhancing the quality of customer service.

IKEA’s Operations Strategy

IKEA’s mission is to offer high-quality home furnishing items that are practical and functional at an affordable price. The operation of IKEA has to deal with high volumes of products as they are repeatable, the variety of products is medium, as they are standardized. Since the business is not seasonal and sales volumes are rather steady, the variation with which the operation has to deal with is low. Therefore, the operation strategy of IKEA is limited to low cost.

This is what distinguishes IKEA from other furnishing retailers which are focused on high prices and low variation of products. There are two target groups of the organization, one of which is young adults with no children and the other one is business customers with medium offices. It should be noted that the operation strategies of IKEA are oriented towards its objectives, which are quality, speed, low cost, and flexibility. IKEA is unique in terms of the value of its outputs, a variety of its outputs, and variation in demand for its output.

Importance of Operations Management to Globally Competitive Firms

Operations management is crucial for all types of organizations to obtain outputs which will correspond to the defined requirements of the market. It should be mentioned that the importance of operations management has significantly increased in recent years (Slack, Brandon-Jones & Johnston 2016). This is especially the case for global companies which due to a great foreign competition, shorter product and service life cycles are put under increasing pressure to improve productivity by managing their operations function. With the globalization of markets, it is obvious that organizations need to use their operations function to improve the competitive advantage of their position in the market place.

Supply Chain Management, Capacity, and Quality

IKEA is considered to be the most successful furniture retailer ever with 422 stores in more than 50 markets (IKEA 2017). In IKEA’s stores, customers spend much more time than in other furnishing stores, which may be explained by the unique space organization (Slack, Brandon-Jones & Johnston 2016). The company impresses not only its customers with affordable products of high quality but also its competitors with unique supply chain and management techniques. IKEA is a complex global network, and a key part of its success is credited to its communications and relationship management with suppliers and manufacturers.

The supply chain significantly improves the process of product and service from production until its delivery to the final consumer. The organization has “1,300 direct suppliers, about 10,000 sub-suppliers, and 26 distribution centers” (Slack, Brandon-Jones & Johnston 2016, p. 5). IKEA relies on its suppliers to achieve both raw materials of high quality, supply efficiency, and new product development.

To ensure that the organization attains the best prices and materials, it fosters competition among suppliers and makes long-standing commitments to them to buy materials at lower prices. Even though IKEA has a “lower prices” vision, it does not mean “at any price”, as the company has a code of conduct called the IKEA Way of Purchasing Home Furnishing Products (IWAY). In compliance with this code, suppliers of IKEA should follow specific guidelines to reduce the impact of their activities on the environment. Before doing business with its suppliers, IKEA ensures that they fulfill IWAY requirements. Apart from suppliers, IKEA buys products from Swedwood, which is the company producing wood-based furniture.

Reference List

How can your business thrive by using operations management theory? 2016.Web.

IKEA 2017, This is IKEA. Web.

Slack, N, Brandon-Jones, A & Johnston, R 2016, Operations management, 8th edn, Pearson, Upper Saddle River.