MODULE PROJECT – WEEK 04
OPERATIONS MANAGEMENT
RESEARCH PAPER SUBMISSION
Fig 1: Cover picture (by madan, 2012).
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STUDENT NAME
WORD COUNT: 2752
06 FEBRUARY 2013
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1.
Executive Summary (to be submitted later) ..................................... 4
2.
Chapter 1: Introduction and Background ......................................... 5
2.1
History of the firm: ................................................................... 5
2.2
Products and Services: .............................................................. 5
3.3
Organization Structure: ............................................................. 6
3.4
3.5
Overview of Financial health: ..................................................... 7
Operations systems currently in use: .......................................... 7
4.
Chapter 2: Sources of Information and Methodology ........................ 8
4.1
Sources of information: ............................................................. 8
4.2
Authorization to use information: ............................................... 8
4.3
Methodology: ........................................................................... 8
5.0
5.1
Chapter 3: Operations Strategy and Competitiveness ....................... 9
Operations Strategy: ................................................................. 9
5.2
Perspectives to developing operations strategy: ........................ 10
5.3
5.4
Process for developing operations strategy ............................... 11
Implementation of Operations Strategy .................................... 11
5.5
Critical success factors and core competencies ......................... 12
5.6
5.7
Integration of operations strategy with overall firm strategy ...... 13
Firm’s alignment to needs of customers ................................... 13
5.8
Measuring productivity ............................................................ 14
6.0
6.1
Chapter 4: Design of Supply chain and Operations Model ............... 16
Design of Operation process: ................................................... 16
6.2
Design of products and/or services: ......................................... 17
6.3
Steps used by organization to design the supply chain: ............. 17
6.4
Location and Capacity design: ................................................. 18
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References: ......................................................................................... 19
Index of Tables:
Table 1: Income Statement for 2012 ....................................................... 7
Table 2:Operation Process design tools ................................................. 16
Index of Figures:
Figure 1: Cover picture (by madan, 2012). .............................................. 1
Figure 2: Organization Diagram .............................................................. 6
Figure 3: Operation System Diagram ....................................................... 7
Index of Annexures
No table of figures entries found.
Index of Graphs
No table of figures entries found.
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1.
Executive Summary
XXXXXX
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2.
Chapter 1: Introduction and Background
This chapter presents the introduction and background of the firm whose operations management will be analyzed and evaluated. The firm we analyze the operation is one segment of M/s. Mustafa Sultan Science &
Industry, carrying out calibration services.
2.1
History of the firm:
The Calibration Segment was started as a separate P&L centre in 1998. It started with three persons and minimum capital of US$ 40,000.00. Initially started with calibration and certification of electrical instruments and gradually included other calibration services for temperature, process and mechanical instruments. The first year revenue was US$ 34,000.00.
Timeline of events:
 Separate segment in 1998.
 First US$ 100,000 reached in year 2000.
 Added field calibration in year 2002.
 Revenue touched US$ 200,000 in 2003.
 Oil company registration and approvals obtained in 2004.
 Dedicated sales person engaged in 2006.
 Dedicated lab manager engaged in 2007.
 Moved to spacious location in 2007.
 ISO 17025:2005 obtained in 2008.
 Revenue touched US$ 300,000 in 2009.
 Revenue doubles to US$ 600,000 in 2012.
2.2
Products and Services:
The segment is into offering calibration and certification services to various range of test and measuring equipment in the fields of electrical, temperature, pressure and mechanical measurements. The services are offered both in-house laboratory and also at the customer locations. For carrying out the certifications in-house the instruments are brought into the
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calibration laboratory by dedicated drivers or delivered by the customer.
For offering on-site services, portable master standards are carried to site and used for certifying the customer instruments.
3.3
Organization Structure:
The diagram below provides the present organization structure.
Business Unit
Manager
2 x Sales
Engineer -
Calibration
Lab Manager
Quality Control 2 x data Entry
1 x helper 6 x Technicians 2 x Drivers
Figure 2: Organization Diagram
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3.4 Overview of Financial health:
To provide the overall financial health of the segment, the 2012 income statement is provided below:
Sl.
No
Expense details
1 Sales
2 Less: Cost of Goods sold
All numbers are in US$
2012
600,000
120,000
3
4
5 Rental
Gross Profit
Operating Expenses
6 Staff Expenses
7 Other Office & related expense
8 Depreciation
480,000
29,400
225,000
15,000
8,750
Total 278,150
Net Profit (Loss) 201,850
Net Profit % to Sales
Table 1: Income Statement for 2012
33.6%
3.5 Operations systems currently in use:
The operations system analyzed from the point of input-transform-output concept, input to the system are the customer instruments. These inputs are calibrated and certificate prepared using the various resources. The output is the certified instrument with the calibration certificate.
Input Transform Ouput
Customer Instruments
Check, Calibrate and
Certify
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Figure 3: Operation System Diagram
Calibrated Instruments and Calibration
Certificates
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4. Chapter 2: Sources of Information and Methodology
This chapter provides details of the information source and the methodology used to analyze and present information.
4.1 Sources of information:
The sources of information have been:
 The module text book for the submission sequence and related theoretical concepts.
 The firm data of Mustafa Sultan – calibration segment.
 Other journal articles references at the end of the submission.
4.2 Authorization to use information:
The permission is obtained from the firm to use the data pertaining to the market, the structure, and the processes. However, the financial figures are different and are not the exact numbers.
4.3 Methodology:
The operation process is witnessed, quality documents reviewed and data relating to the incoming and outgoing instruments documentations were reviewed and notes taken for analysis.
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5.0 Chapter 3: Operations Strategy and Competitiveness
In this section the segments operation strategy is analyzed and evaluated.
The segment operation strategy is derived from the overall firm strategy to expand and diversify to gain market share and be a dominant player in the industry.
5.1 Operations Strategy:
The present operation strategy of the segment is derived predominantly from the firm strategy of maintaining the leadership and to operate in the instrumentation services sector. This is akin to the “Top Down” perspective
(Slack, Chambers, Johnston, 2007, p. 63). In combination the segment too has developed its own diversification and expansion being market oriented perspective (Slack, Chambers, Johnston, 2007, p. 67; Colin & Dennis,
2012, p.494).
In carrying out the selected activities of different instrument certifications the 5 performance objectives (Slack, Chambers, Johnston, 2007, p. 39) are followed in the following order of priority:
1.
Quality: This is an absolute important objective in the certification business and this need to be demonstrated in the form of traceable documentation.
2.
Dependability: The tracking of repeat calibration and the trueness of the readings reported should be demonstrated to be dependable.
This is achieved by carrying out proficiency testing of instruments on sample basis.
3.
Speed: the response time is viewed as one of the key factors as it involves the customer measuring instruments and these cannot be off-line for long duration.
4.
Cost: The rates charged for offering certification services is one of the factors though may not be seen as the key as long as the previous 3 objectives are promised and delivered.
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5.
Flexibility: Need to be built into the design of the strategy in the form of recruitment of technical staff to operate on variety of instruments and adapt to different customer requirements. It is also ensured that the variety of services are performed under one roof offering onestop solution to the customer for all their instrument certification requirements.
The operation strategy for the calibration segment is spelt out in one sentence as below:
5.2 Perspectives to developing operations strategy:
Different perspectives for developing operations strategy as alluded by
(Slack, Chambers, Johnston, 2007, p. 63) are
1.
Here the firm decides what the operation has
2.
to do.
This perspective does utilize the capabilities of the resources it has and looks out for carrying out those activities its resources are good at and finding the market for
3.
such products / services.
This perspective would take much of the
4.
inputs from the operating team’s day to day experience.
This perspective expects the operations base their strategies on the requirements of the market.
The calibration segment has taken the business processes from the topdown perspective from the parent firm to be the market leader in its activity. Along with this strategy, the calibration segment is also oriented towards market requirements and developed many niche activities as required by the customers.
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5.3 Process for developing operations strategy
The process for developing an operation strategy can generally be derived by aligning the general objectives of the operations to customer needs defined in the form of performance objectives
(Slack, Chambers, Johnston, 2007, p. 39)
The balancing or for that matter achieving excellence in all of the five performance objectives would be the key in the calibration services operation. The driver for certification business activity being the ISO requirements for the customers, the importance of quality and dependability are paramount. If these are demanding the cost to be high, many customers are ready to pay the price if it can guarantee the quality and dependability.
In aligning with these customer requirements the above said strategy is developed and practiced.
5.4 Implementation of Operations Strategy
In clearly documenting performance objectives including the priority, the tradeoffs are never on the quality and dependability. Strategy implementation is defined as “the communication, interpretation, adoption, and enactment of a strategy initiative” (Noble and Mokwa, 1999 cited in
Huber, 2011, p. 46). If any of these are lacking then the strategy remains on paper and will result in poor performance.
The calibration segment being an ISO 17025:2005 accredited laboratory the procedure for each process are well laid out and documented in the quality manual. These procedures are based on the performance objective as required by the operation strategy and is strictly followed.
As per the quality manual evidences are created for each process and sample internal audits are carried out on monthly basis and the
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observations are circulated to top management and filed. The nonconformities are discussed, root cause analysis is carried out and change in process or new checks are introduced to prevent the repeat of the nonconformities.
Further, implementation is enhanced by carrying out extensive training to all the staff in the calibration segment on each of the processes and its importance in strictly adhering to the procedures. New employees are put through a 4 week induction process to familiarize them with the job and the processes.
5.5 Critical success factors and core competencies
The core competencies are offering instrumentation certification services with true international traceability to meet the stringent and variety of requirements from the customers. This can be segregated in the form of order winning and qualifying objectives (Slack, Chambers, Johnston, 2007, p. 69).
Order winning factors for calibration segment:
 Ability to provide the resources where and when required.
 Quality, error free and dependable service.
Having this ability improves order acquisition and also helps to retain the customers.
Other qualifying factors are:
 Price and location.
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5.6 Integration of operations strategy with overall firm strategy
The overall firm strategy has been to operate as market leader in majority of its segments. On the same lines, the calibration segment too has positioned itself with operations strategies supporting to sustain the market leadership position.
Other processes operationalized by the overall firm strategy are also adhered by the calibration segment as the supporting departments and systems are centrally controlled by the corporate firm.
5.7 Firm’s alignment to needs of customers
Customer needs in the calibration segment are as below:
1.
Quality of service: The calibration of instruments are to be carried out using true traceable standards to ensure accuracy and traceability of readings.
The lab has demonstrated the availability of Master standards of high accuracy to cater to the variety of customer equipment.
2.
Dependable service: Often the contracts are signed for long term as the certification periodicity is once in 6 months or once in a year. The dependability is demanded as the customer depends on the calibration service provider to track the due dates for calibration and arrange timely collection and adhere to committed turnaround times.
The lab has employed tracking software for this purpose to generate automated recall notices.
3.
Speed: The faster turnaround on requests, prompt responses on new requests.
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Lab has dedicated sales personnel to cater to this requirement and also has built spare capacity to cater to faster turnaround requests at higher rates.
4.
Price: The rates need to be competitive and rates are not usually the deciding factors if the above three elements are proven to be better than competition.
The lab operates on standard price lists based on the service type, the instrument type and the speed of service requested.
5.
Mix of service: customer prefers to deal with one vendor for all their certification services.
The lab has built the capabilities to offer variety of calibration services under one roof and this is well appreciated by customers.
As mentioned above, the laboratory has aligned well with the customer requirements and has attained a dominant position in the market.
5.8 Measuring productivity
The productivity in the calibration segment is measured in two ways:
1.
Revenue generated per employee per month
Average productivity in terms of revenue generated per employee for the year 2012:
= Average monthly revenue / No. of employees
= US$ 50,000.00 / 15
= US$ 3,300.00 per employee per month.
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2.
No. of instruments calibrated per employee per month.
Average number of instruments received each month for the year 2012 was 1200 instruments.
With this the productivity in terms of no. of instruments calibrated per employee per month for the year 2012:
= Average instrument received per month / No. of employees
= 1200 / 15
= 80 instruments calibrated per employee per month.
There can be two ways the productivity can be increased.
1.
By increasing the rates charged for each instrument. This will raise the revenues generated and would offer higher returns for the same amount of input resources. However, it should be noted that the increases in rates beyond reasonable limits would drive the customer to competition and also would prepare grounds for new firms to start the services as they would perceive that the calibration activity is yielding high margins.
2.
By increasing the no of instrument calibrated by employees. This can be increased to an extent by bringing in some amount of automation which can increase the efficiency and weed out the waiting times of the instruments and the employees.
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6.0 Chapter 4: Design of Supply chain and Operations Model
In this chapter the way the Calibration segment’s operation process, the model and its supply chain are designed will be presented.
6.1 Design of Operation process:
The objective of process design is to achieve the competitive benefits primarily aimed by the operation (Slack, Chambers, Johnston, 2007, p. 91).
In the case of Calibration Segment the primary performance objectives are
Quality, dependability and Speed. The operation processes are designed to achieve these performance objectives in following ways:
Sl.
No.
Performance
Objective
1 Quality
2
3
Dependability
Speed
Process design to achieve the performance objective
 Developed quality manual with documented procedures for achieving consistent quality for each job.
 Dedicated quality personnel for technical verification of each job, conducting periodic internal audits, interfacing with external / customer audits.
 Dedicated software for Error free report preparation.
 Recruitment and training processes to support dependable job execution.
 Dedicated lab manager to monitor and supervise the committed turnaround times.
 Dedicated software to track and send recall notices to customers.
 Have dedicated sales personnel to achieve the required timely and quality response.
 Dedicated drivers and helper to arrange timely pick up and drop of instruments.
 Streamlined workflow design to achieve committed turnaround times.
Table 2: Operation Process design tools
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6.2 Design of products and/or services:
The calibration segment is offering services of certification of testing and measuring instruments. The services are designed from the view point of
Concept, package and process (Slack, Chambers, Johnston, 2007, p. 121).
The
has always been to verify the scope of the services requested
/ marketed to be in the arena of testing and certification activity.
The
always has been in adding our performance objective elements such as quality, dependability and speed to customer requests.
Offering services when and where it is required has provided increased customer acquisition.
Well trained and dedicated resources carry out each activity with well defined
delivering the performance objectives promised to customers. The ISO quality manual and availability of dedicated personnel are ensuring consistent implementation of these processes.
The overall services designed with above tool elements are able to meet up to the performance objectives sought by the operation and also are aligned with customer requirements.
6.3 Steps used by organization to design the supply chain:
To offer the services when and where it is required does warrant efficient design of supply chain. The calibration segment has limited suppliers and more of customers. The suppliers are generally the master standards vendors bought as capital equipments. The objective of supply chain design has been to position itself closer to the industries.
Further, to improve the supply chain of customers, the on-site services have been designed to offer calibration and certification services at site.
For this reason, the lab has invested in portable standards which can be carried to customer locations.
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6.4 Location and Capacity design:
The operating location is selected on the basis of proximity to major supply chain networks, the availability of raw materials, the attractiveness, and availability of talent, land & plant expenses and local taxes. In the case of
Calibration segment the main criteria was to be close to customers in the industrial estate. In addition the government offers subsidies to put up operation in industrial estates meant for industrial activity. This does help the cost factor as well as being visible to many industries operating in the industrial estate.
The present capacity design of the calibration segment is as follows:
 The selection of the size of the lab depended on the average growth of 20% over the next 5 years.
 Have possibility to add one more floor to double the capacity in the same location in future.
 Have plans to put up a satellite lab at another location 1000 Kms distant for basic services.
 The human resources are added on annual or as required basis though it is the policy of the firm not to employ any temporary staff which will affect the quality of the operation.
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References:
Colin C., C, & Dennis, K 2012, 'The role of service innovation in the market orientation—new service performance linkage', on Managing Technology-Service Fusion, pp. 487-497, ScienceDirect,
EBSCO
, [Online]. Available at:
, 32, Cluster http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/detail?vid=6&sid=3382993
8-df22-42a6-9092a3da13f2a88f%40sessionmgr14&hid=15&bdata=JnNpdGU9ZWRzLWxpdm
Umc2NvcGU9c2l0ZQ%3d%3d#db=edselp&AN=S0166497212000351
(Accessed: 6 February 2013).
Huber, AJ 2011,
, n.p.: Wiesbaden :
Gabler Verlag / Springer Fachmedien Wiesbaden GmbH, Wiesbaden, 2011.,
University of Liverpool Catalogue, EBSCO
, [Online]. Available at: http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/detail?vid=2&sid=d4b308b
1-51a0-4a35-ae4b-
29d6f26c4123%40sessionmgr115&hid=105&bdata=JnNpdGU9ZWRzLWxpd mUmc2NvcGU9c2l0ZQ%3d%3d#db=cat00003a&AN=lvp.b2490275
(Accessed: 6 February 2013).
Slack, Chambers, Johnston, (2007)
(5 th ed)
Harlow, England: FT/Prentice hall.
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