Internal and External Processes of Operations Management in Setting up a Fast Food Concept in the UK - Assignment Example

Operations and logistics management are concerned with managing the process of producing and distribution of products and services through systematic and defined procedures. Operations management includes various internal and external processes, related to customers, employees, and business partners, which are strategically aligned to the firm’s business strategy. This paper illustrates these external and internal processes through a business case of setting up a fast food concept in the UK. In the process, it elaborates various factors that need to be considered for successful implementation of operations in the fast food outlets. These include process design and structure, human resource management, product design, location, capacity planning, supply-chain strategy, and partnering with outside agencies. Based on these factors, proven practices and principles have been linked with activities in operations management of the fast food concept that can help in achieving sustainability in the competitive market and the firm’s corporate strategy. Operations and Logistics Management Introduction to Operations Management According to Hill (1991), ‘The production/operations management (POM) task is concerned with the transformation process which takes inputs and converts them into outputs, together with the various support functions closely associated with this basic task’ (cited Brown, 2000; p.7). Such transformation processes can be applied to three main categories, materials, customers and information. Brown (2000) describes that Operations Management encompasses the most vital activities of production, beginning from and including, planning and design, production processes of goods and services, and also effective integration of marketing, finance, human resources management and strategy in order to enable a business to enter and compete with both new and existing markets. In other words, a business’s success and sustainability largely depend on the operational capabilities, including efficiency and quality. THE CASE: Based on a case adopted from Brown (2000; p.1), an attempt to establish a relationship between strategy and operations management through different ways in which an organization’s operations can add value to the delivery of goods and services has been coherently illustrated. The case is about ‘Sunnyside Up,’ a fast food concept in UK, a responsibility given to Chris Cowls, a former Franchise Director of Burger King. Chris Cowls and this team is responsible for designing and setting up the Sunnyside Up in UK market which already has well-established McDonalds and KFC as its competitors in the market. Therefore, setting up this new fast food concept is a highly challenging task and involves a myriad of interdependent activities and issues for the operations manager, all of which need to be addressed at the same time in order to ensure a successful beginning of the business. The fast food sales have been growing at a stead-fast speed, catering to a variety of customers, with a variety of food products, operating in favourable environment and timings, optimum usage of resources including committed workforce at competitive pay structures, and providing a myriad of services including door delivery of food items are a few challenges for Sunnyside Up. Hence, setting up a business with all required resources will not ensure sustainable business and returns. As Sunnyside Up’s goal is to sustain competitiveness along with maximizing profits, its corporate strategy needs to be in line with this business strategy. For this, specific operations strategy is required for supporting the bigger picture of business strategy. Conducting operations in line with the corporate strategy may be referred to as strategic operations management. The plan of actions determined to achieve the corporate strategy form the operations strategies. Operations Strategy and Operations Management Chase (2006; p.7) defines operations management as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. Further, Chase (2006) explains that operations management is a combination of three distinct functions, strategic functions, tactical functions and operational planning and control functions. The strategic decisions of operations management determine plan of actions to address customers’ needs and achieve firm’s objectives. In case of Sunnyside Up, the firm will have to enter the market in a manner that reinforces its presence; like, on a bigger scale and able to reach the majority of populations. For this, its location, volume of business, types of services are a few considerations. At the same time, these decisions must be aligned to the corporate strategy so that organizational goals can be achieved effectively. These strategic decisions define the conditions in which operations will be carried out in the short and long terms, and are considered as the operations strategies. In Samson’s view (1991), ‘manufacturing management and strategy are subsets of operations management and strategy’ (cited in Brown, 2000; p.7). Moreover, the idiosyncratic nature of businesses with changing needs of the customers, advancements in technology, conformance to the environment’s requirements need to be adhered to by any business that aims to sustain competitiveness. Secondly, tactical planning should be able to assess the capacity required at various Sunnyside Up outlets to carry out specific operations; scheduling and staffing methodologies to accomplish the targeted food production, sales and services; scheduling delivery and defining quality of supplies, types of inventories, etc. The third function in OM includes operational planning and control meant for short-term planning of work and capacity along with responsibilities and priorities assigned to different levels or groups of workforce. Sunnyside Up needs to have appropriate plans in place to handle peak sales periods, reallocate workforce in times of low sales, appropriate supply management of raw material, storage capacity etc. Overall, operations strategies focus on all related and mutual activities of production and service delivery including assessment of returns from the business. With increasing competition and changing customer needs, supply chain systems have become very significant in logistics functions of manufacturing and service industries, especially from a quality perspective, and hence the performance of the firm; challenges in supply chain systems have also grown proportionately. The strategic planning of logistics operations should include all drivers of supply chain systems such as inventory, transportation, facilities, information etc. (Chopra & Meindi, 2004). Operations management at “Sunnyside Up” The core activities encompassing operations management include inbound and outbound logistics, operations, marketing and sales, service, procurement, technology development, human resource management, and firm location and infrastructure. All these activities seem to be mutually independent in nature, however, dependent on each other from a strategic perspective. In order to gain competitive advantage, these activities when linked with each other, result in optimization and coordination of all resources. Porter (2000) exemplifies this through timing of promotional campaigns that can influence capacity utilization, specifically in fast food chains. Competitive dimensions and their applicability in OM Operations and business at Sunnyside Up should focus on creating value for its buyers that exceeds the cost of buying, and this should be used to assess the firm’s competitive position instead of competitive pricing options or profits margins. A holistic picture of operations management at Sunnyside Up elicits competitive strategies for business such as the product variety (Unique Selling Point), product choice, availability, accessibility, staff training, customer experience, integration and affiliation with other partners, quality and value for money; and also operations strategies such as technology, availability and pace of services, quality of supplies, and capacitization of service, preparation and administrative staff. These activities create value for the buyers or business owners, or for both, directly or indirectly. Activities such as organizing, sales force operations, marketing and advertising, product design, recruitment directly create value for the buyer; activities enabling continuity of these direct processes such as maintenance, scheduling, operation of facilities, administrative activities related to supply chain, research, sales etc; activities meant to maintain quality and standards of all these activities ensure quality assurance, a very important factor for gaining competitive advantage (Porter, 2000). Human Resources Youndt et al. (1996) had established a strong relationship between human resources and productivity in modern manufacturing industries compared to the advanced technology, statistical process control and computerized machines. This work revealed that linking human-capital-enhancing HR initiatives with quality manufacturing strategy reinforced employee skills and commitment. Adopting this approach, Sunnyside Up can develop a highly skilled and committed workforce, which can in turn influence the business in all spheres including sales and marketing, service, and back-end operations. The same has been indicated by various other entrepreneurs, researchers and management specialists. Human resources form the core competences of any organization, and leadership has a significant role to play in obtaining commitment, involvement and performance from their people through effective communication and motivation. Managing people has always been treated as the most important part of any management with many complexities involved. These complexities include recruitment of right people, recognition and retention of employees, training and orientation towards organizational objectives, handling conflicts between people and groups, and keeping people motivated to perform. Various approaches to keep employees motivated include diversity management practices, effective and appropriate performance management and feedback methods, career succession plans, motivational programmes such as rewards and recognition, employment benefits such as family insurance, pension benefits, bonuses, incentives etc, empowerment and employee involvement practices etc. In Pfeffer’s (1998) view, all these practices provide ideal conditions to create high performance work systems by ‘putting people first’ (Armstrong, 2002; Miller, 2008). Capacity Capacity from a strategic perspective, according to Brown (2000) should involve forecasting maximum as well as the attainable inputs and output capabilities in order to derive optimum operational efficiency. Capacity planning and resources management have a significant role to play in achieving the firm’s objective of delivering fast food services to consumers, according to their choice, with optimum quality and at reasonable costs by enabling the availability of services to consumers whenever required and through efficient processes. Capacity planning and management in Sunnyside Up or any fast food centre varies in different functions like services, preparations, administrative etc. This requires transformation inputs and their organization into processes; like, technology, machinery, manpower and work processes. Next, efficient utilization of the inputs through strategic materials management such as inventory management, material requirement planning and manufacturing resource planning and just-in-time production assist in capacity planning and management (Brown, 2000). Based on the nature and type of business, a fast food industry typically utilizes the hybrid model of Make-To-Order and Make-To-Stock (MTO/MTS) production system. The external and internal factors impacting this strategy need to be identified based on product-related criteria such as cost of item and risk of perishability, and firm and process related criteria such as Human resource flexibility, equipment, delivery lead-time, return of investment, customer commitment, supplier commitment etc (Zaerpour et al, 2007). These criteria may be used to determine the production type at Sunnyside Up. For example, all the items required for preparation of the end product, i.e., food items should be produced in MTO process and the equipment, resources, investments, suppliers and customers, non perishable food products can be grouped in MTS system. Considering the peak sales time/season, capacity should be strategically planned in order to deliver effective business to the firm and services to the consumers. Capacity planning and management should be congruent with the volume of demand for output; variety of output; variation in demand; and, variability in demand for each type of output (Brown, 2000; p.162). In order to meet the forecasted demand for output, as well as handle the risk of perishability, the hybrid MTO/MTS system can be very effective. Employing or creating multi skilled workforce can reduce staffing to a great extent. The ratio of service staff to customers depends on factors such as type of establishment, range of menu items, and prices charged (Davis, 2008). Standardizing products or food items can help in achieving high volumes of sales during peak hours with minimum resources. This helps in deskilling various activities of food production, and may be accomplished with usage of appropriate technology, training, quality supplies of raw food items, and defined processes of preparation. Product design Ideally, product designing around a specific theme attracts customers. Steward-Knox and Mitchell (2003) pointed that a consumer-driven food product development process is like to produce more successful products (cited in Moskowitz, Porretta & Silcher, 2005; p.4). It also helps in striking a balance between customer satisfaction and operating complexity. Although innovation looks promising to the firm for gaining competitive edge over others, this gets limited only to the innovated area; it is often accompanied by troubles in other areas such as finance, logistics and administration, process design and systems etc, requiring more efforts and time to change and/or assess the effectiveness in these spheres (Gottfredson & Aspinall; 2005). Keeping the product simple, yet unmatched with competitor products, is a challenge for Sunnyside Up. Besides this, the product should be able to attract high demand also. Hence, they adopted the ‘all day breakfast in a bun’ as their core concept. Good amount of market research and analysis preceded this decision. This standardized product concept was also accompanied by mass customization method, with options of combining it with egg, bacon or sausage along with pancakes and coffee. Although Sunnyside Up offered other products, this product was patented (Brown, 2000). Hence, keeping it simple and with options of customization according to customers’ preferences provided many advantages to Sunnyside Up’s business such as quality assurance, minimizing delivery costs, simpler inventory management and storage, and benefits for the franchisees through huge unit sales and lower unit costs associated with simpler logistics. Location From a location perspective, Pang (2004) explains that location of facility decides the investment required in terms of the facility itself and also costs incurred on other business logistics such as transportation costs, supply costs, returns on business etc. Decision of location should be strategically aligned with the firm’s long-term business forecasts, growth plans, market needs and share, products diversification, and other economic factors such as targeted segments of customers, accessibility to customers and employees, cultural influences, types of communities, religion etc. From a logistic perspective, the location should be easily accessible to the suppliers to deliver quality raw materials on time at lowest possible costs and with maximum profit margins. Facilities location and planning should consider factors such as corporate strategy, location of markets, management and coordination, government stability and incentives, political and legal implications, social and cultural environment, environmental regulations, quality and standard of life of customers and employees, labour availability and productivity, health and safety issues, energy conservation, accessibility to suppliers, transportation and affiliated industries, distribution logistics, facility costs and infrastructure, availability of technology and expertise, import and export regulations and tariffs, and climate. Considering the corporate strategy of Sunnyside Up, of achieving a sustainable market position with good profits, high volume business would be required. To achieve this, the store should be accessible to maximum number of customers and include all possible segments corresponding to the types of services offered. For example, choosing a location close to shopping complexes, corporate offices, public places such as railway stations, bus stations etc are ideal to attract various kinds of customers. However, investment in such locations may be extremely high. Hence, Sunnyside Up chose ‘host-environment,’ rather than individual locations, such as existing business services; these services included supermarkets, cinemas, petrol filling stations, shopping malls, etc. The advantages of choosing these locations include huge passing traffic, franchisee contracts enabling easy financing; and fast-paced marketing and sales (Brown, 2000). Process Although standardization of food products provides an effective cost-effective strategy, flexible manufacturing methods using single process to achieve greater variety of products and/or services through use of industrial control manufacturing processes can also help in reducing production costs. However, if this is accompanied by mass customization process in a highly competitive market will help in meeting customers’ needs more precisely, thereby warding off price competition (Kahn & Huffman, 1999). Processes of operations in a highly changing industry, like the fast food industry, utilize contemporary production mechanisms that enable flexible specialization, mass customization, agile manufacturing and lean production (Brown, 2000). The process layout should be specifically aimed at improving efficiency and quality of products and services, ensuring the products and services move in a sequential order and avoid wastage of time. Also, the process layout should support the production mechanisms such as extent of mass customization, standardization of production process, lean production process etc. For example, for Sunnyside Up, implementing production and service processes within these small facilities required compact machinery and technology owing to the minimal space available for Sunnyside Up to conduct its business. Hence, they used small, user-friendly and efficient vending machines that were best fit for the design and systems of this fast food centres. Providing the facility of low costs along with options of differentiation is possible through flexible and lean production systems. Consequently, firms are experiencing and providing best value to all its stakeholders. This, they are able to achieve through different organizational systems and designs that include team-based product development or service operations, closely integrated supply chains along with reliance on Total Quality Management principles (Marcus, 2006). Most of the fast food firms use just-in-time (JIT) approach to inventory management in order to avoid wastage, faster turnover and shorter production lines. Supply-chain management Closely integrated supply chains help in achieving better relationships with few trusted suppliers, total quality management, focusing on customers’ needs, and reducing the number of components, operations, suppliers, reduced distance and inventory in flow of goods and services to customers. TQM also reinforces continuous improvement in response time, quality, flexibility, and cost, thus creating value for all stakeholders in a business. However, TQM principles and methodologies cannot guarantee standard results at all locations of the world. For example, supply of raw material ‘just in time’ depends on many external factors such as geographic location, availability, distance to be covered, weather factors and supplier relationship. Secondly, with the growing and changing needs of customers and the competitive market, the tools and techniques used in Total Quality Management may not be as useful as they initially were. This demand needs to be recognized. Sufficient and continuous enhancements and developments in the techniques and tools, respectively, are required (Padhi & Palo, 2005). Outsourcing One more important and useful approach to operations management is partnering with other agencies or outsourcing some work to outside companies. Outsourcing of activities depends upon what can be outsourced, and includes supply management activities, product designing, distribution channels, advertising and marketing, administrative and maintenance activities etc. Advantages of outsourcing include lower costs, faster service, enhanced strategic focus, minimal errors, and better strategy execution (Strickland, 2004). Sunnyside Up used this concept to partner with franchisees to set up their outlets in different host environments. Further, it can also outsource its administrative and maintenance activities at various locations to one agency depending upon the location and availability of the agency network. Conclusions In conclusion, operations management is a comprehensive phenomenon including distinct and complex activities that need to be performed in order to achieve a firm’s goals. Strategic implementation of operations management forms the building blocks of firm’s success. In a start-up firm, like the Sunnyside Up, strategic operations management is all the more complex and challenging task that includes a myriad of functions to be performed. Firstly, organizational design and structure formation aligned with corporate strategy along with process, systems and product designing. Secondly, human-capital investments and HRM practices that aid in bringing workforce into action. Next, core operational functions such as production, capacity planning and distribution, staffing and scheduling of manpower, training and development are to be established. Research on customer requirements, competitors’ offers and performance will help in providing a direction to the firm towards achieving its goal. Activities such as partnering with suppliers, administrative activities including inventory management, infrastructure, logistics planning and management support effective operations management. 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