Planning and Operations Management

 

Planning and Operations Management

 

Introduction

            "Management" characterizes the process of leading and directing all or part of an organization, often a business one, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). One can also think of management functionally: as the action in measuring a quantity on a regular basis and adjusting an initial plan and the actions taken to reach one's intended goal. This applies even in situations where planning does not take place. Situational management may precede and subsume purposive management. Apparently, this paper will discuss the related factors in operations planning particularly to a Retail Store Manager of a Travel Agency with 3 departments i.e. (Foreign Exchange, Flights and Travel) which are highly related to management.  

            Some writers trace the development of management thought back to Sumerian traders and ancient Egyptian pyramid builders, but modern management as a discipline began as an off-shoot of economics in the 19th century. Classical economists like Adam Smith and John Stuart Mill provided a theoretical background to resource allocation, production, and pricing issues. About the same time, innovators like Eli Whitney, James Watt and Matthew Boulton developed technical production elements such as standardization, quality control procedures, cost accounting, interchangeability of parts, and work planning. By the middle of the 19th century people like Robert Owen, H. Poor, and M Laughlin introduced the human element with theories of worker training, motivation, organizational structure and span of control.

            By the late 19th century marginal economists like Alfred Marshall and Leon Walras introduced a new layer of complexity to the theoretical underpinnings of management. The first tertiary-level course in management was offered in 1881 by J. Wharton. By 1900 we find managers trying to place their theories on a thoroughly scientific basis. Examples include H. Towne's Science of management, Frederick Winslow Taylor's Scientific management, Frank Bunker Gilbreth's Science of motion study, and Henry L. Gantt's charts. J. Duncan wrote the first college management text book in 1911.

            The first comprehensive theories of management appeared around 1920. People like H. Fayol and A. Church described the various branches of management and their inter-relationships. In the 1920s and 1930s people like O. Tead, W. Scott and J. Mooney applied the principles of psychology to management. Also in the early 20th century people like Elton Mayo, M. Follett, C. Barnard, Max Weber, Rensis Likert and C Argyris applied the principles of sociology to management.

            H. Dodge, R. Fisher, and T. Fry introduced statistical techniques into management. In the 1940s, Patrick Blackett combined these statistical theories with microeconomic theory and spawned the science of operations research was born. Operations research, sometimes known as "management science", has attempted to make a science of some aspects of management.

Importance of Operational Planning

            A major theme of the literature in strategic management and operations strategy is that consensus on the general strategic direction of the firm and on manufacturing task emphasis must exist between business-level strategic planners and functional-level manufacturing managers for effective business unit performance to occur. It is the responsibility of the manufacturing manager to develop a manufacturing strategy that supports the overall business-unit strategy (Schroeder et al., 1986). Operations scholars have warned that a manufacturing business unit will have a decreased competitive advantage within its industry if it fails to develop a coordinated and supportive operations strategy (Buffa, 1984; Hayes and Wheelwright, 1984; Hill, 1985).

            A good deal of research has examined the notion of consensus as it relates to the management process (Bourgeois, 1980; Dess, 1987; Schweiger and Sandberg, 1988; Wooldridge and Floyd, 1989; West and Schwenk, 1996; Homburg et al., 1999). As pointed out by Floyd and Wooldridge (1992), senior managers often complain that middle- and operating-level managers fail to take the correct actions to implement strategy. These implementation problems are deemed to be the result of middle-level and operating managers' lack of understanding of and/or commitment to the chosen strategy. Guth and MacMillan (1986) found that middle-level managers will not only redirect a strategy and delay its implementation, but will also sabotage the strategy if they feel their self-interest is being compromised.

            Other research has examined the relationship of consensus to performance. Wooldridge and Floyd (1990) found that the involvement of middle-level managers in the formation of business-level strategy was associated with improved organizational performance. St. John et al., (1991) examined the relationships among various coordinating mechanisms, the degree of consensus between marketing and manufacturing groups, and marketplace performance reputation. They found firms using planning techniques experienced higher levels of interdepartmental consensus and this was related strongly to marketplace performance reputation.

            The notion that manufacturing managers should develop a manufacturing strategy that supports the business-level strategy is consistent with the strategic management paradigm. A specific business-level strategy is formulated for the strategic business unit (SBU) in order to create a competitive advantage, and manufacturing managers are expected to translate this strategy into appropriate manufacturing performance goals, processes, and systems.

            An issue of concern during this process is the extent to which consensus is developed between managers at the SBU level and managers at the manufacturing level with respect to the overall competitive strategy chosen for the business unit. The manufacturing manager's understanding of, and agreement with, business-level strategic choices will form the basis for subsequent manufacturing strategy development and execution. A unifying strategy is required (Schonberger, 1986) and a vision must be developed so manufacturing managers can clearly understand the requirements for implementation (Chase and Aquilano, 1989). It has been suggested that often this shared understanding does not occur. For example, Hambrick (1981) found evidence of rapid hierarchical decline in strategic awareness by second-level executives. Schroeder, et al. (1986) sampled manufacturing firms and found that only one-third of the firms had formulated a clear and well-developed manufacturing strategy (i.e., one consistent with the firm's business strategy). Swamidass (1986) found evidence of a general mismatch in strategic emphasis between CEO's and manufacturing managers concerning the appropriate role and performance objectives of the manufacturing function.

            Hayes and Wheelwright (1984) strongly recommend a high level of involvement by manufacturing managers in the strategic planning process of business units for the attainment of superior competitive performance. Swamidass and Newell (1987) report finding evidence of a direct positive relationship between the level of involvement of manufacturing managers in the strategic planning process and firm performance. Dess (1987) examined the relationship between the degree of consensus within top management teams on business objectives and competitive methods and firm financial performance. His findings indicate general top managerial consensus on either competitive objectives or competitive methods to be positively related to firm financial performance. This finding is consistent with Bourgeois (1980), who found consensus on competitive methods to be related to firm financial performance. A review of other studies related to consensus can be found in Homburg et al. (1999).

 

Situation of Operational Planning of the Three Departments (Foreign Exchange, Flights and Travel)

 

Increasing Congestion Generates Significant Costs:

            Increasing traffic congestion in the region is significantly impacting the travel time for automobile traffic, the movement of goods and the reliability of transit. This in turn increases costs for users, businesses and transit.

            Between 1985 and 1994, the average travel time for the same distance to work or post secondary education increased by 36%, or 5.5 minutes.  Unfortunately, the rate of vehicle ownership is increasing at a rate of over 3% per year, double the estimated population growth rate. As well, during the same period average bus speeds have decreased by 2-3% due to increased traffic congestion, and a portion of the improvements in service hours has been consumed by increased schedule time to meet traffic delays. A recent study estimates the annual cost of congestion to the trucking industry for the movement of goods at $500 million.

            The total Department funding for road capital improvements and rehabilitation and maintenance expenditures will significantly increase over the Three Year Plan. Yet, numerous examples from other jurisdictions have shown that road expansion alone is unable to provide a long-term solution to the problem of traffic congestion. The Department will develop a focused strategy to address delays affecting goods movement, transit reliability and a range of options to provide realistic alternatives to the private automobile as part of the Three Year Plan. A longer range strategy will be developed in 2004 as part of Departments Strategic Transportation Plan.

 

Dispersed Employment Leads to Increased Auto Dependency:

            During the 1990’s suburban office and business parks attracted 7 million square feet of office development and their share of the total office space in the Region grew from 20% to 30%. During the same period the regional town centers only attracted 937,000 square feet of new office space and their share of the total dropped from 11% to 10%.

            The growth of employment in the suburbs has made these areas very dependent upon road improvements for goods and people movement.

 

Increasing Walking and Cycling Mode Shares:

            Between 1994 and 1999 the percentage of people traveling by foot and bicycle in the region grew by over 28%. A higher percentage of daily trips are now made by a combination of foot (12.3%) and bicycle modes (1.7%) than are made using transit (10.3%). In 1999, 40% of all trips were less than five kilometers, within a reasonable travel distance by bicycle. Further investments to improve municipal bike networks and to increase the accessibility of the transit system have the potential to increase the proportion of trips made by bicycle.

 

Revenue Maximization:

            The agency wishes to maintain its financial stability and therefore will continue to focus on raising revenue by the following actions:

• Identifying and implementing opportunities to increase commercial revenue generated from advertising and other opportunities by approximately $1.0 million annually in order to offset existing operating costs or required capital expenditures;

• Completing a Transit Fare Review in 2002/3 and a possible change in the fare structure by mid-July, 2003 that will ultimately generate up to $10 million in additional annual revenue; and

 

• Undertaking the specific recommendations in the independent Transit Fare Audit which reviewed TransLink’s current fare audit procedures and fare evasion rate.

 

Customer and Market Focused Plans and Service Design:

Planning efforts will be more focused on markets including:

• Planning and funding strategic investments in new roadways and bridge structures which are focused at key corridors for the improvement of goods movement and where there are strong and growing travel markets such as suburb-to-suburb;

• Introduction of a broader range of transit services from rapid transit to Community Shuttles to meet the diverse market needs of the region;

• Completion of a new Strategic Plan for Custom Transit services in 2002/03 to respond to changing demographics and increasing demand for access to health care services;

• Identifying and promoting with other partners means to improve cross-border mobility and security across the country’s border; and

• Introduction of a new Customer Service Committee in 2002 that will provide a forum for transit customers to air concerns around transit plans and service delivery.

 

Partnerships Projects

            The Agency will continue to work with other levels of government and agencies in the development of major infrastructure projects. These include:

 

• Continued planning, environmental and other work required to identify the preferred options prior to tendering the River Crossing project, in addition to necessary communications and consultation with directly affected businesses, communities and residents;

• Negotiations with the Provincial Government to clarify the status, funding and possible private-public sector partnership arrangements for proposed rapid transit extensions to rapid transit project;

• Multi-year procurement of a new electric trolley bus fleet to begin to replace in late 2004 the existing vehicles, which are now 19-20 years old; and

 

 

Product-Process Linkage

            A fundamental tenant of operations strategy is that manufacturing's choice of production process interacts with marketing's product goals, and this interaction affects the business unit's competitiveness within its industry. Hayes and Wheelwright (1979a,b) first proposed linking product and production process life cycles. Their theory states that the production process should evolve through a series of configurations related to changes in the product's life cycle.

            The basis of the product-process alignment literature is that there exists a trade-off, or balance, between attainable levels of automation and flexibility. In the introductory and growth stages, for example, product variety is typically high, requiring flexibility in the manufacturing process. This flexibility, however, is achieved at the expense of higher unit manufacturing costs, as fully automated production processes cannot be employed. As products move through their life cycle, variety and flexibility lose importance, and the firm is able to attain lower operating costs through increased automation.

            The product-process matrix described by Hayes and Wheelwright links product life cycle stages with theoretically correct general types of production processes (Hayes and Wheelwright 1979a,b, 1984; Wheelwright, 1984a,b). A firm's product can be characterized as occupying a particular region on the product-process matrix depending on the product's life cycle stage and choice of production process by manufacturing managers. Diagonal positioning on the matrix has been recommended (Hayes and Wheelwright, 1979a,b, 1984; Schmenner, 1985; Fine and Hax, 1985). For example, during the introductory stage of the life cycle, a job shop manufacturing process would be used; during the growth stage, a batch process; during maturity, an assembly line; and during continuance, a continuous process. In response to changes in competitive choices, manufacturing strategies may, by necessity, need to be changed as well in order to sustain the linkage between product characteristics and manufacturing processes (Voss, 1986). This positioning and repositioning of the production system in response to changes in the firm's business-level strategy is the primary responsibility of manufacturing managers (Buffa, 1984).

 

Advanced Systems and New Technologies

            A number of advanced systems and new technologies have been developed to improve manufacturing performance and competitive effectiveness. Computer-based and manual systems offer the promise of changing the ways business units compete and of helping business units to be more competitive in world markets (Voss, 1986). The potential benefits of advanced systems and other new technologies have received attention in the recent strategy and manufacturing literature. Sanchez (1995) proposes that two sets of related innovations, one technological and one managerial, are jointly creating and escalating the process of change that is diffusing and transforming competition. Kotha (1995) suggests that mass production and mass customization might be pursued simultaneously. Bettis and Hitt (1995) believe that in an era of rapid technological change and corresponding forecasting difficulties, sustainable advantages are likely to come from internal organizational competencies. Static models that dictate either/or choices have come into question. For example, Sanchez (1995) points out that firms trying to compete by adhering to traditional strategies of low cost, differentiation, or focus, may find themselves challenged by firms with superior flexibilities in terms of quicker response times, more new products, broader product lines, and rapid product upgrades.

            As suggested by Jelinek and Goldhar (1984), Wharton (1987), and Meredith (1987), the use of new manufacturing technologies and advanced systems might enable manufacturing firms to operate outside of the product-process matrix prescriptions and still attain superior performance. New technologies and processes could distort the traditional trade-off between process flexibility and lower unit cost by providing additional operational benefits, such as increased flexibility, improved product quality, and lower unit costs.

Operational Planning vs. Strategic Planning

            In order to plan better, we must first understand that there are two main types of planning: operational and strategic. Operational planning covers the minute details of directing an organization every day. Most companies engage in operational planning in order to manage their financial performance. In many small and medium-sized organizations, strategic planning, which is the more important of the two, is lacking or non-existent. However, using both in the proper combination can radically improve the success of any organization.

            One way to better understand the difference between strategic and operational planning, and the important role of each, is to consider the analogy of an artist painting a landscape. The creative planning process the artist performs is very similar to strategic planning. Before ever touching a brush to canvas the artist plans the sequence of the painting steps needed to complete it. He envisions the shape, the colors used and the mood that he is trying to create. In his mind, he is attempting to visualize the end product. It is a planning and preparation process that will guide him once he begins painting. This analogy is a very accurate description of what happens when business leaders engage in the strategic planning process. They see the future of the business and create an overall action plan to make the future vision a reality.

            On the other hand operational planning relates more to managing the logistical and procedural actions that are performed within the parameters of the strategic plan. In this same analogy, the artist would be functioning within an operational role when he actually started painting the landscape. In this operational capacity, the artist insures he has purchased the right canvas and paint supplies and prepares the proper lighting. As he begins adding colors and texture to the canvas he attempts to "flesh out" the vision he created before. During the painting process he is constantly measuring it against his image of the completed painting. This feedback process compels him to make corrections in color, scale and brushstrokes to make it match his mental picture. Only when the two are the same is he truly satisfied. In this analogy and in a business situation, all the operational efforts are measured against the vision and ongoing adjustments are made to insure the vision becomes reality.

            In order to build a case for the importance of using strategic planning, let us consider the same artist not being allowed to be creative. By blocking all inspiration he could only mechanically apply the colors and brushstrokes. In the end, he may end up with a smattering of colors but nothing that he would view as art. It is hard to imagine an artist being satisfied with any work unless it was inspired through some creative process. Unfortunately, many businesses operate in this mode all the time. They suffer from a lack of coherent vision for their organizations and react to whatever situation is placed in front of them. The resulting business direction is shaped by these situations rather than by a conscious planning process and, as can be expected, the businesses often fail to live up to performance expectations.

            In summary, strategic planning concentrates on "doing the right thing" or "what business the organization is involved in." It focuses on the effectiveness of the organization. It answers the question, "Are we in the right game?" On the other hand operational planning deals with "doing things right" or "how the organization is performing its tasks". It focuses on the efficiency of the processes. It answers the question, "Are we playing the game right?" They are both very important to the success of an organization but one should not be done without the other. Because the idea of strategic planning may be a new concept to some we will spend the balance of the article giving an overview of how this planning process works.

Operation Planning

            Operation Planning within operation management is the process to quantify the amount of time and budget an operation will cost. The purpose of operation planning is creating an operation plan that a operation manager can use to track the progress of his team/department. From the discussion of the above literatures, it is recommended to address the following plans and procedures in operation management.

How to Plan an Operation

1. Determine the exact conditions for the operation to be completed or to be terminated. Before it is absolutely clear what the objectives of the operation are, it makes little sense to start estimating how long it will take and how much it will cost. Unfortunately, many operation managers fail to take this first, crucial step. Each operation should have a clear connection to one or more real of organization's business issues.
2. Make an inventory of all the work that needs to be done with an estimate of the time it will take to complete by a single team member/staff. This can be done in a planning session with all the team members/staffs. Tasks that will take over three weeks to complete need to be broken down further to get good granularity. To avoid getting swamped with details, the tasks at the lowest level should take approximately 1 week. The result is a work breakdown structure. Make sure that having the operation's deliverables injected into the organization or its environment will actually cause the expected benefits (operation objectives) to materialize.
3. Identify the resources needed to complete each terminal element of the work breakdown structure (WBS). At this point you can usually estimate the cost to deliver each terminal element and, consequently, the operation (bottom-up approach). Sometimes a top-down approach to estimating costs is also possible by means of using coefficients (e.g. it costs between $X and $Y to build a square meter of a house of such-and-such a standard).
4. Make a decision whether this initial plan makes sense, i.e. whether the costs justify the benefits. Modify the objectives and the supporting work as necessary.
5. Define dependencies among tasks. Some tasks need to be completed before other tasks can begin. By putting tasks into their relative completion order, a operation manager constructs a operation network.
6. Calculate the minimum time the operation will take: it is the longest path through the operation network from the start of the operation until its end. This path is called the critical path (or critical chain, if resource dependencies are taken into account). Other tasks can be done in parallel to the critical path but any delay in the tasks on the critical path will automatically result in a delay in the overall deadline of the operation.
7. Create an operation schedule (e.g. in the form of a Gantt chart).
8. Plan for risk management and modify the operation plan accordingly.
9. Commit the organization to starting the operation implementation.

            Operation planning is not something that is done only once at the beginning of the operation. It should be an ongoing task of the operation manager to keep an eye on the progress of his team and update the operation plan accordingly. Operation management software can be helpful if used properly. There are several operation management standards that describe in detail how to plan and manage an operation.

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