The main factor that differentiates products from services is tangibility. Although these industries have different operations, as we are moving towards a world that is more and more service based it is observed that operations management theories, approaches and other methodologies used in manufacturing can mostly be modelled to work in the service industry. In this essay we will be contrasting some principles of operations management between Ford Motor Company and McDonald’s, two succesful multinational companies with prominent operations functions. ) When it comes to processes and activities, there are wide differences between a service-based organisation and a manufacturing environment. In the production line of a factory like Ford where we are mostly dealing with materials transformation, processes are as follows: 1. Components: each bit of item required to make a car is supplied by over 4000 suppliers and are transported to the relevant plant.
2. Chassis: sequentially, the frame which forms the base of the car, moves on a conveyor to equip the car with suspensions, gas tank, axle and shaft, gear and steering boxes, wheel drums, braking systems, engine, transmission, and radiator. 3. Body: on a separate assembly line to the chassis, the door pillars, roof and side panels are attached. Fully assembled doors, deck lids, hood panel, fenders, truck lid and bumper reinforcements are then installed.
4. Paint: skilled body repairmen repair any cosmetic damage on the shell after it has been thoroughly inspected. The car is then mechanically painted a number of times. 5. Interior Assembly: workers assemble all interior instrumentation and wiring systems, dash panels, interior lights, seats, doors and trim panels, head-liners, radios, speakers, all glass except wind shield, steering column and wheel, weather-strips, vinyl tops, brake and gas pedals, carpets and bumpers.
The wind-shield is then robotically installed prior to the shell being given a water test to ensure watertightness. 6. Mate: the assembly conveyor and the body one finally meet. The car is then moved down the line to be fitted with battery and tyres; petrol and other liquids are distributed. 7. Finished product: the car is finally operable and is fully examined and audited at a checkpoint off the line and moved to a central repair area near the end of the line if required.
Once the vehicle passes final audit, it is is given a price label and is driven to a staging lot where it will await shipment to its final destination. Throughout, because of the nature of the heavy components, articulating robots perform all the lift and carry operations while assemblers bolt pieces into place. Theodore Levitt describes thoroughly in his article “Production-Line Approach to Service” (1972), how McDonald’s utilises manufacturing techniques to its food preparation processes, namely standardisation and mass delivery.
This is highly efficient and effective because these processes are isolated from the customer, away from the seating and the ordering area, enabling them to achieve the economics of production, concentrating on high volume and uniformity of the product with minimal to no customisation offering. For the purpose of our essay and to contrast with the very typical example of the manufacturer that is Ford Motor Company, we will concentrate on the delivery aspect of McDonald’s products to its customers.
The processes involved at this end are: 1. Identification of client: the cashier welcomes the next client on the line, or seeks a client waiting in the lobby area who is ready to place his order 2. Order placement: the cashier takes the order from the client and records it on the programmed-till 3. Gathering of items: an assistant cashier fecthes all ordered items and places them on the tray 4. Cashier completes transaction 5. Cashier inspects that ordered items are placed on tray accurately 6. Customer picks up his order from the counter 7. Customer is directed to a self-service area for napkins and straws 8. Customer sits and eats
9. Customer empty his tray in allocated bin and leaves 10. Housekeeping: staff continuously ensures cleanliness of the tables, floor and customer facilities, approvisioning of straws and napkins as well as availability of space in bins. Although the primary purpose of both organisation type is to fufil customer’s needs, there are important differences which will dictate their operational setup, known as the four Vs (Volume, Variety, Variation, Visibility). In the case of Ford Motor Company, we have the typical scenario of a car manufacturer that create batches of the same cars in high volume but in low variety.
Because there is very little variation in demand along with no customer interaction for their operational staff, as such the production line is designed to ensure precision in the similarity of all the finished product. Following Ford’s mission to be “a global family with a proud heritage passionately committed to providing personal mobility for people around the world” and to “anticipate consumer need and deliver outstanding products and services that improve people’s lives”; the operations design allows food quality through the use of both machinery and specialised workers along with a thorough quality check.
However in such a competitive market, their operations process design does not differentiate them from other car manufacturers. Their production line is designed in a very standard way for an automobile producer and does not contribute to differentiating them from others in either cost, quality, time or flexibility. In service-based organisation, systematisation is less likely than in manufacturing due to a higher requirement of customisation from the client.
However, in McDonald’s case, the service-factory type (Chase, 1989) works well because the customer has close to no customisation option it the products ordered along with the fact that there is a low labour intensity. Indeed there is a very limited amount of customer insteraction with any staff member through their experience at the restaurant other than placing their order and paying for it.
The huge marketing activities undertaken by McDonald’s emphasises on the fun aspect of eating at any of the restaurant, but doesn linger on the ordering experience. Customers therefore know what to expect when they walk into a McDonalds store and the current processes design of the front office fulfils the marketing strategy not to give it much importance. Indeed compared to most restaurants where the waitraissing experience is crucial, it has hardly any impact for its customers at McDonald’s because it is minimal. McDonald’s vision is to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile. “ The operation processes of the front-office are running in accordance with the speed statement. Indeed because of the food processing area is completely isolated from the delivery one, it gives the staff working at the counter full focus on service quality and speed of delivery. ) At McDonald’s, capacity planning will be affected by a high level of fluctuation in demand: Seasons: more salads, ice creams and milk-shakes will be expected to be sold in summer whereas more hot beverages will be sold in winter Time of the day: lunch is most likely to be the busiest time of the day followed by dinner time and quieter moments in between School holidays: kids being an important customer-base for McDonald’s, there will be an affluence of them during chool holidays.
To reflect these large changes in forecast demand, McDonald’s needs to employ more staff members during school-holidays and have more staff working during peak-hours. Similarly it will need to ensure that the equipment used for hot or cold beverages will not be overloaded in their star seasons. This chase demand plan is most effective in this case because we are dealing with perishable goods and customer-processing operation. For Ford, the demand is more constant and as such operating a level capacity plan whereby the same amount of cars are produced on a constant basis, achieving stable employment patterns and high process utilisation.
To ensure that the right amount of machinery and staff are available, the Overall Equipment Effectiveness, also known as OEE would be a useful measure to employ. As far as McDonald’s’ customer-processing inventory is concerned, otherwise called “queue”, the first-come first-serve basis is knowingly used. This method is adequate coupled with a continuous control of good utilisation of resources for the demand by using a VUT formula. At Ford Motor Company, the just-in-time concept is being employed.
This concept carries significant sway in the automobile sector as it has been seen to influence a considerable part of purchasing and supply costs in those firms (Waters-Fuller, 1995). However the inventory costs are certainly much lower as cars are manufactured on order. Through their implementation of the just-in-time concept, Ford worked towards developing better and closer relationships with their suppliers which has been positive on many fronts such as improved quality as they outsourced more which directly enabled them to concentrate on core business functions.
However an important consideration to keep in mind in the implementation of the just-in-time concept as part of the overall operations management opportunities is the resulting reliance on suppliers to deliver their contribution to having the just-in-time concept working for the firm (Abraham, Holt & Kathawala, 1990). Unfortunately, the reliance on suppliers to ensure that they do their share of the plan is not always an acceptable proposition for those wishing to benefit from the JIT process.
The stakes are considerable such that a potential issue with one or some of the main suppliers could have a very detrimental impact of the operations of a firm. Similarly for suppliers, heavy investments to match Ford’s requirements keep them bound to the success or failures of Ford’s vehicles (Kerwin, 2004). Using the balanced scorecard approach taken by Kaplan and Norton could be most useful to McDonald’s mostly as it would provide them with global picture of the whole organizations’ performance rather than sub-optimizing around narrow measures (Slack, 2010).
Ford is notoriously using the Six Sigma approach which encompasses a number of measures to assess the performance of operations processes such as failure of meeting customers requirement and various defectuous variables (per opportunity, per million, yield, etc). The Six Sigma concept is relevant to both the servicing industry and manufacuring. Although it was naturally primarily created for the manufacturing industry, it has been adapted to fit around the specifics of servicing. Often referred to as “transactional Six Sigma,” the methodology is proving to be a useful tool in environments that focus more on people and less on product.
McDonald’s works hard to ensure that customers have no surprises when visiting any of their restaurants. To do so they have to work on the same performance measures and regularly inspect that all restaurants match the required level of cleanliness, food quality, delivery speed, customer satisfaction, and delay time. Again using the balanced scorecard approach would be most relevant using the four points mentioned above and narrowing them down into specific factors that contribute to the financial success of the restaurants along with their financial performance. Because of the high unit cost, quality is paramount at Ford.
Hence they have been using quality measures and implemented various concepts to enhance their quality level. In the 1980s when Total Quality Management (TQM) was very popular, Ford They then moved on to Six Sigma which was inspired by TQM between other methodologies. As mentioned before, McDonald’s seeks to satisfy the customer’s expectations by supplying identical burgers every time the customer visits a restaurant. Quality is therefore all about product standardisation as it is an important measure to secure customer loyalty, not to raise the quality of the end product.
Using the TQM methodology in this perspective would enable them to achieve their goal of seamlessness throughout their restaurants at the most economical levels while keeping in mind their customer’ satisfaction. c) It is clear that organisations can use their operations as a critical competitive tool for example through their supply chain management. Organisations are relying more and more on suppliers for the design of their services and goods to concentrate on their core competencies, therefore choosing the right suppliers to partner with is fundamental to the end result.
Quality is also a clear competing factor as firms must ensure that the required level of quality is delivered to meet customer’s expectations. And to guarantee a certain quality level, performance measures must be in place to control the operation in an ongoing basis. As much as capacity planning is crucial to ensure the operation can responds to its demands, how it is addressed will not impact considerably on the competition. Similarly Inventory Management largely impacts on profitability, but will not directly alter the competitive position of a company.
Effective operations management can provide the basis for future innovation by learning from its experience. Innovation can be led by a number of operational activities: supply chain management: suppliers canadd value to the business instead of just relying on delivery of defined components. As this happens, suppliers’ roles shift towards risk-sharing models, which require new collaborative processes and tools. performance measurement: when assessing the performance of the various relevant factors of a firm, innovations can come about when identifying areas that need improvement.
Keeping a rigorous performance plan in place such as the balanced scorecard approach could lead to innovating to achieve the failed goals. Total quality management: TQM’s machine bureaucracy configuration, continually improving the processes already mastered well by reducing variation, may hinder innovation. Indeed increased variation and lower average performance may be desirable to get a winning position in highly competitive situations (March, 1991). Also TQM focuses on employee satisfaction which may be counterproductive as it hinders the identification of fundamental problems and their solutions (Argyris, 1994).
Since environmental issues, poverty, health, increasing consumption, debt, unsustainable human development, and increasing amounts of waste affect everyone, corporations are considering ways to improve these matters and often incorporate them within their corporate strategy under their Corporate Social Responsibility. Supply chain design has an important role to play in this matter; being environmentally concerned with the material used and the transportation between locations (Penfield, 2008) and ensuring that suppliers comply with poverty and health measures.
Similarly capacity planning can consider the energy efficiency of the equipment used and the overall carbon footprint of its operations processes. Since sustainability would not be considered if it was to exacerbate the quality of the end product, having clear performance measurements to ongoingly check the impact of the steps taken towards sustainability is important. Regardless of the type of organisation in question, to be successful operations must retrieve an optimum tade-off between cost, speed, quality , dependability and flexibility.
Developing an operations management strategy will enable an organisation to clearly agree where the trade-offs occur. As the world is evolving and customer’s demands is changing, operations management theories have to be adapted to fit in both the manufacturing and service-based industries.
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