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OPERATIONS MANAGEMENT TASK 1

A Briefing paper that shall explain the basic concepts in Operations Management.
To: Mr. Koros (Supervisor) From: Kruti Patel Date: 23/07/2011 INTRODUCTION James Finlays was established over 250 years ago. The Finlays originated in Glasgow as a trader and manufacturer of cotton. They are best known across the world for their production in tea. They offer many different products associated with tea, flowers or fresh produce. The main focus though will be on the flowers segment of James Finlays. This will include sourcing out information and giving instructions on how they operate with the production of their flowers. What is Operations Management? Operations management is the activity of managing the resources, which produce and deliver goods and services (Slack et al., 2010). Operations can be seen as one of many functions within the organization. Other functions include marketing, finance and personnel. The operations function can be described as that part of the organization devoted to the production or delivery of goods and services. This means all organizations undertake operations activities because every organization produces goods and/or services. Another way to describe operations management would be that it deals with the design and management of products, processes, services and supply chains. It

OPERATIONS MANAGEMENT TASK 1 considers the acquisition, development and utilization of resources that firms need to deliver the goods and services their clients want. Operations can either be in terms of manufacturing or in terms of service. One of the key developments in operations is the increasing importance of service operations as service industry accounts for an increasing proportion of the output of industrialized economies. FOCUS OF OPERATIONAL MANAGEMENT KEY ENVIRONMENTAL FACTORS Many factors in the macro environment will affect the decisions of managers at James Finlay. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. To help analyze these factors managers can categorize them using the PESTEL model. The classification distinguishes between Political factors these refer to government policy such as the degree of intervention in the economy. James Finlay grows and exports its flowers internationally to countries such as UK, continental European markets and Japan. Changes in laws and regulations between the countries will affect the business highly in terms of trade i.e. imports and exports. Political decisions can impact on many vital areas of the business, as the government would try and recover the initial costs of setting up the laws by taxing the business. This will result in higher costs of production therefore causing the company to seek other ways of reducing the costs. Economic factors these include interest rates, taxation changes, economic growth, inflation and exchange rates. James Finlay can be affected by such

OPERATIONS MANAGEMENT TASK 1 factors as high interest rates may deter the investment because it costs more to borrow or a strong currency may make exporting more difficult because it may raise the price in terms of foreign currency. Inflation may provoke higher wage demands from employees and raise costs of salaries and higher national income growth may boost the demand for increased production for flowers. Economic factors are variable to change and therefore are un-predictable. James Finlay will always have to be alert and flexible to these changes. Social factors changes in social trends can impact on the demand for James Finlays products and the availability and willingness of individuals to work. Evidently for an ageing population, costs have increased for businesses like James Finlays, who are committed to pension payments for their employees as their staff is living longer. The ageing population also has impact on demand and therefore increasing the demand for flowers as a gesture of belongingness. In some countries where the population is made up of young people, who are not consistent at work and enable high turnover costs. This increases the costs and reduces the certainty of an organization. Technological factors new technologies create new products and new processes. Looking at James Finlays products who have diversified from just producing tea products to growing and exporting flowers. This is due to technological advances such as online shopping where customers have the chance to order products online, reducing the wastage of time between order and delivery. This also increases efficiency, reduces the costs, improves the quality and leads to newer innovative products. These developments can benefit both the customers and James Finlay. Environmental factors these factors include the weather and climate

OPERATIONS MANAGEMENT TASK 1 change. Changes in temperature can impact James Finlay highly as its main source is farming of tealeaves and flowers. With major climate changes occurring due to global warming and with greater environmental awareness, this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as travel and transportation industries (for example, more taxes have being placed on air travel and the success of hybrid cars) and the general move towards more environmentally products and processes is affecting demand patterns and creating business opportunities. To James Finlay, it will certainly increase their costs of transporting the flowers to international markets. Legal factors these refer to the legal environment in which firms like James Finlay operate. The different categories include: consumer laws, which are designed to protect customers against unfair practices such as misleading descriptions of the products; competition laws, which are aimed at protecting small firms against bullying by larger firms and ensuring customers are not exploited by firms with monopoly power; employment laws, which cover areas such as redundancy, dismissal, working hours and minimum wages. They aim to protect employees against the abuse of power by managers; and lastly health and safety legislation laws, which are aimed at ensuring the work place is as safe as is reasonably practical. They cover issues such as training, reporting accidents and the appropriate provision for safety equipment. James Finlay needs to reconsider all the above legal factors to ensure a safe working environment. The pure competition model does not present a viable tool to assess an industry. 4

OPERATIONS MANAGEMENT TASK 1 Porters Five Forces attempts to realistically assess potential level of profitability, opportunity and risk based on five key factors within an industry. This model will allow us to measure James Finlays strategic advantage over competing firms within the industry in a competitive and healthy environment. It will help in identifying the five forces that determine the long-run profitability of a market or market segment. Supplier power an industry that produces goods requires raw materials. This leads to buyer-supplier relationships between the industry and the firms that provide the raw materials. Depending on where the power lies, suppliers may be able to exert an influence on the producing industry. They may be able to dictate price and influence availability. Therefore James Finlay lacks supplier power as it exports various ranges of products to the international market as it is also affected by the weakening economy changes that are raising costs. Buyer power the power of buyers describes the impact customers have on an industry. When buyer power is strong, the relationship to the relationship to the producing industry becomes closer to what economists term as a monopsony. A monopsony is a market where there are many suppliers and one buyer. Under these market conditions, the buyer has the most influence in determining the price. James Finlay has buyer power where it can decide where to purchase its raw material from such as the seeds and fertilizers on a large scale. Entry/exit barriers the possibility of new firms entering the industry impacts competition. A key to assess how easy it is for a new player to enter an industry. The most attractive segment has high entry barriers. Although any firm should be able to enter and exit a market, each industry often presents 5

OPERATIONS MANAGEMENT TASK 1 varying levels of difficulty, commonly driven by economics. Due to the recent effects on the weakening Kenya shilling and rising costs, it is believed to be a very unattractive market to enter into even though the barriers to entry are made simpler to pertain. This is beneficial for James Finlay in terms of facing competition in the local market but quite opposite when it comes to the international market. Substitutes these are those products that are available in other industries that meet an identical or similar need for the end user. As more substitutes become available and affordable, the demand becomes more elastic since customers have more alternatives. As the production of flowers has reduced due to drought, international markets can source substitutes for flowers from other flower-producing countries, which have a great impact on James Finlay in terms of raising prices and improving profit margins. Rivalry firms strive to secure a competitive advantage over their rivals. The intensity of rivalry varies within each industry and these differences can be important in the development of strategy. James Finlay does face competition on a high scale, as its rivals are all the flower firms that are based on the international market. BASIC OPERATIONAL STRATEGIES Marketer strategy Caretaker strategy Technological strategy Innovator strategy

OPERATIONS MANAGEMENT TASK 1 CONCLUSION The strategic importance of operations management in decision-making process at James Finlays is that