Operations Strategy

Lesson 5. Controlling

1. Controlling as a management process
2. Managerial control methods
3. Operations management
4. Information systems in management

Controlling as a Management Process. Subject and Object in Controlling. Role of Controls and Levels of Control. Steps in the Control Process. Types of Control. Managerial Control Styles. Assessing Control Systems.

Major Control Systems. Financial Control. Financial Statements, Financial Audits. Budgetary Control. Types of Budgets, The Budgetary Process. Quality Control. Inventory Control. HACCP, ISO systems. Strategic Implications of Quality. Quality Assurance Institutions.

The Nature of Information Systems and their importance in the controlling process. Information Needs by Managerial Level. Characteristics of Useful Information. Impacts of Information Technology on Organizations.

Operations Management and Controlling Function. The Operations Management Process. Operations Strategy. Developing and Implementing Operating Systems.

Controlling as a management process

Controlling: the process of regulating organizational activities so that actual performance conforms to expected organizational standards and goals.

Meaning: developing appropriate standards, compare ongoing performance against these standards, and take corrective actions if necessary.

Part of the control process: set up control systems: set of mechanisms that are designed to increase the profitability of meeting organizational standards and goals. Can be established for any areas that managers think are important.

Levels of controls

Strategic: control type that involves monitoring critical environmental factors that could affect the viability of strategic plans, assessing the effects of organizational strategic actions, and ensuring that strategic plans are implemented as intended.

Tactical: type that focuses on assessing the implementation of tactical plans at department levels, monitoring associated periodic results, and taking corrective action as necessary.

Operational: involves overseeing the implementation of operating plans, monitoring day-to-day results, and taking corrective actions.

The control process: steps

1. Determine areas to control

Managers make choices – usually on the organizational goals and objectives developed during the planning process.

2. Establish standards

Three major purposes, related to employee behavior. First, help employees understand what is expected and how their work will be evaluated. Second, provide a basis for detecting job difficulties that are related to personal limitations of organization members. Third, help reduce the potential negative effects of goals inconsistencies (incompatibilities between the goals of an organization member and those of org-n).

3. Measure performance

For a given standard, a manager must decide both how to measure actual performance and how often to do so. One – MBO. Means of measuring – depend on standards; ex. Units produced, profits, return on investment, quality of output, steps or processes followed, etc.

Quantitative and qualitative measurements: easy to measure the number of minutes to fill the order vs. polite to customers, etc.

Decisions on how often to control performance for control purposes.

1. Compare performance against standards;

based on the reports, that summarize planned versus actual standards.

1. If standards met or Exceeded, Recognize Performance.
2. If standards are not met, take corrective action as necessary
3. Adjust standards and measures as necessary.

Characteristics of an effective control system

Future-Oriented: need to help regulate future events

Multidimensional: in order to capture the major relevant performance factors

Cost-effective: but benefits should outweigh the costs

Accurate: because of basis for future actions

Realistic: control systems should incorporate realistic expectations about what can be accomplished.

Timely; Monitorable- (can be monitored to ensure that they are performing as expected)

Acceptable to organization members (who are effected by them)

Flexible: to respond rapidly to changing environments. Can be changed quickly to measure and report new information.

1. Managerial control methods

Managerial Level and Timing Emphasis

Control systems tend to differ somewhat in the degree to which they are used by different managerial levels. Ex. Financial – primary control mechanism used by top-level management – ‘cause relate to overall financial wealth; quality – lower levels.

Timing: in regard to degree to which controls take place: before (feed forward), during (concurrent), or after (feedback).

Financial control:

Use of financial statements: a summary of a major aspect of an organization’s financial status.

Balance sheet: a financial statement that depicts an organization’s assets and claims against those assets at a given point in time.

Assets: the resources that organizations controls, fall into two main categories: current and fixed.

Current: cash and other assets that usually are converted into cash or are used within 1 year (marketable securities, accounts receivable, which are sales on credit, inventory)

Fixed: assets that have a useful life that exceeds 1 year (property, buildings, equipment)

Claims: liabilities and shareholders’ equity.

Liabilities: claims by non-owners against company’s assets (debts owed to non-owners, such as banks). Two categories: current and long-term.

Current: accounts typically are paid within 1 year (accounts payable current bills tha company must pay, short-term loans)

Long-term: debts usually paid over 1 year (bonds)

Shareholders equity: claims by owners against the assets; equal company’s assets minus liabilities.

In essence – the organization’s net worth; represented by stock and retained earnings (funds accumulated from the profits of the organization).

Income statement: a financial statement that summarizes the financial results of company operations over a specified time period, such as a quarter or a year.

Budgetary control

Budgeting: the process of stating in quantitative terms, usually currency, planned organizational activities for a given period of time.

Budgeting process: incl. projected incomes, expenditures, and profits.

Quality control

Quality: the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

Total Quality Control: a quality control approach that emphasizes the organisationwide commitment, integration of quality improvement efforts with org. goals and inclusion of quality as a factor of performance.

Eight dimensions: Performance, Features, Reliability, Conformance, Durability, Serviceability, Aesthetics, Perceived quality (subjective assessments). Total quality control (TQC), HACCP, ISO

Inventory Control

Inventory: a stock of materials that are used to facilitate production or to satisfy customer demand

Major types of inventory

Raw materials inventory (inputs), Work-in-process (currently being used, transformed into a final product), Finished-goods (have been produced)

Inventory control methods:

The economic order quantity (EOQ): An inventory controlmethod developed to minimize ordering plus holding costs, while avoiding stockout costs.

Just-in-time (JIT) inventory control: an approach to inventory control that emphasizes having materials arrive just as they are needed in the production process.

1. Operations management

Operations Management: The management of the productive processes that convert inputs into goods and services.

The concept applies to both manufacturing and service industries.

Major aspects of OM:

Operations strategy, operating systems, facilities (expansion and contracting decisions, facilities location, and layout), and process technology.

Productivity: An efficiency concept that combines the ratio of outputs relative to inputs into a productive process. = gods &services produced (outputs) / labor+capital+energy+technology+materials (inputs)

To improve, 5 major steps: determine a base, establish desired productivity level, review methods of increasing productivity, select a method and implement, and measure results and modify as necessary.

Operations Strategy

Inputs (raw materials, human resources, capital, information, technology)

Transformation Process (Operations Management: strategy, operating systems, Facilities, process technology)

Outputs (Goods and Services)

Major systems used in operations management:

Management – Capacity Planning (Current Capacity) – altogether Aggregate Production

Planning

Master Production Schedule – Materials requirements planning (Capacity requirements planning) – Purchasing – altogether Production

MRP: computer based inventory system that develops materials requirements for the goods and services specified in the master schedule and initiate the procurement actions necessary to acquire the materials when needed.

1. Information systems in management

The nature of information systems

Data vs. Information

Data: Unanalyzed facts and figures

Information: Data that have been analyzed or processed into a form that is meaningful for decision makers.

Electronic data processing: transformation of data into meaningful information through electronic means.

Information system: a set of procedures designed to collect (or retrieve), process, store, and disseminate information to support planning, decision making, coordination, and control.

Characteristics of useful information:

Relevant- directly related to the decision in hand

Accurate – correct

Timely: available when needed

Complete: comes from appropriate sources and covers all the areas that are required by the decision maker.

Concise – provide the level of summarization that is appropriate to the particular decision.

Information needs according to management levels

Major types of IS:

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