Operations Management in Action
For this assignment we have been asked to research the Industry sector, choose a business within that sector, and then analyse and evaluate the business we have chosen from an operations manager point of view.
First we must know what the Industry sector is. According to oxford dictionary the word industry means ‘Economic activity concerned with the processing of raw materials and manufacture of goods’ (Oxford Dictionary. 2014).This means that the industry sector have businesses within it that deal with the processing of raw materials and manufacture of goods. This is also called the secondary sector or manufacturing sector.
In 2009 the UK manufacturing sector generated £140bn in revenue this is 11% of the UK total economy. This sector also employed 2.6 million people which equals out to be 8% of the UK workforce. The whole sector itself is spilt up into 14 different industries by the government which include textiles and chemicals (BIS. 2010).
The business I have chosen is Kier Group plc. The reason that Kier Group plc fit within the Industry sector/secondary sector is because this is a construction firm that deals with turning raw materials in a finished products i.e. turning bricks into buildings.
Kier Group plc offers their services to the public and private sectors, these services include ‘civil engineering, mining, mechanical & electrical design and installation… and 3D modeling’ (Kier Construction. 2014). An example of public sector customer would be the Northampton Borough Council in creating their new £7 million North Gate Bus Station (Northampton Chronicle & Echo. 2014). An example of a private sector customer would be Network Rail Infrastructure Ltd, as Kier Group plc did the King’s Cross Station roof refurbishment (Kier Group. 2013). Kier Group plc’s clients are often other business or large public bodies such as Councils due to their ability and proven track record with multi-million pound contracts that they are asked to do or win the contracts against other competitors such as Balfour Beatty PLC. Kier Group plc operate on a global scale however some parts within Kier Group plc work within the U.K.
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Any organisation can be shown as multiple of input/output diagrams in a hierarchy format. At the bottom of this hierarchy would be the customer’s needs being transformed into consumer satisfaction (Muhlemann, A. Oakland, J. Lockyer, K. 1993). As every business is made with the customer in mind even if the businesses overall goal could be to maximise profits they still need the customer. However other input/output diagrams in the hierarchy differ from business to business. As a car mechanic shop wouldn’t use the same ways to satisfy consumers as a bridal dress shop would.
As Kier Group plc deals with construction it has a specific inputs and outputs. Five inputs of Kier Group plc would be skilled labour, high quality equipment, energy, building materials, and basic project designs. Three outputs of the company would be buildings, infrastructure, and recycled materials.
Skilled labour is an input for Kier Group plc because to be able operate as a building business they would need skilled labour. This is because the jobs that the business could be doing may have a high risk of doing lots of damage not just money’s terms but in personnel terms as well. This would also be beneficial to the business as it could lead to being more productive due to the skilled labour however it would be costly hiring someone that’s highly skilled or even over skilled for the job rather than someone who could just about do the job. But in the company’s overview they want to offer clients ‘world-class solutions’ (Kier Group. 2014)which suggests that the highly skilled labour would be used.
High quality equipment is would be a specific input for Kier Group plc due to the nature of the job that the business gets inquired about. These can be very complex jobs such as the Kings Cross Station roof refurbishment. Not only did they refurbish an iconic building roof, the station had to stay open with thousands of people walking underneath the building work. This shows the high quality equipment would be needed as an input.
The reason that energy is needed as an input as the business would be using computers to design projects and also it would be needed to power equipment on site. It is a needed input in this business.
Building materials are a vital input to the business as they are needed to get to the final product. Without these, the business would not be able to run as a construction business. Kier Group plc need to start from a basic project design to be able to make what the customer want like the business to make. That’s is why basic project designs is a needed input for the business. As Kier Group plc have architects that would design the final product from these basic project designs whether it would be a finish building or a new part for railways.
A specific output for Kier Group plc would be buildings as this is the main product/good that the business produces. They way in which this would be produced from inputs would be via project process. Project production is a type of production that has low volume of products but high variety between each one. This means that each new project would be different from the last using different materials with different quantities. They also have to be made in a fix location which is one of the classifications of a project production. During the production of each building uses a mixed process technology it uses manual and mechanised. This means that during the production of each building there are parts which are done via hand with no machinery and there are parts where machinery is utilised but under the control of humans (Evens, J. 1993).
Infrastructure in another output of Kier Group plc as it doesn’t only make buildings it also builds roads, railway parts and much more which is a vital part in the UK’s infrastructure. These would also be produced in a project production as each part of infrastructure they make would be different from another part.
One other output the Kier Group plc produces are recycled materials. Kier Group plc has a recycling service which is used in many counties. Recycled materials go through many processes. It is made via continuous flow production as it has a high product volume, there’s some although not much product variety. During the processes the recycled material goes though there are a high number of automated and specialised equipment that does a large amount of the work. There is also labour that take out any rubbish that can’t be recycled or shouldn’t be in that particular recycling line this doesn’t require high skills. The reason that it is not a Mass production is that there isn’t any variety between each product at the end (Evens, J. 1993).
The demand for the products and services the Kier Group plc produce usually depend on the economic state of the country but there are also other factors the affect the demand for the business. These factors include: globalisation, demand for more sustainable construction, demographic changes and increasing importance for technology use in construction.
The demand for the products and services that Kier Group plc produce usually depend on the economic state of the country but there are also other factors the affect the demand for the business. These factors include: globalisation, demand for more sustainable construction, demographic changes and increasing importance for technology use in construction.
The reason that the state of the economy affects the demand for Kier Group plc’s products and services is because buildings and infrastructure is capital which helps boost long term growth. These are the first things that are cut if the economy was to go into decline. When the recession hit in 2008 according to House of Commons there was a fall by 6.2% in gross value added for the construction industry, followed by a 7.9% fall in GVA, then an increase by 1.1% in 2011, and then followed by a 6.0% drop in GVA during the double dip recession (Rhodes, C. 2013). This data shows there is a correlation between the construction industry including Kier Group plc and the state of the economy.
The demand for more sustainable construction also impacts the stability of the demand of Kier Group plc’s products and services because if the business doesn’t offer the right amount of sustainable construction or by offering ‘green’ alternatives they may lose customers and clients. As new legislation is soon to be coming into action due to the UK’s recent air pollution issues this would mean a possible overhaul of more carbon producing processes. However to overcome this Kier Group plc currently generates 10% of its revenue by using recycled material, low energy alternatives and more sustainable materials (Fry, C. 2014)
Every business needs demand to be able to sell its good and/or services however you need to be able to have enough capacity to meet this demand. Capacity planning is vital in operations strategies. Capacity is best when it around 75-90% utilised. Having capacity between these levels means that you should still be able to cope with new clients without having to turn larger clients down and also you won’t be running with excess capacity. Excess capacity is a large cost on businesses and may lead to layoffs and department closures (Hill, T. 1991)
There are 3 different strategies that a business can use to plan capacity to meet demand. These policies are: Matching Capacity with Demand, Excess Capacity, and Capacity Shortage Policy. Matching capacity with demand means that the business tries to keep as close to demand as they possibly can.
This policy means that it sometimes has excess capacity in which it has the ability to get more clients or customers. However it also means there is a shortage of capacity. During these times a business would have to subcontract out work to get a short term increased capacity or they would lose sales this could come from poor quality of work from being rushed to compete work.
A Capacity Shortage Policy is when there is a gap between the demand and the capacity where demand is always higher than capacity. As there is a high capacity utilisation this means there is a strong return on investment. This type of policy is usually best for goods or services that usually relate to status or are in fashion. This would mean that there is a high capacity utilisation which in turn leads to a strong return on investment. For example the iPhone 4 White. When it came out it was being sold quicker than it was being made.
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The way that Kier Group plc plan their capacity is by a strategy called Excess Capacity Policy (Fry, Colin. 2014). This policy means that the business has a goal of maintaining enough capacity to be able to meet with demand or to reduce the chance of not meeting demand. Although this policy can lead to higher costs than the other two polices it is the best policy for this business. This is because the business does not know if they are going to win a bid for a client so there needs to be spare capacity in case they do win the bid. As large construction businesses get invited to present their bid on large projects so the business always need to be prepared for these invites.
Kier Group plc could better utilise operations management to counter some of the challenges that it has in the ever changing market place. It could utilise Lean Operations more this is because there is going to be more legislation regarding reducing waste and carbon footprint. It’s better to be proactive to changes in legislation than to be reactive as it shows the business has a strong CSR which customers and clients look for.
Lean Operations is minimising the amount of waste there is in order to operate quicker, produce higher quality work and also to operate at low costs. The reason that lean operation is suited for Kier Group plc is because in the lean approach there is a focus on producing only when there is a need to produce, this does mean there is a lower capacity utilisation however this fits in well with the Excess Capacity Policy has the business already is implementing.
Some of the techniques that could be used in lean operations for the business could be JIT supply and Total Involvement. JIT supply means just in time supply. This means that you wouldn’t receive materials until you need those materials (Hill, T. 1987). This would be useful in the business because it means there wouldn’t been material they don’t need wasting space in a construction site. For example the wouldn’t need a road tarmaer when the drainage is still 3 days away from being completed not only could it be wasting space it could be in the way of workers increasing the distance from the materials they’re using to the place where they need to use them. If 10 workers had to go an extra 20 seconds out of their way whilst this tarmacer was 3 days early and each worker had to do this trip 40 times a day that adds an extra 400 minutes on their travel overall on the 3 days the tarmacer was there. With JIT supply the tarmacer would arrive on the day it was needed saving the 400 minutes which could have been wasted.
Total involvement is when everyone within the business is aware of the lean approach of the business. If everyone is doing it, it would become second nature to abide by the 5S’s of lean operations. These are sort, straighten, shine, standardise and sustain (Muhlemann, A. Oakland, J. Lockyer, K. 1993)
Sort means to eliminate what is not needed and to keep whatever is needed in the production of goods. Straighten means to place tools and equipment is such a way that is it easily accessible as lots of time is spent looking for tools that have been misplaced. Shine is to keep things clean and tidy. This could lead to less injuries due to slipping over dirt or waste packaging. Standardise means to keep to a certain level of cleanliness and sustain is to keep to this standardisation throughout each product life cycle.
These methods of lean operations keep Kier Group plc near the top of the construction market as they would be less wasteful, operate with lower costs and also could lead to a better workforce from total involvement as everyone would feel they are impacting the businesses performance.
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Northampton Chronicle & Echo. (2014).Your questions answered about the new North Gate bus station.Available: http://www.northamptonchron.co.uk/news/business/business-news/your-questions-answered-about-the-new-north-gate-bus-station-1-5888441#. Last accessed 23/03/2014.
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By Chris FryBUS2010-STD
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