Operations Management
The barriers to communication and
transportation are crumbling and the global marketplace is revolutionizing into
a playing field that has never been so equal.
Efficiency and effectiveness are two of the most powerful words that
have surfaced in this new era of business where maintaining a competitive edge
is the difference between succeeding and faltering to bankruptcy. At the forefront of this expanding new
frontier is a relative young an innovative management strategy known as
operations management. According to
Heizer and Render "operations management is the set of activities that
creates value in the form of goods and services by transforming inputs into
outputs." This definition can be
used to explain two types of outputs, tangible and intangible. A tangible output or good is something
physical that can be inventoried, resold, transportable, selling is distinct
from production and is often easy to automate. Examples of tangible products
could be cars, televisions, baseball hats or even log homes. Whereas an intangible output or service is
something that can not be physically touched but provides something of value to
the consumer. Services usually cannot be
inventoried, selling is often part of the service, they are produced and
consumed simultaneously, and the site of the facility is essential for customer
contact. Buying airplane tickets, seeing
a physician, getting a haircut and having an investment manager are all
situations where the service is unique and is not tangible.
In order to
create goods and services all businesses have to execute three functions:
marketing, production/operations, and finance/accounting. Even though this paper will focus on
operations it is important to briefly discuss all three functions in a broad
sense. When an organization markets to a
larger target audience its goal is to stimulate demand to relieve some of the
surplus supply. In some simplistic cases
it merely means taking the order for a product.
Marketing can appear in several forms from commercials to coupons. Production/operations creates the product,
whether it be a good or service.
Finally, Finance/accounting tracks how well the company is doing, where
money is being allocated, and collects money from consumers.
This paper will focus on the key concepts that
revolve around operations management, with an intense concentration on the ten
decision making areas. Following the
background information on operations management, the paper will discuss two
Nordic companies, Nordea Bank and Honka Homes, both of which adhere to the same
decision making paradigms but have two very different outputs.
History of Operations Management
There are several prominent
contributors that gave way for a more formal understanding of what is now known
as operations management. The OM
discipline is centered around efficiency. The innovation of interchangeable
parts by Eli Whitney in 1800 provided for groundbreaking speed and cost
effectiveness. Since the same parts
could be used for several different products the amount of time needed to
produce a musket, in Whitney's case, was substantially reduced. Another vital player in the operations
management arena was Fredrick Taylor, who believed that "management should
be much more resourceful and aggressive in the improvement of work
methods." (Heizer and Render, 9) His belief led to matching employees to
the right job, providing proper training, providing proper work methods and
tools, and establishing incentives for work to be accomplished. When an employer culminates all four above
criteria it creates an environment that fosters a more productive labor force
thus becoming a more efficient organization.
The last individual that has been highlighted as a man that pushed
operations management into the 20th century was Henry Ford and the
development of the assembly line. Ford
with help from Charles Sorenson extracted what they knew about the
quasi-assembly lines of the meatpacking and mail-order industries and
implemented their information into the manufacturing industries. The result was an assembly line factory where
the men stood still and the cars (in this circumstance) came to them allowing
for unprecedented turnover from turning inputs into a highly lucrative output.
The Productivity Challenge
In today's international business
climate, competition has become fierce with competitors in every corner of the
globe vying for the same share of the market. The underlying factor of a
successful company is how it handles productivity. Productivity defined in its most rudimentary
form is the ratio of outputs (goods and services) divided by the inputs
(resources). The sole objective of the
operations manager is to increase the ratio of outputs relative to inputs. In other words, increased productivity is
being able to produce the most goods/services with the least amount of
resources feasible. By allocating a
smaller portion of resources to each output: you are cutting costs per
good/service, saving valuable resources that can be used to produce more
outputs, and in the long-run increasing the net profit that an organization
gains from producing that output.
One can
further break-down the productivity challenge by analyzing the three variables
that an operations manager can utilize to increase the productivity for their
organization. Labor is the first
variable and by providing adequate training, a balanced diet and social
conveniences (such as transportation and sanitation) worker morale, health and
overall productivity will increase.
These are very basic elements of increased labor productivity, more
advanced variables are incentive strategies, team building, and higher levels
of education. Capital is the second
variable and is often in a tug-of-war with labor. The more the economy invests in capital the
less labor is used and the inverse is true when capital investment is
decreasing. When the capital investment
per employee drops, society can expect that productivity per employee will also
decrease. The final variable in the
productivity equation is management. An
OM manager can carefully balance the capital to labor ratio, which will enable
their business to stay afloat if the economy takes a turn towards the red. By using knowledge and innovative
applications of technology managers can improve the effectiveness of the labor
and capital to increase the overall productivity of a company. More specifically an OM manager acts as the
"productivity catalyst." They have the duty of selecting the best new
capital investments and deciding which current investments are still
profitable. To excel as an operations
manager you need to exclusively use the highest quality of inputs which will
produce the highest quality outputs. A
company can not succeed if its operations manager is using inadequate inputs
such as poorly educated workforce and antiquated technology.
Competitive Advantage
After visiting the Nordic Countries
and the companies that call them home I found that this section in operations
management on competitive advantage was extremely pertinent and enabled me to
gain a grasp of what a global marketplace actually is. When a company exhibits a competitive
advantage, "it implies the creation of a system that has a unique
advantage over competitors…via differentiation, low cost, and response."
(Heizer and Render, 29) Not only does an
operations manager have to develop a competitive advantage in their domestic
environment but also the international environment as well. This increases the complexity to achieve an
edge over your competitors both near and far due to fact that certain regions
of the world may have advantageous inputs that your region may not have, i.e.
cheaper labor, vast natural resources or efficient transportation. When an operations manger optimizes the
differentiation approach to gaining a competitive advantage they are concerned
with providing an output that is unique and sets them apart from the competition. Their goal is to "distinguish the
offerings of the organization in anyway that the customer perceives as adding
value."(Heizer & Render, 30)
Another avenue that an operations manager can move towards is becoming a
low-cost leader. A company that employees
this strategy is "achieving maximum value as defined by your customer…by
examining each of the ten OM decisions in a relentless effort to drive down
costs while meeting customer expectations of value."(Heizer & Render,
30) To execute this competitive
advantage and operations manager needs to have fast a turnover of
products/services, decreasing overhead costs, and by matching capacity to
demand. Two US companies that illustrate
being a low-cost leader are Southwest Airlines and the mega-superstore giant
Wal-Mart. When a company cannot compete
with the previous two strategies they can opt for the third option,
response. A response approach entails a
company to have the ability to provide flexible, reliable and quick replies to
"sudden changes in a marketplace where design innovations and volumes
fluctuate substantially." (Heizer & Render, 31) More specifically quickness refers to the
speed in design, production and delivery of a good/service. A company that can implement an effective
response advantage can penetrate any market because of its ability to conform
and assimilate to meet the needs of its new consumer base. All three of these concepts of competitive
advantage can be actualized by the operations manager either individually or
sometimes in unison to allow a company to increase productivity and in the end
profitability.
The Ten Decision Making Areas
The foundation of operations
management relies heavily on the operation manager's ability to make effective
and timely assessments in the ten strategic decision areas. The ten areas include: (1) goods and service
design, (2) quality management, (3) process and capacity design, (4) location,
(5) layout design, (6) human resources and job designs, (7) supply-chain
management, (8) inventory, material requirements planning, and JIT, (9)
Intermediate and short-term scheduling and (10) Maintenance. These ten decision making criteria are an
integral facet of an operations manager's job and more importantly how these
decisions are made will affect how a company will fare in the global and
domestic marketplace. In this section of
the paper I will explore each of the ten areas and provide in-depth details of
real life application and implementation.
Product and Service Design
Product and service design are fundamental to the
structuring of an organization and affect every aspect of the organizations
strategy. The design of the output is
the primary prerequisite for the costs, quality, and human resource decisions
that accompany that output. For instance
when an operations manager is debating the design of a product/service they
must take into consideration what will be the lower limits of cost and the
upper limits of quality. In addition,
making sure that the company can allocate the appropriate amount of funds to
produce or provide such an output. It is
essential that the operations manager fastidiously decides which design to
produce because the implications of a poor decision could resonate throughout
all of the operations functions. Another
component of product/service design entails the development of strategies to
propel outputs that are already in existence.
Outputs progress through a life cycle that is segregated into four
categories: introductory, growth, maturity, and decline. Operations managers not only have to create
new product designs they also have to generate strategies for outputs that are
in various stages of their life cycle.
Quality Management
According
to Heizer & Render, quality is the ability of a product or service to meet
customer needs (156). Quality management has become such an influential element
of doing business that companies have adopted the cost of quality (COQ) model
to predict the possible financial burdens of selling a product that is flawed. The COQ recognizes prevention costs,
appraisal costs, internal failure, and external costs as foreseeable quality
management issues that could not fulfill the needs of the customer. Furthermore, an international body has come
forward to create a unifying single quality standard known as the ISO
9000,0ihich published a series of quality assurance standards. For a company to become a member of ISO 9000,
they must be observed for 9 to 18 months and must meet rigorous quality
standards on their goods and services.
However, quality control cannot just focus on individual products in
order for an operations manager to be successful they need to implement total
quality management (TQM). TQM embodies
the entire organization, from supplier to consumer, to follow a stringent quality
management emphasis. TQM incorporates a
wide range of methods from the plan, do, check, act circular flow model which
provides a company a template to have continuous improvement to the six sigma
process. Six sigma is a statistical tool
that aims to help reduce defects to a 99.9997% capability rate. Quality in its most basic sense is making the
consumer content with their good/service and it is the obligation of the
operations manager to ensure that quality awareness is involved with each of
the ten decision areas.
Process and Capacity Design
Process and capacity design or
"process strategy" is taking that designed good/service and deciding
the most profitable way to produce it.
This decision area focuses on the transformation of an idea into an actual
output. The process needs to meet
customer requirements while at the same time satisfying product specifications
in regards to costs and labor. There are
four directions an operations manager can pursue as a process strategy: process
focus, repetitive focus, product focus, and mass customization. Process focus is when a production facility
organizes around processes to facilitate low-volume, high-variety
production. A major benefit of process
focus is that is allows for a large degree of flexibility because products can
move intermittingly between processes, whereas repetitive focus is more
structured and consequently less flexible than process focus. Repetitive focus is essentially a traditional
assembly line that utilizes modules that are prepared before production
begins. The third option, product focus,
is a high-volume, low -variety process where the facilities are organized
around the products. In order for a firm
to effectively use this option it must operate with high levels of standardization
and immense quality control benchmarks.
Lastly, an operations manager can pursue mass customization as process
strategy. This entails rapid, low-cost
production that caters to unique customer desires. Mass customization is the most intricate of
the four processes and bestows upon the operations manager to make imaginative
and aggressive use of organizational resources to accommodate the unique needs
of their consumers.
Location
When analyzing a company's potential
fixed and variable costs the chosen location is a monumental predictor of the
profitability and overall risk of the company.
An operations manager has a myriad of criteria that needs to be
addressed in order to determine where the plant will be situated domestically
or globally. The cost drivers for this
decision can range from labor costs, transportation costs, strength of the
economy, utility expenses, taxes, demographics, etc. In addition the type of
company weighs on where to set up shop ranging from low cost orientated
manufacturing firms to highly trafficked areas for retail and professional
service organizations. The location of a
company has crucial repercussions if the operation manager decides poorly in
where to establish the company. It is a
long-term decision that is not easily reversed.
Layout Design
Efficiency should be the principal
concern of operation managers when they are designing the layout of their
company. Like the rest of the 10 OM
decision areas, the layout depends on the type of firm that you work for. Heizer & Render describe seven types of
layouts: office, retail, warehouse, fixed-position, process-orientated,
work-cell, and product orientated layouts.
Each of the above layouts has characteristics that are advantageous to
their specific industries. For instance
an office layout has to position workers, their equipment and the actual
offices in such a way that the flow of information is seamless. A9lternatively, a warehouse layout has to
balance space allocation and the relatively ease it takes to handle the
materials. When operation managers
meticulously craft layouts they are increasing productivity, increasing
efficiency, which decreases costs and culminates to increased profitability.
Human Resources
Without people the transformation of
raw resources into a finished product and especially a service would be
impossible. That is why companies around
the world are developing human resource strategies that manage labor and design
jobs so employees are utilized effectively and efficiently. The key to improving the quality of work for
an organizations employee depends on the design of the job. Job design is a multifaceted approach that
combines employee empowerment and method analysis. In order to get the greatest output per
worker the operations manager wants to foster an environment where the
"associate" has a highly specialized job in which they are allowed
freedom from the centralized policies to contribute to the company in their own
way. Additionally, the management team
wants to create a framework of incentives that coincides with their employees
job enrichment. There are multiple types of motivational rewards such as
bonuses, profit sharing or even gain sharing.
Of course employee empowerment is a loosely regulated method of
management but it is the job of the operations manager to shadow their
employees to ensure that they are meeting benchmarks and accomplishing company
objectives. The second fork of
developing an effective and efficient job design is by improving the interface
between human and machine and/or facility.
This encompasses appropriate lighting for the skill at hand, or
diminishing the amount of distracting noise penetrating the work place.
Supply-Chain Management
The most
difficult aspect of operational manager's responsibilities is creating a
reliable, sustainable and most importantly efficient supply chain. According to Heizer and Render,
"supply-chain management are the activities that procure materials and
services, transforming them into intermediate goods and final products and
delivering the products through a distribution system." ((Heizer and
Render, 336) The complexity of supply-chain management involves making critical
decisions all along the chain. From
deciding whether to outsource a certain part of production to an external
entity to save costs or what method of inventory response you want your
organization to utilize. Furthermore, as
technology progresses so do the advances in supply-chain management. Radio Frequency ID Tags (or RFID) could
revolutionize inventory management in every sector. The tags provide real-time data on the
products in the warehouses inventory and can increase supply orders if the
store suddenly experiences a surge in demand.
This enables the store with just the right amount of products on the
shelves to ensure full capacity. Another
phenomenon that is spreading globally is internet purchasing (or
e-procurement). Internet purchasing can range from meaning the communicating in
a supply-chain via internet to having the end-users purchasing goods or
services directly from the manufacturing and bypassing several stages in a
company's supply-chain.
In the realm of international
business the ability of an operations manager to create an affective
supply-chain is even more pivotal. Not
only do they have to navigate the tumultuous waters of coordinating between
suppliers, manufacturers and distributors, operation managers have to
understand country variances in regulations, tariff and quota policies and
numerous other factors that can inhibit the transit of goods and services
across borders. An example of one of
these hurdles an operations manager might have to face could be a Keiretsu
Network, which is a "Japanese term to describe suppliers who become part
of a company coalition." (Heizer and Render, 344) Keiretsu Networks are an
important component of Japanese business and would be a difficult obstacle for
a foreign company who is looking to capitalize on that supply-chain.
Inventory Management
Inventory Management is three-tiered
element of operations management that is vital to the success of a
company. It consists of independent
demand, dependent demand and JIT and lean systems. The principal reasons for inventory
management are to "decouple" various parts of the production process
to capitalize on cyclical influxes in demand and relinquish some of the power
that suppliers and distributors have over the manufacturer. There are four types of inventory management:
raw material, work-in-process, maintenance/repair/operating, and final goods inventories. All four these inventory strategies are
located in various stages in the supply-chain.
In order for inventories to be profitable for a company they have to be
meticulously accurate to guarantee that there are not any discrepancies that
could result from shrinkage or pilferage.
Furthermore, independent demand is centered around when to order and how
much to order. The primary objective of
independent demand is minimizing holding, ordering and setup costs while
balancing the amount of products needed to keep the shelves stocked.
Dependent
demand (or a material requirements plan) is a factor of inventory management
that revolves around the storing of components that are dependent on
others. Such as the ordering of screws
for a furniture company, the quantity of screws is directly correlated to the
number of chairs produced. In some
instances this process of inventory management is more crucial to success
because without the tools and parts needed to produce a good there wouldn't be
a good. That is why OM managers have to
develop detailed ordering schedules, minimize lead times and create
comprehensive bill of materials. The
more dependable a purchasing system is the greater the probability of
profitability not only for the company but also for the OM manager.
Lastly,
Just-in-time (JIT) and lean production are two concepts in inventory management
that heavily rely on waste minimization. JIT is a fast past method of
management that depends on goods to only be pushed through the inventory when
needed thus reducing holding costs by maintaining the minimum amount of
inventory necessary to keep a perfect system running. JIT takes an internal focus to reduce waste,
whereas lean production "begins externally with a focus on the
customer." (OM, 503) The operations
manager has to find what the customer values and then must optimize on
inventorying those goods in order to minimize wasted holding costs on
unnecessary goods. When JIT and lean
production are utilized in unison it creates a very profitable supply
chain.
Scheduling
The ability
of a company to plan out its short and long-term objectives is imperative to
its effectiveness and efficiency.
Scheduling is the timing of operations and can be delineated down into
aggregate and short-term scheduling.
Aggregate scheduling incorporates consolidating all the functions of a
firm into a single schedule that map out the long-term goals of the company;
ranging from determining the size of the work-force to changing prices to
influence demand. Many operations
managers prefer to use charts or graphs to simplify sales and ordering
forecasts while others prefer linear programming format.
The essence of short-term scheduling
is the capacity of a firm to meet possible surges in demand that were not seen
in the long-term forecasts. Forward and
backward scheduling defer in terms of when to start the scheduling to meet
demands. The former starts as soon as
the requirements are shown while the latter starts with the due date and works
in reverse. Additionally, operations
managers need to decide whether to focus on projects with the longest
processing time or the first job that comes through the system.
Maintenance
Maintenance is the final OM strategy
decision and is often the most overlooked decision. Ensuring the equipment needed to produce a
good/service is functioning efficiently without devastating breakdowns is
crucial to the long-term stability of a company. The longevity of capital is dependent on
"employee involvement and good procedures."(OM, 512) If the proper protocols are followed the mean
time between failures (MTBF) will increase allowing for more productive
capital. Moreover, if the operations
manager maintains diligent preventative maintenance measures through routine
inspections and can provide remedial maintenance, the probability of equipment
downturn diminishes drastically.
Company Analysis: Nordea Bank v. Honka Homes
Operations Management is a
multi-faceted set of decision making activities that can not only be used to
describe domestic American companies but also companies that call the Nordic
region home. Honka Homes and Nordea Bank
are two companies that originate in Finland and Sweden respectively; both
deliver two very different outputs but in the summation follow the same operation
management processes. The difference in
outputs refers back to one of the fundamental pillars of operation management:
the difference between a good and a service, or in other words the various
inputs that can either be allocated towards a tangible good or a an intangible
good. The rest of this paper will give
an overview of both Scandinavian companies and will then illustrate how each
utilizes the ten operation management's strategic decisions differently.
Nordea Bank
"Making it Possible," is
Nordea Financial Group's vision and mantra in its everyday operations. After visiting several Nordic companies I
felt that Nordea exemplified how an organization should conduct operational
management's strategic decisions when their product is intangible. Nordea is a melting pot of banks that started
187 years ago in Sweden, under the name Sparekassen
for Kjøbenhavn og Omegn, and since then has consolidated 250 banks into one
massive Nordic bank giant. Currently,
the bank consists of approximately 1,300 branch offices in 19 countries and
32,000 employees all of which serve around 10 million customers. However, Nordea excels in e-banking with 4.9
million customers, the highest in the world in terms of usage at a staggering
200million payments/year. (nordea.com)
The services that Nordea provides to its valued customers consists of:
retail banking, corporate/institutional banking, asset management, and life
insurance. (biz.yahoo)
In regards to operations management
Nordea Bank excels and this paper is going to highlight a few of their
strongest strategic OM decisions. When
examining any company the first thing that needs to be accessed is the product
they are selling. Nordea is a highly
diversified bank that specializes into catering to all of their customers'
needs. The company prides themselves on
"creating superior value for customers and shareholders" (corporate
statement) through its products.
Nordea's numerous acquisitions have enabled the company to excel in a
wide range of banking services while still maintaining the Nordea's umbrella
philosophy of providing an exceptional banking product, which has resulted in a
2006 revenue growth of 169.60%.
(biz.yahoo) In order to sustain
increasing growth Nordea adheres to an intensive quality management regiment
considering that they provide a service that's main goal is to increase
wealth. If a customer is not satisfied
on their banking or investing experience there are myriad other financial
institutions for them to do business with.
According to Nordea's corporate statement they act with the customer in
mind, understanding individual customer needs in order to exceed those
expectations and deliver professionalism in every transaction to ensure lasting
long-term relationships with their clients.
Nordea understands the ramifications of poor quality management and
instills all their employees to follow these guidelines.
Due to
Nordea's beneficial location in Sweden it enjoys a government that provides a
safety net, through a high taxation system, for risky research and development
decisions that spur innovation. This
allows Nordea's process strategy to take dicey ideas and turn them into a
reality. The bank excels in mass customization,
which is evident through its highly profitable online banking division that
without the initial R & D costs would not have been as successful.
Furthermore,
an enormous component of providing a service is being accessible to your
clientele since your intangible product cannot be shipped. In this regard not only has Nordea Bank
capitalized on the extremely lucrative growth in e-banking but also has
implemented an intense network of branch offices and ATMS throughout the Nordic
region, Northern Central Europe, and even parts of Russia and Asia.
However,
after walking away from Nordea's presentation I was most impressed with their
human resource management and job design program. I was astonished at the complexity of their Human Capital Development 2007 project
presented by the Global HR Manager, Marianne Siig. The company as a whole wants to foster team
values, a popular belief among most Nordic organizations, but within this team
create value for the entire organization.
"[Nordea] wants to unfold the full potential of the organization
through each individual employee."(Sigg) The company has realized that in
order to provide the greatest return for its clients and shareholders, each
employee needs to be empowered and challenged at the same time at every
threshold they cross. For example
instead of firing the lowest 10% of performers in the company the HR department
will engage in Personal Development
Dialogue, which approaches the struggling employees and re-evaluates where
they would be the most productive. This
can either be accomplished through job rotation or a reallocation of
responsibilities, both of which would optimize employee output and thus
increasing the net profit for the company.
Nordea
offers a service that consists of numbers on a computer screen and digital
information that transforms into physical money when a client withdrawals money
from their account. Therefore, Nordea's
supply-chain management decisions are few, however due to its e-banking it has
to provide the same level of accommodations that its online banking website
provides to all branch locations. In
addition, Nordea has to administer strict money supply regulations to guarantee
that each Nordea entity has sufficient funds to support all its clients. This has become increasingly easy with the
advances in intranet and account monitoring mechanisms.
Stock
markets and currency fluctuations alike are susceptible to volatile
disturbances that can break a banking institution that is why it is extremely
pertinent for Nordea's operational managers to have detailed short-term and
aggregate schedules to ensure the life of the company. The more flexible and thought-out the
schedule is the higher the probability that Nordea will be able to breeze
through a financial crisis with all its clients on board. Lastly, such a monumental facet of banking is
gaining the trust of your client. Nordea
takes this OM decision strongly, considering nearly half of their clients use
e-banking, and therefore have to guarantee that its financial electronic
accounts are safe and are not vulnerable to crashes resulting in the loss of
valuable customer data. Even if Nordea's
e-banking system was off-line for one day could cost the company millions in
transaction fees.
Honka Homes
Now that we
have analyzed a Nordic company that offers an intangible product, it is important
to examine a company that specializes in a very tangible product, masterfully
built log homes. Honkarakenne Oyj, or
more commonly known as Honka Homes, is a Finnish company headquartered
Järvenpää. Honka is the world's largest
log home manufacturer and has exported nearly 70,000 log homes to 36
countries. The company has 40 years of
experience, which has matured the brand into one that represents quality,
innovation, and customizing each client to their needs. Honka log homes only use the highly resilient
Nordic Pine that grows in the perfect habitat in Central Finland. The extreme conditions in Finland force the
trees to grow more slowly, increasing the strength of the wood and reduces the
moisture balance allowing for better thermal insulation. It is obvious that without superior
operations management Honka Homes would never have gained notoriety as the
premier log home manufacturer.
Honka's log
home dominance originates from its longstanding history for producing an
uncompromised product that is detailed down to the smallest piece. The homes are known for their brilliant
construction and guaranteed quality.
Most of its homes are custom-designed made exactly to the customer's
specifications. In addition to producing
log homes Honka also services hotels, restaurants and business offices. Each log is masterfully planed and built
inside one of its two Finnish plants.
Then the buildings are disassembled and sent to a myriad of countries in
water -proof containers to ensure the highest degree of wood. Furthermore due to Honka's organizational
skills it can figure all costs related to the construction of its homes, even
down to the amount of glue needed. (honka.com).
In order to make sure that each Honka home meets its reputation for
perfect craftsmanship the company must undergo stringent quality control
measures. In the circumstance that Honka
Homes exports a log house that fails to meet the consumer's needs and
expectations, the cost of quality would be devastating to Honka's net
profits. Since there is significant
shipping costs and preparation costs associated with transporting a log home
across vast distances Honka has to exercise immense quality control
standards. According to their
Honkahomes.com, the company tests all its materials in their own test
laboratory, which can produce wind speeds up to 280km/h. This in conjunction with Honka's joint
research effort with the Fraunhofer Institute for Wood Research in Braunschweig
Germany has resulted in several advances in seal imperviousness.
In regards
to the operational management topic of process strategy, Honka homes has a very
unique position in the market. The
company utilizes three methods that allow its clients to decide which type of
house they desire: they can choose a standard model from Honka's catalogue,
they can choose a standard model and then modify it to their own
specifications, or they can ask Honka architects to produce a home that is
entirely customized. Because of Honka's
home diversity it has to pursue a process-focus strategy to build its log
structures that yields low volumes but high variety.
Honka Homes
prefers to utilize a two factory system, both of which are strategically
located close to Finland's rich forest zone, providing the company with the
freshest wood and local labor that is familiar with the Nordic pine. However, due to Honka's high brand equity
resulting from its insistence on only using native trees it has large
hindrances in shipping their preassembled buildings all over the world. Its location is ideal for production but not
conducive to supplying superior log structures to every corner on the
globe. The operations managers' job is
increasingly complex in their supply-chain management duties due to the northerly
location of Honka's factories. Beginning
in the early 1960's Honka initiated its global business strategy by exporting
its first log home to Japan. This pioneering effort came with great difficulty
in figuring a way to get the Nordic Pine from the forest to the factory and
then across Eurasia to the isolated island of Japan. What is even more astounding is how Honka has
tackled this supply-chain neanderthal.
The way it has hurdled this obstacle is procuring the Nordic Pine from
Finnish owners than constructing the exact log home specified by the customer
inside the factory. Honka then
dissembles the buildings and secures the pre-made pieces in moisture proof
containers. Next, it uses various
distributers that can reach not only east but west. The final stage of Honka's supply-chain is
the hiring of competent local builders that can erect the buildings in their
permanent location. (Honka presentation)
This chain is extremely long and the actual product passes hands several times,
which makes it that much more essential that Honka's operational manager
thoroughly plans the entire chain.
In regards
to inventory, Honka Homes most precious and profitable material is the Nordic
Pine, without which there would be no such company. Therefore, the company goes to great lengths
to ensure that they are not eradicating its competitive advantage. Honka is in partnership with the Nature
Forestry in Finland to make sure that they are increasing pine stocks. "For every one clear cut…we plant five
seedlings."(Honka presentation) By doing this Honka is guaranteeing that
the Nordic Pine will be around indefinitely. Additionally, since each home is built
after the order there are no real holding costs, but its dependent demand
inventory needs to be fully stocked to accommodate any new orders.
The last
operational management decision that Honka Homes will face is the scheduling
involved in being the number log home producer in the world. Dependability is a deep concern for Honka and
thus demands intricate short and long-term schedules to make sure each home is
erected on time to the desired specifications.
Honka's operational manager has to uphold the integrity of the
supply-chain through a comprehensive schedule that takes into consideration the
various stages located throughout the world.
In terms of long-term scheduling, Honka wants to penetrate the Russian
market in order to capitalize on immense growth that is occurring in the BRIC
countries. The company seems enumerable
opportunities, that as the world leader, could further its position in the
competitive log home industry.
Closing Statement
After
participating in Darl Biens: Doing Business in Europe, I found that many topics
kept referring me to operational management.
It is the intention of this paper to highlight the predominant themes in
operational management, most notably the ten strategic decisions, and apply
them to two of the most interesting companies our class visited, Nordea Bank
and Honka Homes. Both companies are very
distinct in terms of final output; one being an intangible financial service
the other a tangible log structure, however both share the same difficulties in
terms of operations management. I hope
after reading this paper you can relate how two polarized companies, through
careful examination of their operational management decisions, can be
connected.
Thanks for taking the time for reading this Professor
Farina, sorry it took me so long to finish it.
Hope you enjoy the rest of your stay in Honka's Home of Finland.
Bibliography
1.
"Honka: History." Honka Homes. 2 Nov. 2008. 12 Jan. 2008
<http://www.honka.com/corporate/company/en_GB/history/>.
2. "Honka's Mission." Honka. 12 Mar. 2008
<http://www.honkahomes.com/>.
3. "Corporate Statement." Nordea. 21 Mar.
2008. 25 Apr. 2009 < http://www.nordea.com/About+Nordea/Corporate+statement/51342.html>.
4. "Nordea Bank AB Company
Profile." Yahoo Finance. 20 Apr. 2008. 20 Apr. 2008
<http://biz.yahoo.com/ic/90/90946.html>.
5. Honka Home Presentation
6. Nordea Bank Presentation
7. Heizer, Jay, and Barry Render. Operations Management.
Upper Saddle River, New Jersey: Prentice Hall, 2007.
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