1. Operational Objectives

2. Objectives
How the firm’s operational objectives/targets of a business are linked to its corporate objectives
Examples of typical operational objectives
Internal and external influences on operational objectives

3. …then look at some big global businesses and fill out the worksheet
Research
Operational objectives:
quality
cost targets
volume targets
innovation
efficiency
environmental targets
Research businesses and find at least one real-life example of each of the operational objectives listed above.
…then look at some big global businesses and fill out the worksheet

4. Understanding Operational Objectives4

5. Key types of operational targets
Cost & volume
Quality
Efficiency & flexibility
Environmental 5

6. Cost & volume targets
A business needs to ensure that operations are cost-effective
Traditional measure of cost-effectiveness is “unit cost” (total costs divided by total units)
Businesses in the same industry face similar cost structures, but each varies in terms of productivity, efficiency and scale of production
The business with the lowest unit cost is in a strong position to be able to compete by being able to:
Offer the lowest price, or
Make the highest profit margin at the average industry price 6

7. Examples of cost & volume targets
Productivity & efficiency (e.g. units per week or employee)
Unit costs per item
Contribution per unit
Number of items to produce (per time period, or per machine etc) 7

8. The Business Need for Quality
Quality is one of the most important challenges facing a business
Markets are more competitive: customers are more
Knowledgeable
Demanding
Prepared to complain about poor quality
Able to share information about poor quality (e.g. via & social networking)
If a business can develop a reputation for high quality, then it may be able to create an advantage over its competitors 8

9. Possible quality targets
Scrap / defect rates: a measure of poor quality
Reliability – how often something goes wrong; average lifetime use etc
Customer satisfaction – measured by customer research
Number / incidence of customer complaints
Customer loyalty – e.g. percentage of repeat business
Percentage of on-time delivery 9

10. Efficiency & flexibility targets
Closely linked to cost targets
Look at how effectively the assets of the business are being utilised
Also measure how responsive the business can be to short-term or unexpected changes in demand
Efficiency and flexibility are key determinants of unit costs 10

11. Examples of efficiency & flexibility targets
Labour productivity: e.g. output per employee, units produced per production line; sales per shop
Output per time period: e.g. potential output per week on a normal shift basis; potential output assuming certain levels of capacity utilisation
Capacity utilisation: the proportion of potential output actually being achieved
Order lead times: e.g. the time taken between receiving and processing an order 11

12. Environmental targets
An increasingly important focus of operational targets
Businesses face more stringent environmental legislation
Customers increasingly base their buying decisions on firms that take environmental responsibility seriously 12

13. Examples of environmental targets
Use of energy efficiently
Proportion of production or packaging materials that are recycled
Compliance with waste disposal regulations / proportion of waste to landfill
Supplies of raw materials from sustainable sources 13

14. Internal influences on operational objectives
Corporate objectives
As with all the functional areas, corporate objectives are the most important internal influence. An operations objective (e.g. higher production capacity) should not conflict with a corporate objective (e.g. lowest unit costs)
Finance
Operations decisions often involve significant investment and cost The financial position of the business (profitability, cash flow, liquidity) directly affects the choices available
Human resources
For a services business in particular, the quality and capacity of the workforce is a key factor in affecting operational objectives. Targets for productivity, for example, will be affected by the investment in training and the effectiveness of workforce planning
Marketing issues
The nature of the product determines the operational set-up. Regular changes to the marketing mix – particularly product – may place strains on operations, particularly if production is relatively inflexible 14

15. External influences on operational objectives
Economic environment
Crucial for operations. Sudden or short-term changes in demand impact on capacity utilisation, productivity etc. Changes in interest rates impact on the cost of financing capital investment in operations
Competitor efficiency flexibility
Quicker, more efficient or better quality competitors will place pressure on operations to deliver at least comparable performance
Technological change
Also very significant – especially in markets where product life cycles are short, innovation is rife and production processes are costly.
Legal & environmental change
Greater regulation and legislation of the environment places new challenges for operations objectives. 15