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Chapter 2 Operations performance 35
Figure 2.2 Operations management can ‘make or break’ any business
and sustain its own profitability. Company A is paying its service engineers higher salaries,
but expects them to contribute their ideas and enthusiasm to the business without excessive
supervision. Perhaps this is why Company A is ‘wasting’ less of its expenditure on overheads.
Its purchasing operations are also spending less on buying in the computer hardware that
it installs for its customers, perhaps by forming partnerships with its hardware suppliers.
Finally, Company A is spending its own money wisely by investing in ‘appropriate rather
than excessive’ technology of its own.
So, operations management can have a very significant impact on a business’s financial
performance. Even when compared with the contribution of other parts of the business,
the contribution of operations can be dramatic. Consider the following example. Kandy
Kitchens currently produce 5,000 units a year. The company is considering three options
for boosting its earnings. Option 1 involves organizing a sales campaign that would involve
spending an extra a100,000 in purchasing extra market information. It is estimated that sales
would rise by 30 per cent. Option 2 involves reducing operating expenses by 20 per cent through
forming improvement teams that will eliminate waste in the firm’s operations. Option 3
involves investing a70,000 in more flexible machinery that will allow the company to respond
faster to customer orders and therefore charge 10 per cent extra for this ‘speedy service’.
Table 2.2 illustrates the effect of these three options.