Principles of Operation Management

This document discusses the principles of operation management and their impact on the overall business environment and operations. It explains how external and internal factors affect a business, the influence of operations on corporate responsibility practices, and the role of operations managers. It also covers different control and planning methods, quality systems, and the value added through the supply chain. The document focuses on the case of IKEA, a furniture manufacturing brand, and provides insights into its operations and strategies.

UNIT 25
Principles of
Operation
Management

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explain how external & internal factors affect the overall business environment and its
operations...............................................................................................................................3
P2 Operations are posing a influence on the corporate responsibility practices and response of
how operations managers.......................................................................................................4
P3 Valid external & internal environmental analysis of the business environment ..............5
TASK 2............................................................................................................................................7
P4 Operation functions supporting the overall organisational strategy and process of decision-
making. ..................................................................................................................................7
P5 Explain different types of control & planning methods applied to different organisations8
Controlling techniques:..........................................................................................................9
P6 Evaluate different types of quality systems and way operations management is adding
value through the supply chain ..............................................................................................9
CONCLUSION..............................................................................................................................12
REFERENCE.................................................................................................................................13

INTRODUCTION
Operations management is the basic administration of business practices to create higher
efficiency in a organisation. It is concern with conversion of raw materials, labour efforts in
final goods and services. Present report is based on the discussion of operations management
importance for a organisation and how it is helping in maximisation of efficiency while goods &
services are produced (Reid and Bamford, 2016). IKEA is a furniture manufacturing brand and is
involved in wood purchasing, hiring of workers, training timely planning layout and location of
factor, purchasing cutting tools & other equipments. These decisions help in production of
furniture that is functions and affordable. Present report is based on discussion of external &
internal factors affecting operations of organisations. Impact of CSR practices, role of operations
functions on formation of organisational Strategy and evaluation of various quality system that
can add value in the existing supply chain.
TASK 1
P1 Explain how external & internal factors affect the overall business environment and its
operations
The term operations management refers to a management area of practice that create
highest efficiency level in the company. It is responsible to manage procedures related to
creating products, planning strategies, execution and controlling resources that are key for
business. In IKEA, operations management is crucial for maximising efficiency while producing
furniture that meets all the requirements of customers.
Benefits of operational management:
Profitability management: Operations management helps executives to find ways for
coming with innovations about the ways sales of products are increased and profitability is
managed. In IKEA, operations management benefits in monitoring revenues and diving income
statements.
Increased product quality: Operations management provides a opportunity to maximize
efficiency in manufacturing of products. In case with IKEA, operations management benefits by
properly planning required quality of materials or resources and then further implement them so
that quality of furnitures are improved to desired level.

Every business is affected by certain factors that are externally and internally related to
the organisation. In context of IKEA also there are some factors that are posing a impact on the
an organisation is functioning.
External factors: Economy: If the economy of a country in which IKEA is functioning is
not in a stable state then it may lead to non survival of the organisation. Customers may loose
their jobs and will not be able to support the organisation (Oriade, RobinsonGelder. and
Osinaike, 2016).
 Globalisation: It has presented new challenge for organisation in terms of execution of
core competencies. There has been convergence of expectations because of rapid
advances in technology, telecom networks and rapid customer integration. There is high
scope in emerging economies such as China, Brazil and India that is offering attractive
opportunities for IKEA.
Internal factors: There are certain internal factors such as managers and employees.
Employees are crucial part of the organisation and its internal environment. Managers have to
work towards proper handling of all the jobs and employees who are working at actual
operations so that they are able to maximise their contribution towards higher revenue of the
organisation.
Vision of IKEA: IKEA has a clear Vision that is to support complementary cross
functional logic. It helps in having a differentiation and at same time a effective Competitive
advantage. IKEA believes that utilisation of right tool can help in automate the workflow that
can lead to a high positive impact on profitability and productivity of business (Secomandi,
2017). IKEA is a proof that today's digital technologies can help business to centrally manage
their complex web by working aspects in a cost effective manner. IKEA is able to commit in
creation of a product catalogue that can be stocked for a year at guaranteed prices.
P2 Operations are posing a influence on the corporate responsibility practices and response of
how operations managers
Corporate social responsibility is said to management concept in which businesses
integrate environmental along with social concerns in their operations as well as interact with
key stakeholders. It is crucial aspect of entity as it improvises business image by making
adequate contributions in development of society. In an organisation, managers have
responsibility to ensure that all the operations are undertaken in ethical manner without harming

environment of society. Management of the company understands importance to adopt emergent
technologies so that its operations are performed effectively. For this, managers of IKEA have
integrated the concept of CSR with operations by using technologies to improve efficiency and
sustainability. For example, one of technology used in IKEA is Supply Chain Software for the
purpose of managing as well as enhancing exchange of information with multiple supply chain
partners for attaining results including optimum resource utilisation, reducing inventory and
meeting needs of society timely.
CSR is incorporated by the managers of IKEA into operations through stock controlling,
reverse logistics and green supply chain. Herein, organisational managers respond in such way
that maintains quality of offerings and ensures maximisation of operational effectiveness. The
significance of the technology adoption is that it fosters relations of entity with suppliers by
contributing in development of society as whole. The implementation of Supply Chain Software
impacts positively on operations as it ensures that that organisation consider not jeopardise social
environment in all functions of supply chains. The technology also assures that all the
environmental practices are executed in all stages of operations for reducing wastages, lessen gas
emission and eliminate activities that are hazardous to society.
P3 Valid external & internal environmental analysis of the business environment
External analysis:
There is use of PESTLE analysis for the purpose of making a analysis of the external
environment of IKEA as mentioned below:
Political: IKEA is operating across 41 countries. There are many political forces that are
part of every country and affecting functioning of business. Ranging from supply chain functions
to sales all are affected by political forces (Gao and 2020). Political stability helps in maintaining
economic stability that leads to high profits and sales. IKEA is planning to emerge itself in Asian
markets. IKEAS supply chain is having presence in Europe and situation of political disruptions
can lead to negative impact on functions of IKEA.
Economical: There are certain economic forces that are playing a very crucial impact on
functioning of a organisation. Such as situation of world economy is based on profitability and
revenues of a organisation. There are certain economic fluctuations that can lead to losing of
profits.

Social: IKEA has been affected by social factors such as they have suffered from deep
impact on profits and business. Such as their brand image has suffered because of women out of
their catalogue in Saudi Arabia ((Slack,. and Brandon-Jones, 2018). There have been
acknowledgement statements from Kajsa Orvanson at IKEA communications that they are
becoming more aware for printing of catalogues.
Technological: Technology has changed the operational functioning of every business in
the Present scenario, from functions such as marketing, finance customer services every
functions are based on use of latest technology. For IKEA there is ficus on providing best
experience to their customers by use of digital channels that can provide a real life experience of
shopping to their customers. There has been articulation of technologies such as cognitive
intelligence and artificial intelligence that is enabling the marketing department of IKEA to
understand the customer behaviour.
Environmental: Sustainability is a very crucial concept that has to be focussed by
brands; it helps in reduction of cost and creation of better image. IKEA has formed certain
special measures to enhance sustainability in the organisation (Cimpeanu, Devineand Brien,
2017). Such as there has been investment of $1 billion in renewable sources to help the nations to
cope up with threat of climate changes. IKEA has a aim that by 2020 all the energy used in
IKEA must be in form of renewable sources and cotton & wood has to be sourced from all the
sustainable sources.
Legal: There are certain legal aspects that have to be considered in the production
process of IKEA. Such as product quality is a standard that has to be maintained by IKEA
according to set standards in a particular country. Such as, IKEA has faced issues of tipping and
death in past because of its furniture. Legal laws vary in each country so there is a need to focus
on having dynamic policies that is changing according to country.
Internal analysis:
For the purpose of making an internal analysis there is need to use models such as SWOT
analysis in order to understand the internal factors that are affecting a organisation. In context of
IKEA SWOT analysis is discussed below:
Strength:
 IKEA is a brand that is part of continuous innovations in terms of stylish, new deigns.
 Affordability is a factor that is present because of cutting of cost.

 IKEA is one of the recognised brands across world
Weakness:
 IKEA products are sometimes known for having low quality attributes, such as it is
criticise to be by-product of offering low cost products.
Opportunities:
 IKEA is present in only in 38 countries that is relatively as compared to other global
furniture brands. So there is opportunity of expansion to countries such as Mexico.
Malaysia and Brazil.
 IKEA products are easily available through their website they can focus on offering more
products online by considering their sales channel.
 IKEA has opportunity of expand their business to grocery business with growing demand
for healthy options of food.
Threats:
 There is very high competition as many global brands are merging such as Walmart is
offering affordable furniture options.
 IKEA is subject to may law suits because of people getting injured from their customers.
IKEA focus on using of its strength by availing the opportunities that are available for the
purpose of business expansion and achievement of laid objectives.
TASK 2
P4 Operation functions supporting the overall organisational strategy and process of decision-
making.
Operations functions consist of the daily business operation that have to be manage by
manager that is part of production process. Operations are part of internal management of a
organisation and more focus has to be made on supply chain activities.
Operations functions are supporting organisational strategy as discussed below:
 Coordinating and directing of functions such as production, pricing, selling &
distribution of products (Fergusonand, 2019).
 Operations management help in management of finance activities in IKEA that consist
sales and other types of data

 There is continuous evaluation of performance to make timely decision related to
productivity cost control and making further improvements Timely management of staff, scheduling of work and assignment of specific duties
 Directing & controlling of all the budget related activities
 Determination of future sales according to forecasting of future customer demands.
Decision making is one of the central role played by all operations managers (Carrera. and
Stefan, 2018). There are many types of decision that have to be taken in course of business
functioning that includes designing of operation system, managing of operations system and
working on improvement of operations system. In IKEA there are five major aspects that are part
of operations management and help in improving the process of decision making as mentioned
below:
 The processes are determined to make decision related to quantity of goods & services
that have to be produced
 Quality standards have to be determined according to the competence of employees and
organisation
 The quantity of goods & services to be produced in a particular period of time is
determined according to operational capacity
 The stock of inventory that is the crucial decision of inventory management has to be
made according to present level of operations like production and the amount of sales.
 Human resource management has to be done according to the requirement of more
workforces, or there is situation of over staffing in organisation. All this has to be
determined so that there can be no burden of vacancies and all the operational functioning
is taking place smoothly without any discrepancies.
There are different types of planing system that is assisting in performing organisational
functions:
Operational planning: Operations are related to how things are happening. This planning
reflects the day to day running of a business. Operational plans are single used plans that are
created for particular activity or events. Ongoing plans consist of policies for solving problems,
defining of rules, regulations & procedures for accomplishment of specific procedures for
accomplishing objectives (Bosson and Lauderdale, 2018).

In case with IKEA, its operational function is to manufacture, promote and sell furniture at low
prices. In this, operations function support need of operational planning by assisting in doing the
work to schedule within defined budget as well as meeting quality standards. Operations function
helps planning of all the operations and brings together resources so that all the determined plans
are prepared on time and improve other processes.
Strategic planning: Strategic plans include high level overview of business. Essential
components of strategic plan include mission, vision and values. IKEA applied traits of strategic
planning in ensuring that furniture is functional, affordable and attractive. In context to IKEA, its
strategically function is to set suitable prices that are affordable by all customer segments
(Meredith and Shafer, 2019). In the context, operations functions support strategic planning by
providing required aspects so that effective strategy or tactic is developed to achieve long term
objectives. Operations functions shares innovative ideas with management so that effective
strategy is planned for the company.
Tactical planning: Tactical plans are short term plans that are specific and focussed
where actual work is supporting other high level strategic plans. It consist of organisational
tactics. In IKEA there is use of effective operations management to ensure that there is
minimisation of production cost. IKEA is focussing on low manufacturing cost in term of
efficient distribution, quality & impact on external environment. In IKEA, tactical function is
based on motivating employees for working harder. In this, Main focus of operations function is
towards implementation of tactical goals in defined criteria. Operations function of IKEA
support tactical planning by establishing necessary steps to design tactics which defines
organisation needs to do and supervising that all are executed properly in planning tactics.
P5 Explain different types of control & planning methods applied to different organisations
Planning techniques:
There are some planning techniques that are adopted in IKEA before the actual working
starts so that there can be proper identification of the activities and the way activities have to be
performed to enhance its contribution towards achievement of objectives:
Maximum/Minimum proprietary system:
There are in store logistic managers that are helping in inventory replacement prices that
is used for managing of store level inventory re order points & re order products. There are two
types of settings in this that is minimum settings which indicates the minimum amount of

products that are available before reordering and maximum settings that is the maximum amount
if product to be order at one time.
Planning of high flow and low flow warehouse facilities:
IKEA's store operations are supported by high flow facilitates & low flow warehouses
that are manual. In high flow warehouses there is replacing of automatic storage of product and
revenue system that is used for driving down of cost.
Controlling techniques:
There are different types of controlling techniques that are used by managers in IKEA as
mentioned below:
Budgetary control: There are different types of budgets that can be prepared in IKEA so
that there can be laying down of specific standards that have to be achieved in the course of time.
The main aim of such budgetary control techniques is to regulate activities in IKEA by
translation all the monetary and numerical aspects in a budget. It will help in comparison of
actual performance with budget and then taking corrective measures that are required
(KaruppanWaldrum. and Dunlap, 2016). There are different techniques such as standard costing,
break even analysis, statistical control and internal audit that can be used for purpose of
establishing of budgetary control techniques in IKEA.
Internal audit: Internal auditing is also a technique that is used by internal auditors in
case of operational functioning. It is basically related to accounting and financial activities that is
why its scope is somewhat narrow for IKEA built apart from this it is a technique that is very
helpful in management of financial resources in the organisation.
Types of approaches
Top down approach: It is said to the concept wherein information in the entity flows
from top management to lower employees. It is denoted as controlling approach because the
approach controls the structure of planning and analysing deviations. It creates interactions
among predictors or planners and their end results which influence lower levels of entity. In
perspective of IKEA, the approach is used by operational managers to identify clearer pictures as
well as concerned elements. In the entity, all the results are matched with planned standards and
benchmarks which are done by managers. Also, deviations among actual and planned
performance are done by using the approach.

Bottom up approach: Herein, flow of communication exists from lower level mangemnet
to top level managers. It is denoted by planning approach as its main focus is to make original
systems in company. As per IKEA's perspective, the approach is method of planning, setting
objective along with tactics to attain them via bottom up approach. At first, lower levels of
organisational hierarchy are devised and then they are integrated with framework of international
objectives at higher levels (Majukwa. and Haddud, 2016). While setting strategies for operations,
views and thoughts of lower workforce are taken into consideration and accordingly workings
are set.
P6 Evaluate different types of quality systems and way operations management is adding value
through the supply chain
Quality management is related to achievement of certain strategic goals and initiatives
that have to be pursued to achieve certain specific objectives. There are some quality
management techniques that are used in IKEA as mentioned below:
TQM: Total quality management is a tool that is used as a management approach for
ensuring long run success by enhancement of customer satisfaction. TQM is a tool that can be
used by IKEA as it focuses on adoption of eight major principles that includes focussing on
customers, involvement of employees, process centred approach, integrated system, continuous
improvement, factual decision making and proper communication channels. It will permit the
entity to manufacture furniture’s at highest quality and at lower costs. However, it requires deep
planning which is time consuming approach.
Lean management: It is a approach that is based in creation of value for customers by
optimization of resources. In IKEA the main aim of lean management is to establish a stable
workflow that is based on customer demand. It also helps in continuous improvement that is
crucial aspect of lean management. Use of lean manufacturing in IKEA can improve
organisational efficiency, increase productivity as well as reduce wastage. In contrary, it misses
deliveries if some breakdown arises. It do not give second chance to the organisation.
Operations Management is a function focussing on efficiently running a business
effectively it consists of functions such as material planning, maintenance and analysing the
production system, operations managers have to coordinate the internal operations of business.

For this there is need to understand the relationship between operations management and supply
chain process in the context of business at IKEA:
Supply chain is a process that consists of collection of raw materials for the purpose of
manufacturing of products. Operations management at IKEA is focussed on running a business
in such a manner that there is proper coordination between internal and external business
operations that is focussed on how the product is moving. There is need of professional support
with stakeholders, application of updated technology to further analyse it in context of
organisation. There is some specific function performed by operations managers:
Simplification of chain by consolidation of shipments:
There can be proper management of supply chain by cross docking that can help IKEA in
reduction of their inventory (Grabner, 2019). Requirement of warehouse spaces.
Reduction of suppliers: There can be reduction of existing suppliers by adding more
value to existing functions. There can be streamlining of supply chain process by operations
manager in IKEA. Materials like cardboard can be shipped to third party logistics to eliminate
one step in whole process.
Managing of transportation cost: There is closer packaging facility in manufacturing of
operations, at distribution centres and the end destination so that there can be higher cost
effectiveness in case of transport products.
Reacting to changing business needs: With timely value there can be adding of value to
operations. There can be delaying of product configuration at IKEA to respond to customers in a
accurate manner.
Controlling labour cost: With the use of automatic solutions and timely review of supply
chain process there can be adding of value by elimination of down time and reduction of touches
that are part of packaging process so that there can be savings in terms of cost.
Ensuring continuous improvement: There can be teaming up of 3PL that can help in
assistance in process of re engineering, component purchasing and packaging requirement can be
fulfilled (Perera, 2017). It will help in evaluation of techniques so that there can be proper
improvements in those areas where the performance is lacking.
From the above discussed points it is summarised that supply chain is responsible for
outlining of activities at each level of supply chain in terms of capacity and tome that can help in
proper implementation of all the decisions & activities that are part of supply chain management.

Value chain analysis of IKEA
Value chain analysis is a analytical framework that is adopted for identification of
business activities that can help in certain of Competitive advantage for IKEA. It is four staged
process that are as follows:
Stage 1: Analysis:
Primary
activities
Competencies Supporting
activities
Competitive
edge
Inbound
logistics
It is associated with raw material purchasing
from suppliers from different countries., in
context to IKEAS, it purchases products
from 1220 suppliers across 55 countries
worldwide. IKEA has proximity of 31
trading service offices to different supplier
locations that can help in monitoring
production, testing new ideas and
negotiation of prices (Vecchi, 2017)
.
Infrastructure HIGH
Operations IKEA operations are divided in property,
franchise addition to finance decisions.
Franchise division is business core. IKEA is
following a decentralisation business
strategy running its global functions. They
are operating stores in franchise agreements
across 30 countries. There are 110
franchised in 50 markets that are operating
367 stores. Primary area of operation
management in IKEA includes supply chain
management, quality management and cost
minimization.
Human Resource HIGH
Outbound IKEA outbound logistic includes

logistics distribution and warehousing of ready
products from 422 stores across 50 markets.
They are operating largest furniture retailer
operating across 28 distribution centres &
11 customer distribution centres. Delivery of
products online is through free shipping.
There is use of rail, sea and road
transportation for out bound techniques.
Technology MEDIUM
Marketing
and sales
IKEA is focussing on marketing by use of
promotional mediums such as website,
applications, stores and catalogues. They are
printing 200 million catalogues each year
across globe. Their website ikea.com has
attracted 2.5 billion visitors.
MEDIUM
Services Customer service is a primary activity of
value chain that is addressed by a standard
techniques and practises. There is facilities
of telephone, online services that is
encouraging customer feedback.
Procurement LOW
Stage 2: Deviation: As per above analysis, it have been evaluated that Operations and
Human Resource have deviations in forecasted targets. The workings of Operational activities
and employees are not up to desired criteria.
Stage 3: Action: To manage the deviation, managers of IKEA can adopt TQM strategy so
to implement it business practices and control errors. Here, TQM will provide an opportunity to
improve functioning through aid of training where in operation help to align interest with with
employees.
Stage 4: Implementation: In IKEA, TQM strategy is chosen to focus on controlling cost,
wastage and controlling defects in manufacturing furniture. For its application, IKEA manager

will enable HR to place effective people of operations that further able to contribute due to
improvised policies of operation.
CONCLUSION
From above mentioned points it is concluded that operations management is one of the
crucial aspects of organisation. All operational functions of a organisations are affecting aspects
such as corporate social responsibility and the way operations managers are respond to such
changes. There are many internal and external factors that are posing a consequence on the
business environment & operations. There are many different activities that posses impact on
overall organisational strategy and the process of decision making. For this there is
implementation of different planning methods and controlling techniques that can add value
throughout supply chain process. All this help in enhancing the present efficiency of various
operations’ and management method that can lead to enhancement of present quality of products
in an organisation.

REFERENCE
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