Operational Objectives

Operational Objectives

1. Can help a company achieve overall objectives. Operational decisions will be focused on these objectives.

   • The performance of the production department can be reviewed on its ability to meet these operational objectives.
     • QUALITY
       • Likely to involve maintaining or improving quality. e.g. Ensure 95% of products last 5 years, or reduce no. of customer complaints on quality in a month
     • COSTS
       • Aim to cut costs (especially if compete on price). Cut fixed costs or variable costs. e.g. restructure to remove a layer of management, or costs of an individual product can be cut.
     • FLEXIBILITY
       • Need to be able to vary amount of g/s they are producing so volume doesn't exceed demand. e.g. if a business knows demand will go down, they can reduce production in December. Can ensure flexibility to employing zero-hours contracts.
     • EFFICIENCY
       • Aim to make better use of resources to reduce costs and increase profit. Might mean increasing capacity utilisation or taking steps to improve labour and capital productivity.
     • INNOVATION
       • Businesses can set their R&D department innovation targets. e.g. produce zero-emissions car by 2018. Can be hard to achieve (unexpected problems often occur)
     • ENVIRONMENT
       • Pressure from customers and Govt often leads to firms setting environmental objectives such as cutting carbon emissions or using ag greater number of recycled raw materials.
     • SPEED OF RESPONSE
       • The speed at which a business operates is important. This could include decreasing production time of a product, decreasing waiting time for customers getting orders, or getting new products to market quicker. Closely related to efficiency objectives.
     • DEPENDABILITY
       • Customers need to be able to depend on a business, and they need to depend on suppliers. e.g. if a store always ha items in stock then customers are more likely to shop there even if more expensive. A reliable business can charge more for their g/s.

2. Influenced by Internal and External Factors

   • INTERNAL
     • Nature of the Product - A computer technology firm is likely to have different targets to a family run bed and breakfast. I'ts more likely to focus on innovation whereas the B&B may be trying to increase its capacity utilisation by having lots of rooms full
     • Availability of resources - many businesses would like to increase their output but are limited by whether they have enough resources e.g might want to get a house done in 1 month when they only employ 2 builders
     • Other department - objectives and decisions made in the finance, marketing and HR departments will affect what the production department can actually achieve, and vice versa
     • Overall objectives - For example if a business is concerned about its environmental impact, the production proces will have to be environmentally friendly
   • EXTERNAL
     • Competitors performance - Many firms set target in reaction to their rivals actions. E.g if rivals gain market share, you would also want to increase your market share to keep up with them. Competition from abroad e.g China, is forcing companies to set stricter cost and efficiency objectives.
     • Market conditions - E.g if customers are spending less money in a particular market, or if there are more competitors in a market, this can affect operational objectives such as costs
     • Demand for Product - Businesses should try to make sure that output is not higher than demand, so they might set objectives to increase flexibility of production
     • Changing customer needs - E.g if customers indicate that they'd like a firm to behave more ethically, this can affect costs and environmental objectives
     • New technology - The production process often needs to adapt to to make the of new technology

3. Added value is a key operational objective for any business

   • ADDED VALUE = SALES REVENUE - COST OF BOUGHT IN GOODS AND SERVICES
     • Added value can be achieved by either increasing the selling price or by reducing the cost of raw materials
       • Customers will pay more for a better quality, but there are other ways to increase the value e.g environmentally friendly or dependable, or quick speed of response can justify the higher price