7.1 What is operations management?  (Page 2/2)

JetBlue’s operations strategy is driven by its organization strategy. For example, JetBlue locates (“location” is an operations decision area) its main transportation hub in New York City, a city of 19 million people that helps ensure that JetBlue’s planes fly at full capacity. In the area of equipment decisions, JetBlue operates only one type of aircraft, the Airbus 320. The Airbus 320 has high passenger carrying capacity (to maximize revenue), provides good fuel economy and requires only two pilots (versus three) to operate. Having one type of aircraft reduces training costs for pilots and mechanics, reduces investments in parts inventories, and enables JetBlue to negotiate greater discounts on high-volume purchases from Airbus. In another key operations area, JetBlue pays careful attention to hiring, training, and compensating employees who can deliver excellent service, loyalty, and high levels of productivity.

In addition to an operations strategy, JetBlue also has financial and marketing strategies that support its organization strategy. One part of its financial strategy is securing sufficient amounts of capital to help the start-up airline establish reliable service and gain a loyal clientele. JetBlue’s marketing strategy keeps advertising costs under control by attracting free media publicity that emphasizes its fun and affordable airline service.

Strategic versus tactical operations decisions

Operations decisions include decisions that are strategic in nature, meaning that they have long-term consequences and often involve a great deal of expense and resource commitments. Strategic operations decisions include facility location decisions, the type of technologies that the organization will use, determining how labor and equipment are organized, and how much long-term capacity the organization will provide to meet customer demand.

For example, the leaders of a new hospital must decide where to locate the facility to be accessible to a large number of potential patients. Hospital administrators must evaluate the performance and cost of a wide variety of health equipment. Administrators must also assess and purchase information technologies to keep patient records, fulfill government regulations, provide accurate and timely communications, and track financial performance. Doctors, nurses, and staff must be hired and various departments (x-ray, lab, pharmacy, physical therapy, etc.) must be arranged to maximize both efficiency and effectiveness in patient care.

Tactical operations decisions have short to medium term impact on the organization, often involve less commitment of resources, and can be changed more easily than strategic decisions. Tactical decisions include workforce scheduling, establishing quality assurance procedures, contracting with vendors, and managing inventory. In the hospital example, scheduling the workforce to match patient admissions is critical to both providing quality care and controlling costs. Selecting a food service vendor is important to serving both employees and patients. Ensuring that the right drugs and supplies are on hand is achieved by working closely with vendors in the supply chain.

Operations management provides competitive advantage!

Strategic and tactical operations decisions determine how well the organization can accomplish its goals. They also provide opportunities for the organization to achieve unique competitive advantages that attract and keep customers.

For example, United Parcel Service, an international package delivery service, formed a partnership with its customer, Toshiba computers. Toshiba needs to provide a repair service to its laptop computer customers. The old approach of providing this service was cumbersome and time-consuming: (1) Customers had pick up their computers, (2) delivered the computers to Toshiba, (3) Toshiba repaired the computers, (4) picked up the repaired computers and delivered them back to the customers. Under this traditional approach, the total time to get a laptop computer repaired was two weeks—a long time for people to be without their laptop! Then they came up with an innovative idea for Toshiba to provide better service to its customers. United Parcel Service hired, trained, and certified its own employees to repair Toshiba laptop computers. The new repair process is much more efficient: (1) picks up computers from Toshiba owners, (2) repairs the computers, (3) delivers the computers back to their owners. The total time to get a computer repaired is now about two days. Most Toshiba customers think that Toshiba is doing a great job of repairing their computers, when in fact Toshiba never touches the computers! The result of this operations innovation is better service to Toshiba customers and a strong and profitable strategic partnership between and its customer, Toshiba.