setting operational objectives

• what are the main operational objectives

  • Cost and volume objectives

  • Quality objectives

  • Efficiency and flexibility objectives

  • Environmental objectives
• Cost and Volume Objectives

  • A business needs to ensure that operations are cost-effective

  • The 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
• Examples of cost and volume objectives

  • Productivity & efficiency (e.g. units per week or employee)

  • Unit costs per item

  • Contribution per unit

  • Number of items to produce
• Quality Objectives


  • 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 email & social networking)

  • If a business can develop a reputation for high quality, then it may be able to create an advantage over its competitors
• Efficiency and Flexibility Objectives

  • These are 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
• Examples of efficiency and flexibility objectives

  • 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
• Environmental Objectives


  • An increasingly important focus of operational objectives

  • Businesses face more stringent environmental legislation

  • Customers increasingly base their buying decisions on firms that take environmental responsibility seriously
• Examples of environmental objectives

  • Rate of energy efficiency

  • Proportion of recycled production or packaging materials

  • Compliance with waste disposal regulations / proportion of waste to landfill

  • Percentage of supplies of raw materials from sustainable sources
• Types of innovation


  Product innovation: launching new or improved products (or services) on to the market

  Process innovation: finding better or more efficient ways of producing existing products, or delivering existing services
• Benefits of Product Innovation

  Higher prices and profitability

  Greater added value

  Opportunity to build early customer loyalty

  Enhanced reputation as an innovative company

  Public Relations – e.g. news coverage Increased market share
• Benefits of Process Innovation

  Reduced costs

  Improved quality

  More responsive customer service

  Greater flexibility

  Higher profits
• Internal influences on operations objectives

  Corporate objectives

  Finance

  Human resources

  Marketing issues
• External influences on operations objectives

  Economic environment

  Competitor efficiency flexibility

  Technological change

  Legal & environmental change