4.1 - Setting operational objectives

• Operational Objectives


  Targets set for Production
• Zero-hours contracts


  When a worker is employed without a guaranteed minimum number of hours per week
• Setting operational objectives can help a company achieve its overall objectives - operational decisions will become focused on meeting these objectives
• The performance of the production department can be reviewed and assessed on its ability to meet these operational objectives
• Types of Operational Objectives


  • Quality
  • Costs
  • Flexibility
  • Efficiency
  • Innovation
  • Environment
  • Speed of Response
  • Dependability
• Quality Objective


  Maintain or improve levels of quality
• Quality Objective Examples


  • Ensure 95% of products last 5 years or longer
  • Reduce number of customer complaints per month
• Cost Objective


  Cut fixed or variable costs
• Cost Objective Examples


  • Restructure to remove a layer of management
  • Reduce individual product costs (e.g. stop offering meals on a route)
• Flexibility Objective


  Ability to react to customer demand
• Flexibility Objective Examples


  • Vary production volume to match demand
  • Employ people on zero-hours contracts
• Efficiency Objective


  Make better use of resources to reduce costs and increase profit
• Efficiency Objective Examples


  • Increase capacity utilisation
  • Improve labour and capital productivity
• Innovation Objective


  Set R&D targets for new product development
• Innovation Objective Example


  • Produce an electric car that fully charges in 5 minutes by 2026
• Environmental Objective


  Cut carbon emissions or use more recycled raw materials
• Speed of Response Objective


  Decrease production time, customer waiting time, or time to market for new products
• Dependability Objective


  Ensure customers and suppliers can depend on the business
• Dependability Objective Example


  • Always have items in stock so customers are more likely to shop there
• Added Value is a key Operational Objective for any Business
• Added Value


  Increasing the difference between the cost of raw materials and the selling price
• Ways to Increase Added Value


  • Increase selling price
  • Reduce raw material costs
• Customers will pay more for a better quality product, but there are other ways to increase the value of a product
• Other ways to increase Added Value


  • Be environmentally friendly
  • Offer quick speed of response
  • Be dependable
• Operational Objectives


  Objectives that influence how a business operates on a day-to-day basis
• Factors influencing Operational Objectives


  • Internal
  • External
• Internal factors


  • Nature of the product
  • Availability of resources
  • Other departments
  • Overall objectives
• Nature of the product


  The type of product a business produces can influence its operational objectives
• Nature of the product


  • A computer technology firm is likely to focus on innovation
  • A family-run bed and breakfast may focus on increasing capacity utilisation
• Availability of resources


  The resources a business has access to can limit what it can achieve operationally
• Availability of resources


  • A business may not be able to produce 500 hand-painted dolls' houses in 3 days if it only employs 5 carpenters
• Other departments


  Objectives and decisions made in other parts of the business can affect what the production department can achieve
• Overall objectives


  If a business is concerned about environmental impact, the production process will have to be more environmentally friendly
• External factors


  • Competitors' performance
  • Market conditions
  • Demand for product
  • Changing customer needs
  • New technology
• Competitors' performance


  Firms often set targets in reaction to their rivals' actions
• Competitors' performance


  • If a rival gains market share, a firm will try to increase their own market share
  • Competition from abroad is forcing companies to set stricter cost and efficiency objectives
• Market conditions


  Factors in the market that can affect a firm's operational objectives
• Market conditions


  • If customers are spending less money or there are more competitors, this can affect operational objectives
• Demand for product


  Businesses should try to ensure output does not exceed demand, so they may set objectives to increase production flexibility
• Changing customer needs


  If customers want a firm to behave more ethically, this can affect the firm's cost and environmental objectives