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Measuring Operational Performance

Slack et al. (2007) describe five basic performance objectives which can be used to measure operational performance.

Introduction

Operations management can have an impact upon a broad range of stakeholders; customers, employees, suppliers, shareholders, society. Slack, Brandon-Jones and Johnston (2011) describe five generic performance objectives that can be applied to different aspects of operations, in order to analyse performance; quality, dependability, speed, flexibility and cost. To add context to this article, two differences in the approach of two fictitious retailers, Supermarket's A and B will be considered.



Figure 1. Performance Objectives within Grocery Industry Stores; Supermarket A (Series 1), Supermarket B (Series 2).

Quality

The ability to produce goods that meet their specifications and free from error is a crucial aspect of a successful business transaction, particularly in terms of attracting future and return customers. This area may be an important order qualifier which a company must demonstrate in order to be a viable industry competitor. By offering a wide variety of goods, as demonstrated in Figure 1., A can offer different levels of quality goods, including its own brand. A has been observed to be increasing its focus upon improving the quality of its own branded goods. In terms of the service that B provides; B strives to offer low prices while maintaining quality. B holds a high proportion of its own brand products; approximately 95% of its total stock (Wood and Butler, 2015). While customers may have initially viewed B to be lacking in variety and quality of products, particularly in terms of product freshness due to sourcing goods abroad, the business recognised that this area was an order qualifier that influenced customers purchasing decisions and has responded to by increasing its supply of goods sourced from within the UK. This has subsequently increased its meat and fruit and vegetable range by around 60% (Harrison, 2014).


Dependability

In order to be viewed as dependable a firm must deliver its services in full and on time. Although ‘on time’ may be difficult to measure within the grocery industry, it can be argued that this means that customers must be able to find the products they want, when they are in a store. The successful Lean approaches of B to operational management and the adoption of Just in Time supply chain management methods, while resulting in less variation and volume of goods on the shop floor, has improved the ability of customers to find goods quickly on shelves as there is less confusion regarding the differences between goods. In recognising the competitive advantages of this, A has rationalised its own goods lines.


Speed

In terms of the performance objectives outlined by Slack, Brandon-Jones and Johnston (2011), speed can viewed as the ability to do things quickly in response to customer demands. This results in reduced time periods between when a customer orders a product or service and when they receive it; within the grocery industry this can be related to the amount of time a customer spends within a store. Accepting the benefits of online shopping in removing the requirement to spend time in a store, A's wide variety and large quantities of stock on shelves may be viewed negatively by customers who experience confusion over goods selection, resulting in unwanted prolonged periods of time spent within stores (Harrison, 2014). As illustrated in Figure 1., B however is associated with the order winner of faster service. Through adopting a ‘no frills’ and Lean business and operational approach, B increases the speed of the transformation model outlined by Slack, Brandon-Jones and Johnston (2011), whereby the inputs of less stock, simple packaging, simpler store layouts and B's EPOS system which uses multiple and larger barcodes, with fast scanners on packaging, supports the transformation processes of holding less stock on shelves and the quick sale of goods, resulting in the output of putting customers and goods together through sales. Harrison (2014) identifies B's successful transformation process, stating that the business is able to process customers through checkouts 40% faster than in other grocery stores.


Flexibility

Flexibility is the ability to adapt operations in response to changes within a dynamic business environment. Businesses can demonstrate flexibility in a number of ways;

changing the volume of production, changing the time taken to produce goods, changing the mix of different products or services produced, or through innovation and the introduction of new products and services. As illustrated in figure 1, A could arguably be viewed as flexible given its ability to diversify into a number of areas in addition to the sale of groceries. This includes insurance, financial services, the sale of electrical and other household goods. Such an approach would be in line with Porter’s (1980) generic differentiation strategy in that A aims to generate increased revenue through appealing to a number of customer segments, in addition to grocery customers. In addition, A's approach to offering a large variety of goods may support its competitiveness.

B has demonstrated its ability to be flexible by increasing its stock of premium items during the festive period when demands are increased. In addition, in recognising a potential order winner, the business has effectively responded to the demands of customers for more variety, higher quality and for goods to be sourced from the UK.


Cost

While the success of a particular business approach or strategy, particularly in terms of the impacts of disruptive innovations introduced by heavy discounters such as B, as previously outlined may contribute to competitive success within the grocery industry, Cost may arguably play a decisive role. It could be viewed that the success of heavy discounters and the growing popularity and market positioning firms such as B, through its application of the marketing concept of “satisfying and retaining customers better than rivals” (Dibb and Simkin, 2013, pp 8), have influenced customers expectations for lower cost goods.


In line with the view of Harry Gordon Selfridge, that successful retailing requires having ‘the right product in the right place, at the right time’, the grocery market has witnessed the increase of discount stores such as B, which increased turnover in UK and Ireland by 35.7% to £5.27bn in 2014. Furthermore, B increased market share from 3.7% to 4.8% year on year, in September 2014 (Harrison 2014). The business may have achieved this through its committed to offering unbeatable price through following a Generic strategy of Cost Leadership (Porter, 1980). Through B's hard discount strategy only offering a relatively small range of products compared to supermarkets such as A, the business is able to maintain greater control over operations and supply management, increasing buying power and reduce costs. To further support B's Cost Leadership strategy, the business stocks around 95% of its own brand products. B has adopted Lean methods in order to enable it to generate product cost reductions, which appeal to customers. By controlling the resources and staff involved in providing a service to customers, B is better positioned to control costs and waste. The savings made enable the business to offer cost reductions to customers.


A has subsequently recognised the benefits of focusing upon costs and has attempted to rationalise its stocks and to increase its focus upon its own brands, similar to that of B. While this may result in negative publicity associated with A's treatment of its suppliers, the results of such strategic moves may take time to be experienced by the firm.


References

Dibb, S. and Simkin, L. 2013 “Marketing Essentials”. UK: Cengage Learning.

Porter, M. E., 1980 ‘Competitive strategy: Techniques for analyzing industries and competitors’. New York: Free Press.

Slack, N., Brandon- Jones, A. and Johnston, R. 2011 ‘Essentials of Operations Management’. UK: Pearson Education Ltd.

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