Henzer 10 Critical Decision Area for OM

10 Critical Decision areas of operation management

I. Goods and service design. According to Henzer (2004), design of goods and design defines much of the transformation process. The factors of cost, quality and human resources must be made during the stage. Operation management of product and services is also different because due to different characteristic and tangible / intangible feature.

II. Quality. Customer has a very high quality standard nowadays and operation management decision in quality must be clear and strict for its members to understand and comply. It must set a quality, standard and operating procedure to meet customers’ high expectation.

III. Process and capacity design. Manufacturing of physical products may have higher importance on process and capacity design than services operation. Operation management (product) should decide what process it, what type of technology and to what extent, human resources, quality and maintenance that determines its basic cost structure. Services operation decision on this area is much simpler and it can determine by customers who directly involved in the process. For example, customer will ask tailor to design specific fashion clothes. Capacity design issue is critical for services because it will try to reduce waiting time and avoid lost of sales due to insufficient capacity. For manufacturing capacity design is based on firms financial capability, forecast for future and market demand.

IV. Location can be an area for operation management to decide and with globalization of business, operation managers too must think global. For physical goods, location selection can be determined by pools of qualified human resources, technology, raw material, access to market and government policy. For services as it is direct to customers, the location is determined by market accessibility or near to customer as possible.

V. Layout design. Material flow, process selection technology used, capacity needs, workers needs, inventory requirement, and capital will influence the decision for layout design. For services such as hotels, beside capacity needs layout also will enhance its attributes and features to the customers.

VI. Human Resources and Job Design – Employees is the integral part in the total system design. Operation management must set a policy to set labor standards to ease transition of skills, improvement of knowledge, skills and abilities (KSA), build a balance work and life quality in an effective cost target. For services one extra area operation management should touch, which is customers relationship that they are dealing directly.

VII. Supply Chain Management – Decisions that have to take place of what to produce, what material to buy, from where, how is the cost and how is the delivery from supplier to the final end customers in on-time delivery and minimum cost possible. It is more critical in production of goods than services.

VIII. Inventory – Decisions on how and where the inventory level to keep long term customers satisfaction, suppliers, material availability for not to disrupt the production, human resources needed for this purpose and important the holding cost from financial perspective. Goods production are more concern because manufacturer may kept raw material, in progress work order and final goods while services is not critical as it is directly produce and consume simultaneously.

IX. Scheduling – Efficient way of allocation, control and management of materials, capital goods and human resources to efficiently produce the final goods from the input available. Schedules are more formal in goods production with short, medium and long term planning to accommodate customers demand. For services the demand is more direct and volatile and often concern on human resources and KSA availability to meet current customers needs.

X. Maintenance – Decision must be made regarding the desired level of reliability, stability and systems must be established by management to maintain that reliability and stability.


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