OPERATIONS MANAGEMENT STRUCTURE APPLIED IN PRICING RATE DESIGN IMPLEMENTATION

INTRODUCTION

Across competitive industries, businesses will find themselves in positions in which they need to balance providing quality goods and services in ways that are efficient in terms of both production and cost. As a result of the pressure towards being highly efficient, many companies, including the Ford Motor Company, have taken efforts to reorganize their operational strategies: “In 2008, Ford Motor Company reorganized using what’s known as the ten strategic operations areas. It was part of the company’s turnaround and enabled the organization be more flexible and survive the financial crisis without taking government bailouts” (Kettering.edu, 2016, p. 1). Insights can be gained regarding how these 10 strategic operational areas allowed Ford to become more flexible and survive a financial crisis.

First, we will define each strategic operational area and use a variety of case examples to highlight how companies have successfully made changes to their operational strategies within their industries. Afterwards, we will introduce how an innovative pricing rate structure within the energy sector, namely, ProRate Energy Inc.’s ProRate/CLEP rate design, can benefit and improve operational efficiencies in implementing changes within each strategic operational area regarding the implementation of this innovative rate design. The first strategic operational area that we will examine is goods and services.

1. GOODS AND SERVICES

Efficiencies that impact a company’s financial well-being in the area of goods and services often involve having consistency with regards to costs associated with both producing goods and providing services. In doing so, one common misconception is that fixating on cost-cutting and a race-to-the-bottom approach to providing goods and services at the lowest price is always the best approach to surviving a financial crisis; however, this approach might be short-sighted in some contexts. For example, Walmart uses systems thinking to look at opportunities holistically, rather than becoming fixated on cost cutting alone.

The first critical step in this type of effort is to bring systems thinking to the table, and Walmart does that with the best of them. Walmart looks at the opportunity holistically: instead of focusing solely on the money saved through an efficient investment, Walmart looks at related costs, such as maintenance and equipment replacement… This systems-thinking approach is not limited to freezer case lighting; it applies to other technologies and applications as well, ranging from interactive effects of skylighting, to the economics of illuminating parking lots (Kelly-Detwiler, 2013, p. 2–3).

Besides looking at related costs, data analysis, financial analysis, and projecting future financial forecasts are also important. When doing so, taking into account the particular industry in which a company operates, recognizing the changes taking place within the industry, and performing an industry environmental scan of competitors allows for executive sponsors to more easily agree upon projections and which cost-cutting measures are essential in a reorganization.

In addition to using income and expense data from the last year or several, project performance based on trends and knowledge. Discuss with key personnel the anticipated performance of current and new products or services, changes in the marketplace and other factors that might cause changes in your company's results compared with last year. Forecast your final budget using your recent performance numbers and agreed-upon projections (Milano, 2019, p. 1).

2. QUALITY MANAGEMENT

Quality management involves the quality of how well the customer’s demands and expectations are met. Although determining these needs might seem obvious, analysts, focus groups, and surveys are oftentimes needed to collect dates and pinpoint exactly how a product or service can best meet customer needs. Putting aside concerns about the accuracy of self-assessments and an assumption that customers have perfect knowledge about whether their needs are being met, the aim of quality management is to provide real value to a company’s customers.

These days, a successful digital presence is a living, breathing, meaningful experience–rooted in inspiration, customer empathy and clear utility. Your goal is to provide real value to prospects and customers by anticipating their needs, giving them a reason to do business with you and fostering their loyalty to your brand (Handley, 2013, p. 1).

After developing a product and trying to anticipate customers’ needs, assurance testing and checks after the production of a prototype are ways to keep costs low while ensuring that customers’ needs and expectations are indeed met.

3. PROCESS AND CAPACITY DESIGN

The process and capacity design can help leadership, executive sponsorship, and all stakeholders determine what processes are necessary to keep production running efficiently and to support all technology and resource needs. In order to have a well-informed process and capacity design, many aspects of the organization need to be involved so that interdependencies across a variety of departments in the organization are not overlooked, which can generate inefficiencies.

So often in our attempts to get on the same page, we overlook the fact that organizations—like books—have many different pages. It’s how all of the pages combine to create the entire book, or the entire organization, that is most important (Cope, 2012, p. 1).

When considering ProRate’s rate design, the sequence of how ProRate is tested and implemented is extremely important.

4. LOCATION

For most companies, location is extremely important for meeting customer needs. Indeed, a grocery store or restaurant may look at the surrounding community, location of competitors, and distance from customers in deciding where to have a grand opening.

For multinational corporations, considering laws and the communities in which goods are produced are important for both marketing and public relations in branding a company’s place within a community. Location may dictate expectations on a company’s role regarding both the amelioration of negative effects caused by its manufacturing and its perceived Corporate Social Responsibility (CSR).

Concerns regarding supply chain and how a manufacturer will receive supplies should be at the forefront of manufacturing companies, as the efficient movement of goods is paramount to efficient business operations. Conversely, service-oriented businesses (restaurants, groceries, etc.) may consider their customers’ abilities to access their services. For some industries, such as the healthcare industry, the digitization of medicine and telemedicine has been used to meet patients’ needs without requiring in-person contact. The type of approach that a particular organization will take in considering its location from its customers as well as its internal, external, and third-party vendors will depend on how drastically location affects the efficiency with which it meets its customers’ needs.

5. LAYOUT DESIGN AND STRATEGY

Ergonomics is the subject of studying workers’ environments with the aim of finding and implementing efficiencies. The layout and design strategy for a company is important, and this includes workstations, where materials are stored, transported, and used, as well as the placement of offices, meeting rooms, and restrooms. While initially, a new leader or manager may simply build the most efficient space, allowing room for innovation is also important in strategically considering a layout and design.

[Innovation consultant and author Jeffery] Phillips makes a strong argument for why our busyness is killing our business–that is, if you’re in the business of creating anything new. When we’re infatuated with efficiency, Phillips says, we let innovation die. By imprisoning ourselves in metrics, we don’t value the less quantifiable, more long-term aspects of value creation, like exploration, empathy, contemplation, and stillness. Since we’re conditioned to the thrills of fighting fires, firing off emails, and the validation that gives us, we feel starved of time. And our product development gets malnourished (Baer, 2013, p. 1).

An obvious example illustrating the above is when we send an email to ask a question that a short walk and an in-person discussion with an office coworker would solve. The conversation with the coworker opens up opportunities to engage with others in the workplace, share discoveries found at work that would be missed in a short, efficient business email, as well as connect and empathize with the experiences of others in cases in which unexpected personal information and experiences are shared.

While some companies are building large breakrooms and are using beanbag chairs to promote an environment that entices workers to relax, the best approach for a business is likely one that aligns with the company’s mission, vision, and values.

6. HUMAN RESOURCES AND JOB DESIGN

Human resources and job design concern many aspects of employees, such as training, reviewing, and implementing programs that provide continual support and opportunities for the improvement of employees’ work. Engagement has become a popular focus of human resources over the past 20 years, as have related metrics surrounding employee satisfaction and motivation. Praising employees is a method of increasing employee engagement. Four reasons are given to explain why giving employees praise improves engagement (Lipman, 2013):

1. It costs nothing.

2. It requires little effort.

3. It makes employees feel good.

4. When employees feel good, they work harder.

One issue that arises is that although praise is linked to improving engagement, companies often struggle to celebrate wins when there are multiple projects and deliverables on tight schedules. Budgeting time to celebrate wins and recognize employees’ efforts is often overlooked. Similarly, those who are most engaged might be high performers who are deserving of praise, yet a lack of praise might occur for disengaged or unengaged employees. Even if it makes the employees feel good, meritocratic approaches to praise may see already engaged employees receiving the most praise.

7. SUPPLY CHAIN MANAGEMENT

Supply chain management involves where you receive and how you transport supplies. More importantly, taking into account the business aspects of supply chain, supply chain management involves who a company’s vendors are, how the company can streamline and be cost effective in its management, and how the company can build trust across a variety of third-party partners. In determining the best strategy for supply chain management, consider practical factors surrounding problems that arise as well as the impacts that failing to solve those problems could have.

In doing so, a company can better prioritize which supply chain management issues are worth addressing immediately, versus those for which a company can wait until a better solution comes along.

Prioritize potential solutions. An acceptable solution, doable now, is usually superior to an excellent solution with higher complexity, longer timeframe, and higher cost. There is a rule that says that every large problem was once a small problem that could have been solved easily at that time” (Zwilling, 2011, p. 3).

Streamlining the workflow and trusting the right partners is important for any company’s success, across any industry.

8. INVENTORY

In production and manufacturing, inventory management is important in ensuring that costs and supply are efficient in meeting demand. However, different markets have different challenges when it comes to inventory control, and companies should strategize and plan for all factors, including natural disasters, supply shortages, and changing regulations around product maintenance.

One popular technique around inventory management is kitting. Kitting is the pre-assembly of the appropriate quantity of supplies, equipment, tools, forms, or other materials that are needed to complete an operation. Kits are provided at the point-of-use to accommodate the sequence in which the contents are to be used, according to standard work. Visual tools, such as bins, cut-outs, color-coding, and outlines are sometimes used to maximize efficiency. An example of kitting might include the use of pre-assembled packets that are created for instructors and learners. These teaching packets contain all of the necessary supplies for activity simulation and activity-based learning activities during training, and this is beneficial, in terms of convenience, for the buyers/learners as well as for the manufacturers.

9. SCHEDULING

Scheduling considers not only the time that it takes to accomplish various tasks in a work breakdown structure but also the resource allocation and which workers will be working on the different tasks that make up a project’s schedule. Schedules are important because they ensure that products, goods, and services are produced and provided in time for customers. Although there are differences across industries regarding the best practices for scheduling, the underlying consistency is that the numbers of machines and people that are required to do a job is contextually dependent on the goods and services being provided.

For example, a hospital having an efficient patient intake flow for its emergency department might be the different between life and death, whereas a company that fails to efficiently stock its product in a store might only lose in terms of finances and trust from consumers who expected the product and its brand to be present. One way that a project manager and project lead can control a project’s schedule is by keeping regular project status reports. In doing so, they can better facilitate project continuation discussions, see stallers and stoppers to project progress, as well as better navigate obstacles that could delay a project’s completion.

At a minimum the status report should contain the following categories:

1. Status Summary – Gives high level summary project state.

2. Project Progress – Progress made in the last reporting period. Would include key milestones met, key deliverables completed, budget and schedule tacking.

3. Planned Progress – Identify any items to be completed during next reporting period.

4. Risks/Issues – Any identified risks and issues along with the management plan to deal with specific risks/issues.

5. Resources – It is always good to identify the current resourcing level on the project in the status report so that all stakeholders have an appreciation for the work level and resource requirements.

6. Budget – if required, the report should identify the current project budget to complete, budget used so far, planned budget so far, and explain any variances.

7. Schedule – if required, the report should identify the current project schedule to complete, has the work completed so far been done on schedule, and explain any variances (Harding, 2010, p. 2).

In addition to project status reporting, another aspect of scheduling is for project managers and leads to be wary of scope creep. In software development, customer requirements will oftentimes be expanded after development begins, and new features that are marketable will be added to a list of expectations without those new tasks being reflected in an updated project schedule. This situation will likely lead to delays in project completion. However, project managers can play a role in preventing scope creep and expanding expectations from occurring after the launch of a project.

Every project manager has one key role to play: scope cop. But it’s a job you can’t do in isolation. You need to share nitty-gritty details and related financials with your team members on at least a weekly basis (more often than that in some industries) so they’ll support your efforts instead of undermining them with the best of intentions. It’s the only way, aside from sheer luck, that you’ll even come close to hitting your deadlines and your budget (Knight et al., 2013, p. 1).

Although preventing scope creep by being a scope cop is one key role of a project manager, project managers also serve a variety of other functions in scheduling, including being the liaison between leadership, the project lead, and those actually involved in the completion of project work tasks.

As PM’s [Project Managers] you have the responsibility to look at your project realistically in the broader context of the organization and to advise business leadership of the need to ensure that change is managed appropriately to ensure the delivery of the benefits that justified the project’s initiation (Pitagorsky, 2011, p. 3).

Determining takt time is also important for setting the production pace. Usually, production is set to match the rate of customer demand, which is important in inventory management to prevent both inventory shortages and an overabundance of leftover, unsold inventory, both of which translate to lost profit. Takt is a German word meaning a musical beat or rhythm, and takt is calculated by dividing the available production time by the daily quantity requirement by customers, thereby yielding the units of time/volume. In manufacturing, when the product being produced is a specific unit, determining the best production schedule is easier than in cases in which a service with varying times of completion is being executed. In addition to takt time, project managers also consider balancing the load when working with a project lead to appropriately allocate resources to tasks.

Balancing the load is a good idea when one wants to distribute work over various workers. This method prevents bottlenecks, lessens the chances of worker burnout, and is a great idea when the work being done does not require specialized knowledge and can easily be transferred, without much training, to another worker. An example of this work is printing duties in a typical office setting. Ordering new paper and repairs for a printer is a responsibility that can be exchanged between coworkers. So, if an executive assistant is particularly busy one week, delegation might be a useful method by which to accomplish the task.

10. MAINTENANCE

Maintenance is often overlooked, but is important to the sustainability portion of any innovation management plan. Often, inventors will focus on the design, development, and implementation of a product but will forget to articulate proper sustainability efforts. Concerning maintenance, how the workforce will implement and sustain a product, as well as the machines and equipment used, is important. Even less frequently discussed is whether the process will change over time, in terms of how the maintenance of a product or service should be executed. Similarly, industry leaders should consider what is needed to maintain quality, reliability, and stability in manufacturing goods and services.

CONCLUSION

In analyzing the 10 strategic operational areas in which Ford made its own improvements in 2008, we gave recommendations regarding how ProRate Energy Inc.’s innovative rate design can be best implemented in the fast paced and changing regulatory environment as well as the technology surrounding the energy sector. In doing so, the aim is for the adoption, as well as the improvement of operational efficiencies for the adoption, of innovative and sophisticated time-of-use pricing rate designs.