Operations Management Overview

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Introduction

Economic crises and natural disasters can prompt the attention of the business community to operations management. The effective organization helped Nissan to find internal reserves to increase the company’s profitability through the effective implementation of each operation. Designing, constructing, adapting, and controlling the production process of operations within the company was no longer just a theoretical study of the science of management, but the self-sufficient activity of individual employees or entire departments as part of medium and large businesses. Thus, Nissan’s management needed to address operational efficiency as the most important factor to increase the profitability of the company as a whole.

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Operations Department’s Contribution

Nissan’s operations management department played a critical role in ensuring the company’s survival during the crisis. The latter came in the form of a tsunami, earthquake, and nuclear disaster (Simchi-Levi & Schmidt, 2013). The overall devastation did not only hurt the company, but it severely damaged the entire nation of Japan. Nissan’s operations management department undertook complex and robust measures in order to save the company from total collapse by properly allocating resources and managing the production as is shown in Table 1. Nissan was able to outwait the crisis and meet the demands of its customers by focusing on key product lines and allocating resources in the most valuable elements of the operations. For example, the Global Positioning System was only integrated into high-end models, whereas low-end models did not receive any modifications (Simchi-Levi & Schmidt, 2013). This allowed Nissan to preserve the majority of its limited resources without spending too much on products with decreased customer demands.

Practices Description
Information Sharing Two staff member of non-Japanese operation facilities were allowed to visit the country to contribute to the recovery process
Supply Allocation Customer demands, such as GPS, were integrated only in high-end models
Production Management Nissan pulled vacations and slowed down the targeted production lines
Action Empowerment Decision-making process did not involve any lengthy discussion and analysis

Table 1. Company response practices

Furthermore, Nissan slowed its production by specifically focusing on the key product lines. The main issue during the crisis was the presence of bottlenecks, which meant that many facilities would operate over time, and thus, becoming costly for the company. However, the operations management department greatly improved the overall performance by pulling vacation time and eliminating unnecessary production lines. One of the most complex, implicit from the point of view of effectiveness, and therefore not at all popular approach to improving Nissan’s efficiency is the search for internal reserves.

Performance and Competitiveness

Nissan’s operations management during the crisis is an outstanding example of efficiency, which directly enhanced the company’s performance and competitiveness. It is important to note that the overall objective was not outcompeting and outperforming its rivals, but rather survive and outwait the crisis in order to remain in the market. Correct prioritization was a critical element at Nissan because if the company had sought to outcompete its rivals, it would have depleted its limited resources and collapsed. However, Nissan primarily focused on its operational efficiency and supply allocation (Simchi-Levi & Schmidt, 2013). In addition, Nissan adhered to its corporate social responsibility (CSR) by sharing vital information in such a way that it would not damage the company and be helpful to its suppliers and partners. In order to allow other non-Japanese operations to be able to understand the scope of the crisis, Nissan asked them to send two staff members to Japan to contribute (Simchi-Levi & Schmidt, 2013). Therefore, foreign operations were able to gather important data and contribute to the company’s survival.

Operational efficiency is the degree to which operations are adapted to fulfill their tasks. In the case of Nissan, this is an increase in the quality of products or services while reducing costs, that is, the operational efficiency of using the company’s internal resources. This allowed Nissan to remain competitive in the market as well as gain resilience compared to its local rivals, such as Toyota. Given the shortage of final goods for consumers and the observance of the national import substitution strategy, Nissan was trying to market their analogs of imported goods. The main positive difference is their competitive price compared to imported ones. However, the production of the required products requires equipment, information systems, and relevant human resources that are not ready for such actions. In order to analyze the innovation activity and strategic orientation of Nissan industrial facilities, it was important to use the already developed cognitive map of the innovative mechanism of the enterprise. The cognitive model is based on the formalization of causal relationships between the characteristics of the system under study. The result of formalization is the representation of the system in the form of a causal network called a cognitive map.

When considering the map of the innovative development of an enterprise, one of the factors that maximally affect the innovativeness of an enterprise is the presence of a long-term plan and strategy. It causes many outgoing flows in the enterprise and is the reason for its competitiveness. Thus, in accordance with this framework, certain causal relationships are clearly traced. Within the structure of the map, it can be noted that the development strategy formed at the enterprise is the reason for the further development of the innovative activity, as well as all subsystems within the enterprise. This applies not only to the events of the main products but also to all auxiliary services such as repair, tooling, production of non-standard equipment. All business processes at enterprises are divided into main ones, such as production and sale of goods and auxiliary. The latter includes preparation of production, such as planning, providing and maintaining equipment, technologies, information component and organizing, and managing human resources.

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Process of Operations Design

The process of operations design at Nissan can be observed in the quick transition from mass production to lean manufacturing. The company’s goal was to increase efficiency with limited resources, and thus, the enterprise shifted to lean manufacturing as it is shown in Table 2. The process was designed in such a manner, where unnecessary employees were sent to vacation, and unnecessary product lines were shut down. Many features demanded by customers were implemented only in high-end models of automobiles, and low-end and the least valuable models were either eliminated to produce with minimum cost and waste.

Lean Manufacturing Examples
Full Employee Involvement Some employees were sent to vacation
Value Focus High-end models with GPS
Production Targeted manufacturing
Rapid Response Action empowerment through a proactive approach

Table 2. Nissan’s integration of lean manufacturing.

Lean manufacturing is a management concept for a manufacturing enterprise, based on a constant desire to eliminate all types of losses. This type of production involves involving each employee in the process of optimizing the business and maximizing customer orientation. It arose as an interpretation of the ideas of the company’s production system. Lean manufacturing turned upside-down ideas about production management, demonstrating the possibility of multiple cost reductions and corresponding increase inefficiency. Lean manufacturing is a complex of philosophy, ways of organizing activities, and technical techniques aimed at constant cost reduction. With the introduction of the system, cost reduction occurs sharply, and significantly, in the future, it occurs more slowly but never stops (Hyndman & Athanasopoulos, 2018). The starting point of the concept is the assessment at each stage of creating a product of value for the end-user.

As the main task, the concept involves setting up a process of continuous elimination of losses and eradicating any actions that consume resources but do not create value for the end-user. For example, the consumer does not need the finished product or its parts to be in stock. However, with the traditional management system, storage costs, as well as all costs associated with remaking, defective, and other indirect costs are passed on to the consumer. In accordance with the concept of lean production, all activities of the enterprise are divided into operations and processes that add value to the consumer, and operations and processes that do not add value to the consumer. The objective of lean manufacturing is to systematically reduce processes and operations that do not add value.

For Nissan, lean manufacturing began by pinpointing the value in terms of a specific product that has certain characteristics and costs a certain price. This had to be done through dialogue with the consumer. Value is the utility inherent in the product from the client’s point of view and is reflected in the price of sales and market demand. Definition of value is the first and most important stage in the organization of lean production (Reid & Sanders, 2015). If Nissan would produce faulty goods or provide inadequate services, then this would be a direct way to create losses. When the value was formulated, a map of the value stream was drawn up, and the extra steps were removed, it was necessary to ensure that this value stream was set in motion. To do this, a reorganization of Nissan’s ideas on how to structure the work was needed. Initially, the meaning of the word efficiency was to group all types of activities in such a way that their implementation would be more effective and management more simple. In the case of Nissan, everything had to be done in batches to increase the efficiency of work within units. However, such work has always been fraught with long delays, since the product must wait until the unit is reorganized to the type of processing that is needed for the next stage. This approach justifies the acquisition of highly specialized and high-speed equipment.

Nissan needed to eliminate the desire to share the work of the segmentation, because there is a more reasonable and effective way, when the product, passing the path from raw materials to the finished product, is processed continuously. In order to increase productivity, it was worth focusing not on the equipment, but on the product and customer needs. Thus, all the work on the design, ordering of components, and delivery of the product had to be carried out in one continuous stream. The main problem was that thinking in terms of flow contradicted the traditional concept, which includes the division of work into departments and parts. When high-performance equipment is installed, and their functions are assigned to departments, career factors and the ease of bookkeeping come into force. The given approach does not at all contribute to the transition to a continuous work method.

Operations Management Approaches

Operations management at Nissan during the crisis primarily focused on customer preference, supply, and demand network, but the technological aspect was mostly dismissed. By shifting towards lean manufacturing, the company was able to become more selective with customer preferences. For example, Nissan integrated GPS technology in high-end models only, where the product lines with the least value were eliminated or unchanged. The supply and demand network was also affected by the crisis, and Nissan’s approach was rooted in advancing its corporate social responsibility by sharing vital information with its vendors as is shown in Table 3. In order to prevent non-performance, Nissan was eager to empower action, which primarily focused on flexibility and speed of implementation. The company discouraged any lengthy decision-making processes, and thus, the majority of actions were executed quickly without any delays (Simchi-Levi & Schmidt, 2013). This allowed Nissan to be highly proactive in responding to the challenges of the crisis.

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Corporate Social Responsibility Elements Examples
Sincerity Nissan was open to sharing information on the current stance of the company.
Ethics Nissan invited to send staff members, which prevented other facilities from optimizing for their own needs.
Cooperation Nissan was eager to help its operations and receive their contribution after the visit.
Sustainability Nissan reduced the production volume in Japan by increasing it in the Americas.

Table 3. Nissan’s CSR

In the case of technological developments, the measures were undertaken only after the crisis. Nissan made efforts to increase its localized production in the Americas in order to be less reliant on the Japanese facilities (Simchi-Levi & Schmidt, 2013). This allowed the company to be more resilient if a new form of crisis strikes the country. In other words, Nissan’s philosophy of managing risks is manifested in the fact that being flexible and adjustable is critical for potential threats. By spreading the overall production processes across the globe, there is a lower chance of large-scale devastation severely hurting the company’s operations.

Nissan’s development strategy was built and configured either around the processes of the main production, or the operations of the auxiliary output. The main task of domestic enterprises is to support all functioning systems, such as equipment, information systems, to prevent them from collapsing. Operational management, aimed at supplemental production, is called upon to produce, repair, and maintain equipment for a certain number of years in working conditions without updating and global technological disasters within a specific enterprise. Even those enterprises that managed to purchase imported equipment might not be able to service it, buy components, spare parts, and receive consulting services. Thus, this is not a strategy for creating innovative products, but a strategy for maintaining equipment, information systems, and personnel in order to produce import-substituting products.

Research on Operations Management

In the current research on operations management, a number of shifts can be observed. For example, the resource-based theory is among the most popular frameworks in operations management, which primarily focuses on the resource aspect of processes (Hitt et al., 2016). The tasks are related to the ability to design and produce tooling and high-quality tools and their repair at low cost, to maintain its efficiency, which fully corresponds to the proposed concept of the engineering component of the production infrastructure. Many engineering problems are also solved by the repair service of technological equipment at machine-building enterprises. Repair and overhaul maintenance extend the life of machines and equipment, ensure its accuracy, productivity, operational reliability, and thus maintain the production capacity of the enterprise at the required competitive level. It should be noted that currently, there is a tendency for faster growth rates of costs for all types of repairs in comparison with the growth rates of fixed assets. This indicates the allocation of funds for the maintenance and operation of outdated, relatively low-productivity equipment.

Being prepared for a potential disaster is not only a major part of risk management but also operations management. It is stated that modern enterprises are becoming more aware of the severity of disruptions caused by disasters, and thus, the role of Disaster Operations Management (DOM) is vital for efficiency and systematic approach (Hoyos et al., 2015). For each specified factor, specific plans and methods for improving efficiency have been developed, and it is important to establish that their implementation separately gives local results and has a weak effect on the change in the situation as a whole. It is necessary to create a single integrated system for increasing the efficiency of operations for each functional service. Thus, it is essential to notice the application of a systematic approach, thanks to which it will be possible to combine efforts on the necessary changes in the company and strive to achieve a common goal and increase the efficiency of operations.

Today, many companies do not use modern technological control systems in their work or do it inefficiently. It is especially true in the case of multi-channel retailing, where they can be a lack of a solid understanding of the operations processes (Hubner et al., 2015). From the point of view of the efficiency factor in the application of modern technologies, the company should be engaged in the continuous implementation and improvement of information systems such as enterprise resource planning and customer relationship management. A fairly large number of developments in this area are presented on the market, and the capabilities of these programs can easily be adjusted to the required size of the business and its specific features.

From the point of view of the resilience factor, in order to realize the task of increasing operational efficiency, it is necessary to go through several stages. In the course of their activities, all organizations experience the pressure of the external and internal environment. As a rule, it has a changeable, but not always a definite character. The impact of the external environment is manifested in the actions of state supervisory authorities, changes in in-laws, and the active position of competitors.

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Conclusion

In conclusion, the changes in the external environment lead to the need to change Nissan’s operations structure, and even the goals of the organization. However, the organization must carefully monitor internal stress, which is not always the result of exposure to the external environment. The introduction of global management information systems or the hiring of new specialists may entail the need to change the organizational structure of the organization and, as a result, business processes, and the system of interaction with the external environment.

References

Hitt, M. A., Xu, K., & Carnes, C. M. (2016). Resource based theory in operations management research. Journal of Operations Management, 41, 77-94.

Hoyos, M. C., Morales, R. S., & Akhavan-Tabatabaei, R. (2015). OR models with stochastic components in disaster operations management: A literature survey. Computers & Industrial Engineering, 82, 183-197.

Hubner, A., Holzapfel, A., & Kuhn, H. (2015). Operations management in multi-channel retailing: An exploratory study. Operations Management Research, 8, 84-100.

Hyndman, R. J., & Athanasopoulos, G. (2018). Forecasting: Principles and practice. OTexts.

Reid, R. D., & Sanders, N. R. (2015). Operations management: An integrated approach. Wiley.

Simchi-Levi, D., & Schmidt, W. (2013). Nissan Motor Company Ltd.: Building operational resiliency. MIT Management Sloan School.

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