The purpose of operational objectives

Operational objectives are specific targets related to a business's production processes. These objectives focus on how a firm creates goods or services, which forms the core function of most businesses.

Setting these targets helps align day-to-day operations with the company's broader goals. They guide decisions in the production department, making sure efforts contribute to overall success. Managers can then evaluate performance by checking if these objectives are met, allowing for adjustments where needed.

Different types of operational objectives

Businesses set various operational objectives to improve performance in production. These targets often address aspects like product standards, resource use, and market responsiveness.

Quality objectives

Quality objectives focus on maintaining or enhancing the standard of goods or services. For example, a firm might target 95% of its items to last seven years, or aim to reduce monthly customer complaints.

Cost objectives

Cost objectives involve reducing expenses to stay competitive, particularly for price-sensitive markets. This could mean cutting fixed costs through organisational changes, like simplifying management structures, or lowering variable costs, such as removing complimentary refreshments from a service.

Flexibility objectives

Flexibility objectives ensure a business can adapt to changing customer needs. This includes adjusting output levels to match demand or using flexible staffing, such as zero-hours contracts, where employees have no guaranteed minimum hours.

Efficiency objectives

Efficiency objectives aim to optimise resource use, which can lower costs and boost profits. Key focuses include raising capacity utilisation by maximising output from existing assets, and improving productivity – the output per worker or machine over a given time.

Innovation objectives

Innovation objectives drive new developments, often set for research and development (R&D) teams. A tech firm might aim to create a device with 48-hour battery life in 2 years, though challenges like technical issues can make these hard to meet.

Environmental objectives

Environmental objectives respond to pressures from consumers and regulations. They might involve reducing carbon emissions or increasing the use of recycled materials in production.

Speed of response objectives

Speed of response objectives emphasise quick operations, such as shortening production times, reducing customer wait times, or launching products faster. These often overlap with efficiency goals.

Added value objectives

Added value is a central operational objective, where businesses transform inputs into outputs that customers value more highly. It increases the gap between material costs and selling price, often leading to higher profits.

Added value can rise by charging more for superior quality, eco-friendly features, or faster delivery. It can also come from cutting input costs.

$\text{Added value}=\text{sales revenue}-\text{cost of bought-in goods and services}$

Worked example - Calculating added value

A clothing manufacturer has sales revenue of £150,000 and the cost of bought-in goods and services is £85,000. Calculate the added value.

Step 1: Identify the values

• Sales revenue = £150,000
• Cost of bought-in goods and services = £85,000

Step 2: Apply the formula

$\text{Added value}=\pounds \mathrm{150,000}-\pounds \mathrm{85,000}$

Step 3: Calculate the added value

$\text{Added value}=\pounds \mathrm{65,000}$

Methods of production

Production methods vary based on the type of product, scale, and business needs. Each approach affects how resources are used and how objectives are met.

Main methods of production

• Job production - Involves creating unique, custom items using skilled workers, suitable for one-off orders.
• Flow production - Uses continuous assembly lines for mass output, with tasks divided among workers for high volume.
• Batch production - Produces groups of identical items in limited runs, allowing some variety between batches.
• Cell production - Organises work into teams that complete sets of tasks, promoting collaboration and efficiency.
• Lean production - Focuses on minimising waste through streamlined processes, ensuring resources are used effectively.

Links between production methods and operational objectives

Different production methods support specific operational objectives, helping businesses choose the best approach for their goals.

Selecting the right method can enhance multiple objectives, such as using lean production to cut costs while meeting environmental targets.