4 V's of Operation

Consider the importance of ‘the four Vs, volume, variety, variation in demand and visibility. How do they affect the organization’s operations? What advantages does the organization gain from them? What disadvantages arise from them? What strategies and actions does the organization employ to maximize the benefits and minimize the problems associated with them…?

Operation management is the how the business produces goods or services to cater to the needs of the customers. It is easy to see a car moving on the road but it is hard to imagine the various complexities involved in its production. All these are managed by an Operations Manager. Operations function is central to any organization as this is the core product around which the business evolves. But to understand the whole operations process we need to understand the four V’s - volume, variety, variation in demand and visibility (Johnston et al., 2014). It becomes very important as all the operation processes take input like raw materials, ideas, time and equipment to transform into outputs. Even though the underlying principle is same the difference comes from the way it is done and hence the importance of above 4 V is paramount. Volume Dimension: It is how many products or services are completed or made by the operation. A simple example would be McDonalds, where the volume of production of hamburger is very large and price low. The volume of operation is the key to how the business is managed and profitable. Other important thing to note is the repetitiveness of the process due to familiarity of the process. Proper standards and procedures have to be set in each and every part of the job. Specialized staffing and efficiency ofroutine work as well as machinery plays an important role. Economies of scale might be apparent to gain on the price point. Also as they gain more experience doing the same thing again and again, they gain competitive advantage over the other players (Managers Door, 2013). On the other handa small café has less production, less staff and less systemization and each staff works in multiple things which also results in higher unit costs. If volume is high:    

Economies of scale, so less unit cost More capital is required High Repeatability Specialization

If volume is low:    

Low Repetition Less Systemization High Unit Costs Each staff member performs more of a task

Variety Dimension:refers to how many different types of products and services are made by the operations. Suppose you have to travel to from our house to a specific location. We can choose both the taxi and the bus service. But taxi service offers more flexibility and variety as you can choose your own route and timings. Whereas the bus has a specific route and you have might have to walk some distance to take you desired bus. It has also has a timing constraint. Hence if we generalize our example we can 1|Page

say that if a manufacturer is involved in lot of changeovers between the processes, it will add to additional burden. The number of inputs will increase and overall the job complexity will increase. In this process one has to match user requirements with the variety of products also.But important here to note is that a low cost model is achieved more accurately by providing less variety. If variety is high:    

Flexible More complexity High Unit Costs Match Customer needs

If variety is low:     

Well Defined Routine Standardized Low unit cost Regular

Variation: can be defined as how much the demand changes over a period of time. It is easier to manage a process if we know the demand level. It’s always difficult to deal with uncertainties because resources can be well utilized if we know the no of customers who require a particular product or service. If there is unpredictability we have to keep some extra cushion for the demand which increases per unit price. To explain this considers two real estate developers. First offers pre-fabricated homes which you can choose from its site and then the selected house is transferred to the site and erected in few weeks. On the other hand there is a company which builds customized house according to the needs of the customer. Everything from the flooring, no of rooms to the interiors of the house can be customized according to taste of an individual. This will take around 1-2 years to build the complete house and cost of building the house also increases. This explains the fact that if there is more variation of demand, the cost increases. If variation in demand is high:     

Changing Capacity More flexibility needed Anticipation required In touch with demand High Unit costs

If variation in demand is low:  Stable  Routine  Predictable 2|Page

 High utilization  Lower Unit Costs Visibility: is how much of the operation’s internal working exposed to its customers. It’s how much of the experience customer actually experience. In case of service companies there is lot of visibility between the manufacturer and customer. For e.g. Courier companies are highly visible because you can track your package at each and every transit point. Similarly online shopping provides you a lot of visibility. But in case of a furniture manufacturer you just receive the output. You don’t know what processes were used in the manufacture of the product (Answers, 2014). The service skill possessed by the employees of the company greatly influences the customer’s experience. If visibility is high:    

Customer satisfaction by perception Short waiting tolerance Customer contact skills needed High Unit Costs

If visibility is low:     

Time difference between production and consumption High Staff Utilization Standardization Low Contact Skills Centralization

In most industries one can find the product on either extreme of each dimension. Advantages for each of the dimension have been discussed above (Srivastava et al., 2009). We can summarize by saying the these dimensions helps the organization’s to determine in which quadrant their product falls based on above 4 dimensions. For e.g. if the product is produced in mass volume disadvantage would be that there will be very less interaction of customer while the advantage would be to have an ease of manufacturing the product and low per unit cost But there is no fixed rule as to what needs to be done but depends on different combinations. Further there are some objectives which are applicable to all the dimensions of the operations. These objectives are:     

Quality Objective Speed Objective Dependability Objective Flexibility Objective Cost Objective

One of the objective influences the other objective. If more superior is the quality, it would result in more costs. Similarly if a product is more flexible it will require more time to get completed.

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Implications: All the 4 V’s have implications on the cost of creating the product or service. High Volume, low variation, low variety, and low visibility will help to reduce the transformational costs. On the other hand Low Volume, High variation, high variety and high visibility have a lot of carrying costs and overall costs for an organization. But the final picture is known only when the demand of the market which the organization serving is determined. So for taking a volume decision organization has to consider the various other costs associated with it. Organization has to determine what will be inventory costs of the product if it is manufactured more. I f we consider variety and if it is low, organization can invest in automation of the processes (Kumar et al., 2009). Organization also has to take decision whether an ERP should be implemented to increase visibility. Strategies:Previously there was an approach called Mass Production where you produce large quantities in anticipation of future demand but now this is moving into Mass Customization. This requires organizations to interact with the customers and find out the exact requirements (Pilkington, 1998). But one efficient method would be to mass produce the product to certain point which would be common in all the products and then customize the later part according to the needs of customer. Still the most important step of any organization would be capacity planning and demand forecasting. Capacity planning requires introspecting how many units we can manufacture? Are there any alternatives to meet increased demand? Determine long term considerations as well as short-term considerations to probe any variations. With more and more analytics available, organizations can predict the demand of product more accurately. They can use various analytical tools like conjoint analysis to find the no. of potential customers for a product. A simple methodology to find the demand is:     

Identify products which are too be considered for forecasting process Set parameters for forecasting Determine target markets for the product Gather relevant data Apply forecasting techniques

Some of the systems which can be user are Material Requisition Planning (MRP), Enterprise Resource Planning (ERP) and financial modeling. If demand is forecasted accurately, organizations can further use the economies of scale to increase the profits. Companies can invest into process improvements and other skills rather focusing on a trade-off between cost and product variety i.e. for a fixed investment, organization has greater ability to absorb product variety. If there is lot of inventory holding, a lot of cash is stalked. These items can also be lost or become obsolete due to change in requirements. So companies are implementing JIT strategy which refers to Just inTime (JIT). This philosophy branches out of lean principle of production and uses many tools to achieve the goal. When items are ready they are not holding up in the warehouses and occupying space. These items are just made as soon the demand arises and delivered to the customer as soon as possible. This saves a lot of inventory cost. This also makes your organization more visible

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because you can product according to customer’s needs. We no longer have to force customer to buy a particular product because this was lying idle in the warehouse. Some of the key benefits of JIT are:    

Low Inventory Low Wastage High Quality Production High Customer Responsiveness

By implementing JIT, there is more detailed look into each step of manufacturing and helps in total quality management. But the only drawback of JIT is that we have to be sure that supplier can supply the raw materials as and when required (UCHIKAWA et al., 2007). Newer technologies have helped the organizations to allocate the repetitive and dangerous work to machines. This has resulted in more efficient production processes, while a new technology can be expensive in short-run but it’s economical in long run. Previous task designs have been replaced by modern layouts and designs. Below pictures convey the message effectively.

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References 1. Answers

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http://wiki.answers.com/Q/The_four_Vs_volume_variety_variation_in_demand_and_visibility_in_an_or ganization?#slide=6. Accessed on 16th April 2014. 2. Managers Door (2013). Top 5 – The Four V’s of Operations Management.

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http://www.managersdoor.com/topic/top-5-the-four-vs-of-operations-management/. Accessed on 17h April 2014 3. Slack, N., Chambers, S. & Johnston, R. (2010) Operations management. 6th ed. Harlow PrenticeHall/Financial Times 4. Kumar, S. & Suresh, N. (2009) Operations Management. New Delhi: New Age International (P) Ltd. 5. Bisen, V. & Srivastava, S. (2009) Production & Operation Management India : Word-Press 6. Pilkington. A (1998). Manufacturing Strategy Regained: Evidence for the Demise of Best-Practice, California Management Review, (1998) Vol. 41, No.1, pp.31–42 7. Daini

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http://www.academia.edu/3629767/The_Four_Vs_of_Operations. Accessed on 17th April 2014. 8. SUGIMORI Y., KUSUNOKI K., CHO F., UCHIKAWA S. (2007). Toyota production system and Kanban system Materialization of just-in-time and respect-for-human system. International Journal of Production Research pages 553-564.

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