Operations Management 1 - Resource & Workflow Layout

There are no hard and fast rules for optimizing a company’s capital structure, companies that are strategic use an efficient combination of senior debt, mezzanine debt, and equity capital to minimize their true cost of capital. It's also important for a business owner to analyse the difference in value between an ownership interest in a stagnant or underperforming business and ownership in a growing company. Listed below are some of the equity and debt available to raise funds:

• Senior Bank Debt
• Subordinated Debt
• Shareholder Equity
• Quasi Equity
• Mezzanine Debt

Senior Bank Debt
Senior bank debt is the borrowed money that a company must repay first if it goes out of business. The lender holds claim to the borrower’s assets above all other debt obligations. The loan is considered senior to all other claims against the borrower, meaning the collateral can be sold to repay the senior debt holders first, followed by junior debt holders, preferred stock holders and common stockholders. This makes the senior bank debt a lower risk to the borrower and therefore a lower interest rate.

Subordinated Debt
Subordinated debt is a debt that can only be claimed by an unsecure creditor, in the event of a liquidation, after claims of secured creditors have been met. Subordinated debt can be used for growth capital, acquisitions, recapitalizations, and management and leveraged buyouts. Subordinated debt holders need to ensure there is enough free cash flow to service the debt, since the debt is either unsecured or partially secured. Therefore, despite the high-interest rate on subordinated debt, if the business is flowing good, consistent free cash flow, it may be best to obtain subordinated debt rather than a pure equity injection.

Quasi Equity
Quasi-equity debt security (also known as revenue participation investment) is useful for enterprises that are legally structured non-profits and therefore cannot obtain equity capital. This type of security is a form of debt, but its returns are indexed to the organisation’s financial performance. If future expected financial performance is not achieved, a lower or possibly zero financial return is paid to the investor. Conversely, if performance is better than expected, then a higher financial return may be payable. Quasi-equity provides a more equal sharing of risk and reward between investor and investee.

Capacity planning falls under capacity management. It determines an organisation’s ability to meet the rigours of current and anticipated work by investing in their greatest asset: the resource pool. Capacity Planning is the determination and adjustment of an organisation’s ability to produce products or services to match demand. Capacity management is about matching capacity and demand. In many organisations, capacity does not evenly match demand. A campus book store has the bulk of its sales just prior to the start of each teaching period. For the remainder of the teaching period, sales are quite low. This is a significant mismatch in capacity because a college cannot afford to operate a large bookstore just to satisfy peak level demand and then remain idle from there on.

The management of short-to-medium capacity is not concerned with the details of individual products, but seeks to answer questions about how the budgeted output for the next year will be resourced and accomplished given the variations in demand. In order to do this effectively the organisation needs to look at demand broadly, summing different products into aggregate totals in order to obtain useful information at the budgetary level rather than the individual product level.

Workflow can be defined as set of processes which needs to be accomplished, the set of people or other resources available to perform those processes, and the interactions among them. The workflow concept has evolved from the notion of process in manufacturing and the office. Such processes have existed since industrialization and are products of a search to increase efficiency by concentrating on the routine aspects of work activities. They typically separate work activities into well-defined tasks, roles, rules, and procedures which regulate most of the work in manufacturing and the office. Initially, processes were carried out entirely by humans who manipulated physical objects. With the introduction of information technology, processes in the work place are partially or totally automated by information systems, i.e., computer programs performing tasks and enforcing rules which were previously implemented by humans.

Processes in an organization are categorized into:
• material processes,
• information processes, and
• business processes

Resource planning and control is concerned with managing the allocation of resources and activities for process efficiency and effectiveness in satisfying customer demand (Slack et al. 2015). This is a useful way of thinking about this issue. In order to throw light on some of the key issues of short-term scheduling and planning, we have reproduced the following diagram where we used it to illustrate some basic aspects of operating processes.

This is a simple process but to set it up and schedule work through it requires that:
• The raw material supply is organised, scheduled to be ready at start-up, and available at the site.
• Workers (probably coming from other parts of the factory, together with casual labour) are scheduled to staff the process on time.
• Maintenance staff have been scheduled to check and service the operating equipment beforehand.
• An operations supervisor has been alerted beforehand to set the process up and make sure it is ready to operate.
• And the ‘customer’ side of the operation has been planned ready for the output to be moved to either a finished goods store (if work is complete) or a work-in-process location ready for the next process.

Operations management (OM) is defined as “the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services”.

OM practices and research must respond to demands to address sustainability. Creating a safe work environment is critical to the success of your business, and is one of the best ways to retain staff and maximise productivity. This response is triggered by environmental concerns, the well-being of workers and communities, and other broad social demands. Definition of sustainable OM as the pursuit of social, economic and environmental objectives – the triple bottom line (TBL) – within operations of a specific firm and operational linkages that extend beyond the firm to include the supply chain and communities. As a business owner you have responsibilities regarding health and safety in your workplace. Different aspects of operational management like product design, social standards, lean operations, and supply chain management can be considered for a sustainable practice.

Temperature, relative humidity, ventilation, lighting, and noise level are all factors in work system design. People work well when the temperature is comfortable; typically, the more strenuous the work, the lower the temperature should be. Inadequate lighting can lead to production mistakes and/or physical discomfort such as headaches. Detailed work normally needs stronger light. Also, high noise levels can be distracting and can result in errors or accidents as well as impair hearing. The law was designed to ensure that all workers have healthy and safe working conditions. It mandates specific safety conditions that are inspected randomly by OSHA inspectors. The law requires the company to ensure a safe working environment for its employees. Therefore, worker safety is the primary concern in work system design. Workplace accidents are usually the result of worker carelessness or workplace hazards.