Critically identify and discuss the contemporary issues in Strategic Operations Management faced by organizations

1. Introduction:

How is it possible that an employee from a particular outlet of a retail superstore can access the inventory information of a nearby outlet in real time? How come a traveler can successfully enquire about the seating arrangement of a running train, looking to board it from an intermediate station? How does an inventory manager get instantly notified of a certain product running out of stock soon? And how does the manager, without having to travel even a yard, replenish the stock almost in real time?

The only answer to the above-stated questions is technology. A simple ERP (Enterprise Resource Planning) software will do everything asked above, as it combines different departments of a business organization, thus facilitating effective real-time communication between departments (Anderson 2021). 

While the steam-powered first Industrial Revolution saw an unexpected communication boom and the spread of industrial operations in late 18th-century Europe, business operations nowadays are heavily reliant on smart devices that are getting smarter with almost every passing day. Hence comes the term Fourth Industrial Revolution, alternatively known as Industry 4.0.

A few taps on a smart device such as a smartphone can now initiate a large-scale operational process in businesses. The overall digitization of the industrial sector has certainly increased the efficiency level of organizations, leading to more effective and accurate decision-making based on real-time data processing and significantly improved production output.

Advanced technologies such as the Internet of Things (IoT), Machine Learning, Artificial Intelligence, Cloud Computing, Big Data, and 3-D printing are being increasingly adopted by decision makers in their day-to-day management of operations. Seamless IT-OT integration has made factories smarter than ever before, while 3-D printing is facilitating an increased volume of custom manufacturing. (‘What is Industry 4.0?’ 2022)

Increased automation in business operations has already seen instances of machines replacing humans, especially in the manufacturing sector, a trend more likely to gather pace shortly. Moreover, every stage of operations is constantly getting more sophisticated, with enhanced demand for innovation not just in a firm’s offerings— catering to what, who, how and where aspects— but in its technology usage. A significant portion of the resources invested in research and development (R & D) today unmistakably goes to innovating technology itself. As a result, competition in a technology-driven market economy is highly intense today, and justifiably so. But even more importantly, the level of competition now appears to have gone beyond Porter’s Five Forces (1980) - both the industry participants and vertical participants (consumer and supplier)- as machines are now often pitted against humans not in the external but within the internal resource base of the organization.

Technology definitely offers innumerable opportunities, for which any possible limit seems to be the sky. But then, opportunity brings with it a considerable threat as well. This is undoubtedly a cause of concern- may not be in the short-term, but definitely in the long-term- for any decision makers involved in operations management. In the subsequent sections of this report, I intend to elaborate on various contemporary issues in strategic operations management, particularly in close relation to technological advancement in the industry sector.

2. Strategic Operations Management and Advanced Technology:

Before getting deep into how technological advancement in business organizations has made way for greater efficiency in everyday operations management, with both short-term and long-term goals in mind, it is primarily important to understand a few words describing operations management.

Operations management is a set of activities that include planning, organizing and overseeing the resources involved in the process of production and manufacturing to reach the customers with the products and services. This delivery-centric strategy always focuses on resource management, aiming to achieve maximum customer satisfaction with an efficient (or minimum) use of resources.

Operations managers or employees tasked with this responsibility tend to deal with different issues in production and service systems. Activities such as formulating operations strategy, product design and process designs, quality management, inventory management, capacity building, analyzing operations performance, production and facilities planning, innovation in products and services, and managing operations technology fall within the purview of operations management. An operations manager is expected to sincerely carry out these functions and gather adequate knowledge about the prevalent condition of the firm’s internal and external environment so that he or she can make informed and effective decisions. A much more holistic view is held by modern definitions of operations management. (Reid and Sanders 2019)

Now, I am going to present a case study here to further discuss different aspects of operations management:

2.1 A Case Study: Automation in Bangladesh’s Readymade Garment (RMG) Sector and Its Implications in businesses:

Bangladesh is an emerging economy in South Asia with a per capita income of over $2500, a three-fold increase over the past decade (The Financial Express 2021). The country’s economy, however, is not diversified enough, with its foreign exchange largely dependent on the $30 billion Readymade Garment (RMG) sector and earnings through foreign remittance that saw hitting a new record of $22.07 billion in 2021. (New Age 2022)

Bangladesh’s position is just behind China when it comes to exporting garments and textile products. However, technological advancement in recent years has ushered in a conscious move towards automation, resulting in considerable job losses. It hit the sector’s female workforce—who comprises the larger share—even more acutely compared to their male counterparts, largely due to a relative lack of skills and education to adapt to automation. (Ullah, Akhter 2021)

As per ILO and the Bangladesh government’s a2i project, it is predicted that automation will drive 5.38 million workers out of their jobs in the RMG sector by 2030, a sector where 4.2 million people are currently employed. Technologies such as robots will take the place of humans in the production line, while this large jobless workforce will have no other alternatives as they are not skilled enough to switch jobs. Moreover, new jobs created by automation will not be of much value to them, as operating automated production requires some degree of education and technical skill. While automation is unavoidable in the industry, it appears to be posing challenges for both employees and employers. (Khan 2019)

Bangladesh may have a demographic dividend in hand, but it would require significant investment in training and education for that demographic advantage to be utilized fully and efficiently. Automation in the RMG sector has already resulted in a significant reduction in overall production cost while increasing production volumes by up to 40% for the same amount of investment. Also, this additional profit is likely to increase further in the next few years as factories will oversee a significant automation drive, thus, downsizing the workforce at the cost of machines, which will only incur a one-time fixed cost.

Factories, however, may well be enjoying increased profit margins due to technological shifts in production, but they will soon face some challenges as well. 

As we know, the task of an operations manager is to oversee the transformation of resources from inputs to outputs, thus producing the finished products or services ready to be delivered to, or exchanged with, the consumers. Resource inputs are of two kinds: (a) transforming inputs and (b) transformed inputs. In the case study above, factory owners are reaping the benefits of transforming inputs in the form of more efficient production facilities and decreasing the costs of the workforce. But the question that arises here is how long they will be able to sustain this advantage.

Jay B. Barney's (1991) Resource-based View (RBV) propounds that a sustained competitive advantage can be achieved by combining and utilizing a firm’s internal resources, both tangible and intangible. The above-mentioned factory owners are also exploiting their internal resource base for the purpose of enhancing profit and more efficient production. However, what RBV here fails to recognize can be easily identified from the perspective of Dynamic Capabilities (DC).

Dynamic Capabilities (DC) theory, another theoretical perspective of operations management, was proposed by Teece, Pisano and Shuen (1997). This view focuses on integrating both internal and external resources, thus, utilizing a combined resource base for any required reaction to certain changes in the external environment. This holistic approach, unlike RBV, can better analyze the condition of the factory owners both in terms of their current advantages and their future challenges. For factory owners, a shortage of skilled laborers capable of adopting the automation process could be a future threat because a new generation of the skilled workforce will seek significantly higher salaries. Instead, a training program for the unskilled or low-skilled current workforce could help them avoid a future crisis for which no cost-effective solution is currently available. However, RBV can help the factory owners formulate strategies concerning how to use their skills and resources to great effect, drawing a sustained competitive advantage.

Since the publication of Porter’s five forces (1980), external resources have received more attention in relation to strategy formulation. The connection between internal resources and strategy was neglected for more than a decade (Grant 1999).

Barney’s (1991) Resource-Based View theory was significant in bringing wider attention towards internal resources and their importance in strategy formulation. Grant’s (1991) characterization of internal resources, also known as VRIN (Valuable, Rare, Inimitable, and Non-substitutable) has also gone a long way towards establishing an organization’s internal resources to elicit competitive advantage.

The difference between RBV and DC lies in their approaches. While RBV aims to elicit competitive advantage in the long run and hold onto it, DC administers an organization’s capabilities towards its competitive survival even in the face of changes in the external business environment. Although DC is often considered an extended version of RBV, there is enough evidence indicating just the opposite. Scholars Eisenhardt and Martin (2000) significantly contribute to the widening scope of DC, entailing the process of product development and strategic decision-making.

Economist Oliver E. Williamson’s (1979) Transaction Cost Economics introduced a different observational perspective, giving rise to the popularity of the term "transaction cost" in the literature of economics. To simply put, transaction costs are the aggregate sum of all economic transactions in a market. In other words, the costs of exchanging resources- both within the external and internal environments- are transaction costs. From an organization’s point of view, the smaller the transaction costs the better.

Transaction costs can be of three kinds such as Search and Information costs, Bargaining and Decision costs, and Policing and Enforcement costs (Dahlman 1979). However, there are four different factors in transaction costs, as proposed by Douglas C. North (1992), and they are measurement, enforcement, ideological attitudes and perceptions, and the size of the market. Williamson also proposes four determinants of evaluative mechanisms: frequency of exchange, asset specificity, uncertainty, and the threat of opportunism. 

3. Operations Performance and Technological Advancement:

There are five different parameters to measure the performance of operations within a firm. They are Quality, Speed, Dependability, Flexibility, and Cost. Technological advancements like 3-D printing have opened up a whole set of new opportunities that were never available before. Custom-made designs have never been as facilitated as they are now thanks to 3-D printing technology. In addition to such flexibility of manufacturing, issues of quality also rarely arise in a computerized production capacity. That is the reason European and North American buyers of garments and textile products are increasingly demanding that RMG factories in Bangladesh adopt automation as early as possible. It also facilitates the production, which eventually drives down the cost and enhances production volume. Speed is another area of measuring operations performance, and technologies like edge computing and ERP (Enterprise Resource Planning) facilitate almost real-time data transmission, and latency time is significantly reduced during operations. Moreover, business processes powered by artificial intelligence and machine learning are highly consistent in terms of performance compared to any manual production process. Technologies like digital twin also allow simulation of a production or manufacturing operation so that a production manager or people above him can test a particular process before putting it into practice, thus achieving greater reliability.

The cost performance of technology-powered operations is also highly satisfactory. Following the 4 V’s (Volume, Variety, Variation, and Visibility) of operations management, the cost performance of operations can be measured to a great extent.

A technology-backed production capacity can handle a large volume of products, thus, creating an opportunity for a larger profit, but the degree to which the organization can capitalize on that depends on various other aspects, like winning the trust of consumers, and thus, giving rise to consumer demand. Then, the variety aspect also works almost the same way for a tech-powered company, as it is expected to be better equipped to manufacture a diverse range of goods and/or services. Here too, the success depends largely on the brand positioning of the organization.

Variation in demand is highly dependent on external factors, and success depends on accurate assumptions of changing demands in the market- both the extent and frequency of such changes. However, technology makes it easier to make assumptions with tools such as Big Data. Moreover, a production facility featuring powerful technology must be better placed to adapt to the frequent changes in demand, though success depends on many factors internal to the operations.

Visibility, again, is another area that inherently requires the support of advanced technology. For example, the product tracking system of an e-commerce site has internet and communication technology at its core. Visibility issues in the manufacturing business may not be easy to explore and exploit.

4. A Few Challenges for Technology-powered Operations:

While advanced technology ticks almost every box of performance satisfaction, there are a few glitches to mention here. First of all, a tech-powered production or manufacturing facility entails a large sum of initial cost, that is, fixed cost, which- no matter how cost-effective it may be proven in the long run- is not everyone’s first choice. Small and medium-sized organizations cannot simply afford large-scale technology setup, thus giving some ground to the major players in the industry sector. 

Another negative of technology in production is, in fact, one of its positives. Large-scale machine-made products may meet the high consumer demand while maintaining quality consistently, but yet, they cannot replace or replicate hand-made antique products specific to a particular country or location, for example, traditional hand-woven Muslin saree and Jamdani saree found in Bangladesh.

5. Conclusion:

Technology plays a significant role in today’s business operations, and constant advancement in technology will only see this trend gather pace in the years to come. AI, Machine Learning, 3-D Printing, and ERP are not the pinnacle, rather just the part of a process constantly leading towards newer heights. Newer technologies bring with them greater opportunities, making way for finer details and enhanced communication. However, for all the advancements and advantages that technologies are ushering in, there are a few challenges as well that no one can escape. An industry insider working as an operations manager, or anyone tasked with similar responsibilities, must keep in mind that the blessings of ever more advanced technology are also making the market increasingly competitive, with each and every participant striving for the next level of sophistication.

While the market itself is not necessarily a level-playing field for all to grow equally and uniformly, technology adoption does not follow any form of uniformity within the market participants. Naturally, a long-established market player will always have a better capability of adopting technologies compared to a relatively new entrant desperately looking for its initial footing. However, small and medium-sized business organizations can make some valuable ground for themselves, given some smart, innovative, and well-planned moves towards progress.

Operations management clearly entails strategic decision making at different levels of operations, and taking those decisions strategically right goes a long way in ensuring seamless, efficient and successful operations performance. As technology is getting ever more influential in business operations, choosing the right and effective technology setup in accordance with the organization’s values, needs, capabilities, and, most importantly, goals and ambitions are also receiving increasing attention in strategy formulation and decision making. The key is to strike the right balance between the technology chosen, its practical utility for the operations process, and the organization’s ability to afford it. 

A few questions may still arise in mind within the context of increasing human-machine interactions, as evidenced in IT-OT (information technology-operational technology) integration in many large-scale production processes. Artificial Intelligence (AI) and Machine Learning (ML) are making machines smarter, and this will undoubtedly continue in the foreseeable future. The question intrigued here is whether humans and machines will always peacefully coexist the way they always have until now, complementing each other. What if an ever-increasing emotional intelligence in machines might one-day blur the differences between humans and machines? Will machines ever intend to overpower humans? If these questions seem too futuristic to ponder upon, a timely reminder would be of jobs that low-skilled humans lost to highly skilled machines that are not yet as emotionally intelligent as a futuristic mind might imagine.    

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