setting-operational-objectives

An introduction to operational objectives

• Operational objectives are short-term goals set by the operations function to help the business run more efficiently and meet its overall aims

• They focus on how products are made or services are delivered and typically include:

  • costs — keeping production or service delivery as efficient and cost-effective as possible

  • quality — ensuring products or services meet customer expectations

  • speed of response — how quickly the business can meet customer demand

  • flexibility — the ability to adapt to changes in demand or customise products

  • environmental objectives — minimising the business’s impact on the environment

  • added value — increasing the value of a product or service through design, quality or customer service

• Each of these areas helps the business improve its competitiveness and customer satisfaction

  • More detail on each objective is below

Costs and quality

• Operations objectives often focus on reducing costs or improving quality

  • Spending less to make each product leaves a firm with more gross profit or allows it to lower its prices to beat rivals

  • Products that work well every time keep customers happy and loyal, protecting a brand’s good name

Objectives to reduce costs and improve quality

Reducing costs

• Common objectives a business may set to reduce costs include:

  • raising capacity utilisation

    • This spreads fixed costs over more output, lowering the unit cost

    • E.g. run the factory at 90% of available hours rather than 70%.

  • improving labour productivity

    • This means fewer labour hours are needed for the same output, lowering wage costs

    • E.g. increase units produced per employee by 10% through better training

  • lowering inventory holding

    • This frees cash tied up in materials and cuts storage, insurance and spoilage costs

    • E.g. switch from holding 30 days’ stock to 10 days’ stock through just‑in‑time deliveries

  • achieving purchasing economies of scale

    • Direct costs fall, lowering the overall unit cost

    • E.g. negotiate bulk contracts to lower raw material prices by 5%

Improving quality

• Objectives focused on improving quality may include:

  • reducing defects

    • Fewer defects mean happier customers and fewer returns

    • E.g. lower the proportion of faulty units from 3% to 0.5% by adding extra final quality checks

  • gaining an industry quality certificate (e.g. ISO 9001)

    • Certification reassures buyers that the firm follows reliable standardised procedures

    • Pass the quality audit and earn the certification within 12 months

  • boosting customer satisfaction scores

    • Direct feedback confirms that customers value the level of quality of goods

    • E.g. increase satisfaction survey ratings from 82% to 90% by updating user instructions

  • improving supplier quality

    • Better inputs mean fewer problems during production

    • E.g. require key suppliers to hit 99% on‑time, defect‑free deliveries

Flexibility and speed of response

• Flexibility matters because customer tastes and order sizes can change without warning

  • A flexible business can switch products or change the volume of output quickly, preventing lost sales or overstocking

• Speed of response is vital because modern buyers expect rapid delivery

  • Cutting lead times keeps customers satisfied, earns repeat business and provides a competitive edge over slower rivals

• Objectives to improve flexibility or reduce speed of response could include:

  • a multi‑skilled workforce

    • Staff can fill gaps or swap tasks quickly when demand changes

    • E.g. train every staff member to run at least two different machines

  • modular product design

    • New versions of products can be launched quickly without redesigning the whole item

    • E.g. introduce common parts that clip together in different ways in product manufacture

  • preventative maintenance

    • Keep production lines running and orders on schedule

    • E.g. introduce weekly machine checks to reduce unexpected breakdowns

Environmental objectives

• Operations objectives with an environmental focus matter because a business now has to meet stricter environmental laws, rising energy costs and growing customer concern about sustainability

• Setting objectives, such as cutting carbon emissions, reducing packaging waste or using renewable energy, helps a business adhere to the law, save money and gain environmentally conscious customers

Examples of environment‑focused operational objectives

Added value

• Adding value is the process of taking raw materials and using them in such a way that the end product created is worth more than the cost of the raw materials used to create it

• The added value is the difference between the price that is charged to the customer and the cost of inputs required to create the product

  • E.g. customers are prepared to pay more for potatoes when they are packaged as oven chips than they would be willing to pay for a bag of whole potatoes

• If value is not added to the materials and components that a business buys, fixed costs cannot be paid and no profit will be made

Examples of operational objectives focused on added value