Operating Decisions
Operating decisions are decisions made by a company’s management related to the day-to-day operations of the business. These decisions are typically focused on managing the company’s current resources and operations to achieve its short-term objectives and overall business strategy.
Operating decisions can encompass a broad range of areas, including:
- Production Decisions: How much to produce, what methods to use, which materials to buy, how to schedule production, etc.
- Pricing Decisions: How to price products or services to maximize profitability while remaining competitive in the market.
- Inventory Management Decisions: When to order more inventory, how much to order, how to manage warehousing and distribution, etc.
- Human Resources Decisions: Hiring, firing, training, compensation, job design, and other decisions related to managing the company’s workforce.
- Marketing and Sales Decisions: How to promote products or services, which channels to use for advertising, how to handle customer relations, etc.
- Customer Service Decisions: How to handle customer complaints, service policies, support strategies, etc.
Operating decisions are often guided by the company’s strategic goals and objectives, as well as its financial and operational constraints. These decisions can have a significant impact on the company’s operational efficiency, customer satisfaction, and short-term profitability.
Example of Operating Decisions
Let’s consider a hypothetical example of a company that manufactures custom furniture, “CustomFurniture Co.”
- Production Decision: The company has received a large order for custom tables. The management must decide whether to hire more staff or approve overtime for existing staff to meet this demand while maintaining their quality standards.
- Pricing Decision: The cost of lumber, which the company uses extensively in its furniture, has increased due to a supplier shortage. The management must decide whether to absorb this increased cost, thus reducing their profit margin, or increase their prices and potentially risk losing customers to competitors.
- Inventory Management Decision: CustomFurniture Co. is looking to improve its inventory turnover rate. The management is considering a just-in-time inventory system that could reduce storage costs and wastage but could also increase the risk of supply chain disruptions.
- Human Resources Decision: The company is experiencing high employee turnover in its manufacturing department. The management must decide on actions to improve employee retention, which could include increased wages, better benefits, or enhanced training programs.
- Marketing and Sales Decision: To increase sales, the company is considering launching a new advertising campaign. The management needs to decide on the campaign’s budget, its target audience, and the advertising channels to be used.
- Customer Service Decision: In response to customer feedback, the company is considering offering a longer warranty on its furniture. The management must decide whether the potential increase in customer satisfaction and sales will offset the increased costs of servicing warranty claims.
All these decisions are part of the company’s day-to-day operating decisions. Each decision could have significant effects on the company’s operations, customer satisfaction, and profitability.
