Operations Management

Operations Management is an area of management concerned with designing and controlling the process of production and redesigning business operations in the production of goods or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as few resources as needed and effective in terms of meeting customer requirements. It is concerned with managing the process that converts inputs (in the forms of raw materials, labor, and energy) into outputs (in the form of goods and/or services). Operations management is concerned with managing the operations function in an organization. Operations is one of the major functions in an organization along with marketing, finance and human resources. The operations function requires management of both the strategic and day-to-day production of goods and services.

Specific Responsibilities of Operations Management

Operations management handles various strategic issues including determining the size of manufacturing plants and project management methods, and implementing the structure of information technology networks. Other operational issues include the management of inventory levels, including work-in-process levels and raw materials acquisition; quality control; materials handling; and maintenance policies. Operations management entails studying the use of raw materials and ensuring minimal waste occurs. Managers utilize numerous formulas such as the economic order quantity formula to determine when and how large of an inventory order to process and how much inventory to hold on hand.

Two Key Terms for Operations Management

There are two big terms that can help answer the question of what is operations management more precisely: supply chain management and logistics. Operations management has firm foundations in both areas. For example, understanding global trends in supply chain management in order to meet client demand is often critical. With logistics, the careful and considered use of resources, as well as cost-effectiveness, has become increasingly important in an era in which resources can often be in short supply and customer expectations have skyrocketed.

The two disciplines of supply chain management and operations management are closely linked and dependent upon each other. In most organizations, supply chain management is part of operations management. But one contrast between supply chain and operation management is that while is that supply chain management is focused externally, operations management occurs internally.

Principles of Operations Management

Dr. Richard J. Schonberger, renowned researcher of American manufacturing and author of the book" World Class Manufacturing: The Next Decade", has become widely known in operations management by his set of 16 customer-focused principles:

• Team up with customers: Know what they buy and use, and organize product families accordingly.
• Continual, rapid improvement: Aim for non-stop improvement to always deliver the best quality, aim for a quicker response to customer demand, and always offer maximum flexibility. Thus, it gives more value, in a more flexible way.
• Unified purpose: Involve frontline employees in strategic discussions to make sure they understand the purpose of their work and have their say in what to change.
• Know the competition: Know their customers, their best practices, and their competitive edges.
• Focus: Allow no variations that the customers don’t buy or demand.
• Organize resources: Set priorities in organizing resources in a way the operations are close to the customer rate of use or demand.
• Invest in HR: Offer cross-training options, job rotation, and improvements in work safety and health. Also offer more rewards and recognitions.
• Maintain equipment: Always think of improvement of current assets first, instead of a new purchase.
• Simple “best” equipment: Keep the equipment as simple and flexible as possible, at a reasonable cost.
• Minimize human error: Improve the equipment and keep frontline workers accountable.
• Cut times: Shorten product path to customer by making processes and delivery faster.
• Cut setup. Be prepared to support different processes and get all information and tools ready for on-demand production.
• Pull system: Improve the workflow and cut the waste by producing on demand.
• Total quality control: Use only the best materials, processes, and partners.
• Fix causes: Focus on controlling the root causes that really affect cost and performance.
• Visibility management: Promote corporate achievements, let the market know about your improvements in competence or productivity.

The Transformation Role of Operations Management

Operations management performs a transformation role in the process of converting inputs such as raw materials into finished goods and services. These inputs include human resources, such as workers, staff, and managers; facilities and processes, such as buildings and equipment; they also include materials, technology, and information. In the traditional transformation model outputs are the goods and services a company produces. This is shown in the figure below

source: InformIT

At a manufacturing plant the transformation is the physical change of raw materials into products, such as transforming steel into automobiles, cloth into jackets, or plastic into toys. This is equally true of service organizations. At a university Operations Management is involved in organizing resources, such as faculty, curriculum, and facilities, to transform high school students into college graduates. At an airline it involves transporting passengers and their luggage from one location to another. The transformation role of OM makes this function the “engine room” of the organization. As a result it is directly responsible for many decisions and activities that give rise to product design and delivery problems. The design and management of operations strongly influence how much material resources are consumed to manufacture goods or deliver a service, making sure that there is enough inventory to produce the quantities that need to be delivered to the customer, and ensuring that what is made is in fact what the customer wants. Many of these decisions can be costly. It is for this reason that OM is a function companies go to in order to improve performance and the financial bottom line.

See Also

Logistics Management
Supply Chain Management

Further Reading

• What does Operations Management Entail? GreatOperations
• Operations Management HBR
• Why Operations Management is Important for a Company Ramanujan Education
• Operations Management - Key Issues in Operations Inc.