What is Operations Management?
Understanding operations managementConsider the ingredients of your breakfast this morning. Unless you live on a farm and produced them yourself, they passed through a number of different processing steps between the farmer and your table.
Every organisation has an operations function, whether or not it is called ‘operations’. The goal or purpose of most organisations involves the production of goods and/or services. Operations in some form has been around as long as human endeavour itself but, in modern manufacturing and service industry at least, it has changed dramatically over time.
To some (especially those professionally involved in operations management!) operations management involves everything an organisation does. In this sense, every manager is an operations manager.
Operations management definitions
There are many differing definitions of operations management; we have picked a range for you to look at below. Depending on your specific area of operations management, some may suit your role or understanding better, but overall they all make a similar point.
· The efficient and effective implementation of the policies and tasks necessary to satisfy an organisation’s customers, employees, and management (and stockholders, if a publicly owned company)
· The management of systems or processes that create goods and/or provide services
· "The on-going activities of designing, reviewing and using the operating system, to achieve service outputs as determined by the organisation for customers" (Wright, 1999)
· Management of main business activity: the organising and controlling of the fundamental business activity of providing goods and services to customers
· Operations management deals with the design and management of products, processes, services and supply chains. It considers the acquisition, development, and utilisation of resources that firms need to deliver the goods and services their clients want.
· The purvey of operations management ranges from strategic to tactical and operational levels. Representative strategic issues include determining the size and location of manufacturing plants, deciding the structure of service or telecommunications networks, and designing technology supply chains.
· Tactical issues include plant layout and structure, project management methods, and equipment selection and replacement. Operational issues include production scheduling and control, inventory management, quality control and inspection, traffic and materials handling, and equipment maintenance policies.
· Operations management is an area of management concerned with overseeing, designing, controlling the process of production and redesigning business operations in the production of goods and/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 form of materials, labour and energy) into outputs (in the form of goods and/or services).
IOM would like to thank Derek Thomason FIOM, Unipart Expert Practices, for sharing examples and information contained in this section for the benefit of IOM members and those interested in learning more about what operations management is.
So what does it means?
What exactly does this mean in real terms? What kinds of tasks, roles and responsibilities do people working in operations management have?
Forecast demand
– Market product
– Adapt to comply with customer demand
– Understand what the customer wants
– Understand how much the customer wants
– Set targets (timescales)
– Know product demand
– Measuring standards
– Produce sales invoices / solve customer disputes
– Measure outputs
– Plan production and timescales
Sourcing and procurement
– Order materials
– Negotiate price
– Check delivery with order
– Reconcile invoice with correct supplier statement
– Pay on time
– Buy supplies
– Order materials
– Stock control
– Buying resources and allocating
– Inventory / stock control
– Schedule suppliers
– Managing stock (getting it in the right place at the right time)
– Locating and procuring supplies
– Pay suppliers
Creation of output
– Managing budgets
– Cost implications
– Buy cost effective materials
– Replenish inventories
– Arrange for necessary equipment
– Schedule material / staff / equipment to produce goods and services
– Plan ‘work order’
– Produce product
– Produce goods
– Converting supplied materials (adding value)
– Quality control
– Measure conformance / quality
Delivery
– Customer satisfaction
– Deliver finished products
– Consider logistics / delivery
– Arrange delivery to customer
– Dispatching the goods or service to the customer
– Arrange packaging / presentation
Managing people <sub heading>
– Employ people
– Train people
– Implementing and timescales
– Outsource
– Delegation
– Managing people
– Recruit and train staff
– Schedule labour
Brief history of operations management
Pre 18th century
Agriculture was the predominant industry in every country
Industrial Revolution 1770–1830
– Economy based on manual labour was replaced by one dominated by industry and the manufacture of machinery
– The development of all-metal machine tools in the first two decades of the 19th century facilitated the manufacture of more production machines powered by steam or water (James Watt, 1785)
Second Industrial Revolution (around 1850)
– Development of steam-powered ships, railways, and later in the nineteenth century with the internal combustion engine and electrical power generation
– Introduction of Frederick W. Taylor's systematic approach to scientific management at the beginning of the twentieth century (1911)
– Henry Ford, father of the moving assembly line, brought the world into an age centred around the mass production of goods (1920)
Post WWII
– Leverage of management science techniques that were developed in the war
– Growth in power of computers
– Japanese Toyota Production System (TPS) based on three principles:
1. Quality
2. Continual Improvement
3. Elimination of waste
Late 1950s and early 1960s
– Move from industrial engineering and operations research into production management
– Production management becomes a professional field as well as an academic discipline
– Major world economies evolving into the service arena:
o service jobs outnumber manufacturing jobs
o productivity increases much more difficult to achieve
– Operations techniques begin to be incorporated into services -the term production/operations management comes into use
Today
– Environmental and social awareness
Types of operations management
Every organisation has an operations function, whether or not it is called ‘operations’. The goal or purpose of most organisations involves the production of goods and/or services. These pages provide you with an idea of the sorts of tasks and processes that relate to operations management within each of the following industry types.
– Manufacturing products
– Providing insurance cover
– Providing healthcare
– Government
– Armed Forces – peace keeping
– OXFAM – bringing relief
Manufacturing products
Managing operations
– Receiving requirements
– Procuring raw materials
– Recruiting and retaining staff
– Budgeting and cash management
– Meeting Health, Safety and Legal requirements
– Planning resources
– Improving quality, cost and delivery
– Procuring / managing assets
– Defining policies and procedures
– Making products
– Storing and distributing products
– Negotiations
– Provide training
– Plan raw materials
– Process raw materials
– Make intermediates
– Process copy (for Control)
– Printing
– Quality control
– Recycling / rework
Providing insurance cover
Managing operations
– Receiving requests for cover
– Assessing / reassess risk
– Answering customer enquiries
– Undertaking competitor reviews
– Processing claims
– Making payments
– Recruiting and retaining staff
– Budgeting and cash-flow management
– Meeting Health, Safety and Legal requirements
– Planning resources
– Improving quality, cost and delivery
– Customer care process
– Accredit repairers
– Forecast demand
– Process applications
– Process renewals
– Calculate no claims bonuses
– Arrange repairs
– Send out certificates / reminders
– Send out claims forms
Providing healthcare
Managing operations
– Obtaining finance
– Project / programme Management
– Recruiting and retaining staff
– Sourcing and procuring supplies
– Responding to emergencies
– Scheduling patient operations
– Controlling infection
– Providing post operative care
– Capacity planning (bed / theatre management)
– Quality control / track and trace
– Dispatch ambulance
– Inform hospital of arrival
– Inform stakeholders
– Contact theatre team
– Provide interim care – stabilise patient
– Prepare resource (theatre)
– Kitting for operations
– Resource planning (ITU / ward)
– Plan diagnostics resources
– Liaise with other department
– Deploy ambulance
Government
Managing operations
– HMRC
o Process tax forms
o Investigate errors
o Prosecute offenders
o Labour planning
– Social Services
o Assessing risk
o Providing support services
– Emergency Services
o Capacity planning
o Resource deployment
– Central Government
o Generate new laws
o Influence people
o Process claimants
o Allocate resources according to need
o Educate and train people
Armed Forces
Managing operations
– Training and development
– Contingency planning
– Capital investment and programme management
– Logistics (soldiers and materials)
– Supply chain management
– Returns management
– Deployment
– Measurement and control
– Manage budgets and costs
– Stakeholder management
– Manage people
– Manage resources (equipment and materials)
– Management of maintenance
OXFAM
Managing operations
– Generate funds
– Contingency planning
– Material and labour planning
– Forecast demand
– Source and procure non-perishables
– Response time management
– What-if and scenario planning
– Deploying aid (people and materials)
– Transport to site of disaster
– Enabling sustainability
– Distribute to people in need
– Plan for short term and longer term sustainability
– Conduct risk assessment
– Skills assessment / training
– Manage shops
– Run collections / donations
– Receive goods and price in shops
What do operations managers do?
Strategic (long term) Level
– Responsible for, and decisions about:
o What to make (product development)
o How to make it (process and layout decisions) – or should we buy it?
o Where to make it (site location)
o How much is needed (high level capacity decisions)
Tactical Level (intermediate term)
– Address material and labour resourcing within strategy constraints, for example:
o How many workers are needed and when (labour planning)
o What level of stock is required and when should it be delivered (inventory and replenishment planning)
o How many shifts to work. Whether overtime or subcontractors are required (detailed capacity planning)
Operational Level
– Detailed lower-level (daily/weekly/monthly) planning, execution and control decisions, for example:
o What to process and when (scheduling)
o The order to process requirements (sequencing)
o How work is put on resources (loading)
o Who does the work (assignments)
What skills do operations managers need?
Have knowledge of:
– advanced operations technology and technical knowledge relevant to his/her industry
– interpersonal skills and knowledge of other functional areas
– the ability to communicate effectively, motivate other people, manage projects, and work on multidisciplinary teams
Multi-disciplinary working, for example:
– Supply chains – management of all aspects of providing goods to a consumer from extraction of raw materials to end-of-life disposal
– The interface with marketing – determining what customers' value prior to product/service development
– Operations management/finance interface – capital equipment and inventories comprise a sizable portion of many firms' assets in addition to normal operating costs
– Service operations – coping with inherent service characteristics such as simultaneous delivery/consumption, performance measurements, etc
– Operations strategy – consistent and aligned with other strategies and legal requirements
– Process design and improvements – managing the innovation process
Issues facing operations managers
Major issues are:
– Environmental sustainability, recycling , reuse
– Counter terrorism / risk management
– Globalisation of supply and demand
– Reducing time to market
– Achieving and sustaining high quality while controlling cost
– Integrating new technologies and control systems into existing processes
– Obtaining, training, and keeping qualified workers and managers
– Working effectively with other functions to accomplish the goals
– Integrating production and service activities at multiple sites in decentralized organisations
– Working effectively with suppliers and customers
– Strategic alliances
All these are critical issues. Operations management is at the very core of most organisations. We can no longer focus on isolated tasks and processes but must be one of the architects of the overall business operating model.
Another language???
There are lots of words and terms used in operations management, many of which are explained in full in the IOM’s Knowledge Bank. Members can login to the members’ area to find out what these terms mean in full.
– World class
– S&OP (Sales and Operations Planning)
– Six Sigma
– Lean vs agile
– KPIs
– Master scheduling
– MRP
– Processes
– TPS (Toyota Production System)
– Theory of constraints
– Balanced scorecard
– DRP
– Kaizen
– TPM
– Change management
– Continuous improvement
– Planning and scheduling
– ERP systems
Operations management – in summary
To sum up, operations management is the:
– Management of:
o People
o Process
o Systems
…Through to delivery of a useful product or service
– Recognition / realisation of improvement opportunities in the areas of:
o Increasing customer value
o Reducing operational cost
o Increasing return on assets
o Sustainability
The Institute of Operations Management (IOM) is your lifelong career partner, helping you gain the knowledge and skills you need to do your job well. IOM supports you by providing access to the peer network you need to share ideas and good practice for the benefit of your organisation and the operations sector as a whole.