Deeper Definitions: What Does Operations Management Mean?
In its broadest sense, operations management is responsible for all aspects of creating goods and services. It manages resources such as materials, machines, technology, and people, and makes products and services that the marketplace wants. The whole chain of events must be well managed for a business to be competitive.
As we define operations management more fully, we consider these foundations of OM:
- Planning: Operations managers must constantly forecast, plan, and adjust to optimize processes based on conditions.
- Process: Production of goods or services requires having strong, repeatable processes.
- Efficiency: Managers must troubleshoot bottlenecks, inadequate resources, and downtimes to create optimal efficiency.
- Cost Control: Production is typically a major part of a company’s cost structure, and you must manage it wisely.
- Quality: Good quality control is necessary to maintain customer satisfaction and the company’s reputation. Companies can greatly suffer without it.
- Continuous Improvement: To remain competitive, companies need to have processes in place to consistently seek better ways of doing things.
- Technology: Underlying all of these foundations is technology. Well-used technology keeps a company ahead of the curve.
- Profitability: Executed properly, all of the above foundations lead to a strong bottom line.
The History of Operations Management
We can trace the origins of production management back to 5000 B.C. with the Sumerians, who tracked inventories, transactions, and taxes. Later, the Romans used early operations management methods to plan and build projects, such as the pyramids. Here are other historical highlights:
- The Industrial Revolution (1760s to early 1800s) ushered in the foundations of division of labor and interchangeable parts, keys to efficient production. Eli Whitney, inventor of the cotton gin, also manufactured 10,000 muskets by using the concept of interchangeable parts.
- In 1883, Frederick Winslow Taylor used the stopwatch method to time tasks for complex jobs. This became key for studying efficiency and productivity.
- In about 1912, Frank and Lillian Gilbreth laid the foundation for predetermined motion time systems (PMTS), which predict the time it takes to complete tasks.
- In 1913, Henry Ford’s first moving assembly line started rolling, cutting production time for a car from 12 hours to less than three.
- In post-World War II Japan, Toyota developed just-in-time production (JIT), later called the Toyota Production System. The company designed it to eliminate waste and increase productivity and quality.
- In 1971, FedEx started overnight package deliveries. Nowadays, Amazon even offers same-day delivery on orders.
The Importance of Operations Management
Operations management serves as the engine room of the organization, planning and driving manufacturing or services. To compete in an ever-changing market, operations managers must maximize efficiency, productivity, and profit, which have always been vital to a company’s survival. At most companies, there are many operations employees, and the department’s budget is large. Forbes magazine reported in 2011 that three-quarters of CEOs come from an operations background, showing the importance of understanding how a company functions.
We can also see the importance of operations management in these aspects of a company’s success:
- Customer service
- Product or service quality
- Correctly-functioning processes
- Market competitiveness
- Technological advances
It’s no exaggeration to say everything depends on operations.
Functions and Roles in Operations Management
The field of operations management includes a diverse set of functions and roles, which can differ among industries and different-sized companies:
- Planning and implementing manufacturing plants
- Managing projects
- Planning information systems
- Helping to design and develop products and services
- Managing inventory through the supply chain
- Managing delivery to customers in a timely manner
- Optimizing quality control
- Conducting procurement/purchasing
- Managing logistics
- Managing transportation and distribution
- Managing and maintaining facilities
- Conducting enterprise resource planning (ERP)
- Forecasting for planning
- Planning for capacity
- Navigating industrial labor relations
- Analyzing the value chain
- Optimizing resource usage
- Eliminating waste and bottlenecks
- Continuously improving processes
- Executing a company’s strategic plan
To carry out these tasks well, operations managers need to be organized, analytical, creative, resourceful, versatile, and skilled in leading people. Now more than ever, they also need to be tech savvy in a rapidly changing market. They make multiple decisions every day that affect the company’s ability to compete. One avenue to consider to become a more proficient OM is pursuing an MBA in operations management. This specialization can arm you with the analytical and problem-solving skills vital to succeeding in this information and technology-driven field.
The Relationship of Operations Management to Other Departments
This depends on the company’s size and industry. At startups or small companies, the operations person or people will work hand in hand with sales, marketing, finance, IT, and other people. However, operations teams at large companies also need to work closely with other departments to be effective. The work of operations, from planning to production to distribution, touches the work of most other departments. A company’s product or service is its lifeblood, and that’s what operations provides. Everything else in other departments should, in a sense, support that.
Operations Management Strategies
Today’s operations managers are deeply involved in strategy, along with their daily production role. Here are several key strategy and tactics points:
- Use of Data: Analytics are essential for strong planning, adjustments, and decision making. Two common types are efficiency metrics and effectiveness metrics.
- Inventory Analysis: To manage inventory in the supply chain, ABC analysis (also called Pareto analysis) comes into play. It divides inventory into three categories A, B, and C; “A” has the most value and tightest controls, and “C” has the least.
- Data Challenges: Data is often siloed, which makes it difficult to compare. But newer systems and setups are making this easier and helping analysts and managers examine data in new, helpful ways.
- Process Design: Researching, forecasting, and developing a sound process takes expertise and energy, but the results can be lasting.
- Forecasting and Goal Setting: The best forecasting often combines a look at historical data with analysis of changing conditions.
- Collaboration Among Departments: With good communication and collaboration, operations management can work effectively with finance, sales, marketing, human resources, and other departments.
- Being Green: Ecological soundness has become a strategic and legal necessity at companies nowadays, especially in manufacturing.
- Managing People: With all the advancements in machinery and technology, people remain critical to the equation, though often in different types of jobs.
Levels of Operations Management
You can think of operations management as three levels: strategic, tactical, and operations. To achieve the company’s goals, operations managers develop strategies. Under those broad strategies are tactics, or specific tasks and steps to implement the strategies. The third level, operations, refers to the daily control of production, such as scheduling, monitoring, and adjusting.
Principles of Operations Management
- Reality: There is no universal solution to the problems in your business.
- Organization: You must organize all aspects of production into a coherent whole.
- Fundamentals: Adhere to fundamentals, such as accurate inventory records.
- Accountability: People try harder when they’re held accountable.
- Variance: Variance is part of every process.
- Causality: Problems are often symptoms. Get to the root cause.
- Managed Passion: People with a passion for their jobs will drive your company.
- Humility: You don’t have to know everything.
- Success: Define success, and change with the market.
- Change: Every manufacturing solution is temporary.
Another set of operations management principles comes from author Dr. Richard Schonberger. His 16 principles are:
- Team up with customers. Know what they buy and use.
- Engage in continual, rapid improvement.
- Maintain a unified purpose. Involve employees in strategy.
- Know the competition.
- Organize resources.
- Invest in HR.
- Maintain equipment.
- Use the simplest, best equipment.
- Minimize human error.
- Cut times. Shorten the product path to the customer.
- Cut setup.
- Pull the system. Improve the workflow and cut the waste by producing on demand.
- Employ total quality control.
- Fix root causes.
- Manage visibility. Let the market know about your achievements.
Types of Production and Production Systems
You can categorize production and production systems in a number of ways:
- By technical elements, such as machines and tools, and organizational behavior, such as people, division of labor, and information flow.
- By process production versus parts production. Process means it undergoes a physical-chemical transformation, such as paper or cement. Parts means parts are made and assembled into a product.
- By lead time. Categories include purchase to order, make to order, assemble to order, and make to stock.
A noted production method is Material requirements planning and its successor, MRP II. It’s a software-based planning, scheduling, and inventory control system used to manage manufacturing processes.
The Biggest Operations Management Challenges
Our seven experts weigh in on today’s biggest OM challenges. Common themes include the right technology and the right people.
David Shelton: COO of healthcare service company PatientMatters lists these challenges: “Staffing: I'm convinced your staffing determines your success. A mixture of new employees combined with seasoned experts allows your operation to maintain stability while training staff, expanding sales opportunities, and identifying new solutions to existing problems. Technology: Whether a service provider or manufacturer, new technology and your ability to understand and react to internal data will dictate your operational success. Growth: Do you have the materials, vendor relationships, and labor to keep pace with your sales team and market demands?"
Tips for Good Operations Management
Once again, our seven experts highlight the importance of technology and people. We’ve asked each of our experts to weigh in with their three top pieces of advice to achieve good operations management:
- Iris Tsidon: “Here are three tips for good operations management: Keep current on innovation trends, and take the time to listen to suggestions of tech-savvy employees; only use technology that is simple to use and engaging for employees at every skill level; invest in educating managers and employees on the goals of implementing new systems; and make sure to build in rewards so that everyone is motivated to learn and use new technology.”
- Daisy Jing: “Have good communication. Make sure that processes, rules, and policies are well-communicated to everyone. Have a smart marketing plan and be up to date. Pattern your marketing plan after whatever is on trend. Do it ASAP, and use that concrete plan with a timeline until a new trend arrives. Have weekly reports of everything about the company. Then, from there, manage everything based on the need of each category.”
- Katharine Leonard: “Collect data electronically: Having team members write down their processing numbers for data collection can lead to inaccurate data and [will] not give you the results you need to run your operations efficiently. Use report dashboards and rely on data and analytics: Determine what information you need to run your business, measure it, and use analysis to augment your process and continually improve your operations. Be customer-focused: Design your processes with the end customer in mind. Think about what they see as value and what they’re willing to pay for, as well as how quickly they expect to get results.”
- David Shelton: “Listen to your internal and external teams. Field-level employees, internal sales, and vendors have invaluable information and know what is going on with your product/services and the competition. Measure and analyze. We are constantly examining our internal processing times and employee performance and measuring success rates. Measuring your internal performance allows you to exceed customer demand. Expand your network. Managers from competitive firms change jobs. A friendly relationship can become a key alliance. Vendor partnerships in developing new products/services allow you to grow your operations while controlling costs. Joint ventures that benefit both parties can substantially increase your knowledge base while increasing your speed to market.”
- Matt Wilhelmi: “Slow down. It’s important to consider the side effects of each decision and how you relay communication to the team. People tend to like working for (and have higher engagement with) leaders who maintain a level head and aren’t too quick to pass judgment. Be proactive and strategic. It’s important that leaders aren’t reacting all day. The constant reactionary environment can turn great leaders into fire chasers, which tends to devolve their communication. Stay focused on the numbers. If something isn’t working like it should, it’s better to focus on the measurable data than on the emotion of the disappointment or the result. When you can tweak a process and measure it along the way, you remove the subjectivity and remain objective.”
- Chris Wiegand: Make sure any project has an internal owner, or it can go off track. Understand the key performance indicators that will drive the business. "Just because you can measure it doesn’t mean it matters."Protect the data. Operations managers have to safeguard the info." Consider leveraging infrastructure as a service, with hosting, security, and redundancy built in.”
- Richard Lowe, Jr.: Read a lot. Learn a lot. Keep up with your field. If you’re a logistics manager, connect with your tech people. "Now you need to work much more closely with them." Get trained so you understand tech trends. "Understand the tidal wave.”
Current Trends in Operations Management
Some of these have been around a while, but they remain popular trends in operations management:
- Business process reengineering, or BPR, which helps companies revamp their organizations from the ground up
- Lean manufacturing, Six Sigma, and Agile are disciplines focused on efficient, adaptable production and continue to be mainstay approaches
- Reconfigurable manufacturing systems, designed for flexibility with sudden market changes
- Behavioral operations management, which focuses on human behavior as it relates to operations management
- Sustainability, or maintaining ecologically minded practices, under changing laws.
The Pros Weigh In on Operations Management Trends
One common theme is that computers and tech are in the center of everything.
- Iris Tsidon: “The key trends that I see are companies combining data visualization with key performance indicators, artificial intelligence and machine learning increasing productivity, innovation and function merging to create real-time monitoring and management systems, employee retention getting increasingly difficult to maintain, customer service merging between online and retail, and automation making some current positions obsolete.”
- Katharine Leonard: “I see firms moving toward technology to solve the mundane, time- consuming, and error-prone tasks that inhibit operations teams from providing the best service to customers.”
- David Shelton: “How can you incorporate internal and external data to make decisions that are ahead of the curve? The best sports analogy I know is ‘Skate where the puck is going.’ We've got to be planning ahead in order to anticipate customer needs and beat our competitors. Managing resources and minimizing waste. Both product and service organizations wrestle with maximizing resources (materials or staff) to produce the best product for the consumer.”
- Matt Wilhelmi: “I see operations management becoming more closely aligned with human resources as companies are increasingly aware of how important their culture and human capital are as they relate to operations and engagement.”
- Chris Wiegand: “With hyper-accurate location services, one trend is using that technology for real-time alerts, such as for a dementia patient wandering off.”
- Richard Lowe, Jr.: “Internet shopping continues to be a big trend, involving pretty much any product, including food. Amazon sends some products within a few hours of being ordered. You better be able to match that. You have to be able to meet tighter inventories, such as just-in-time stocking, with some food staples, such as bread and eggs, arriving two or three times per day.”
What Is the Future for Operations Management?
We ask our experts to look ahead for operations management. They see a future of increasing data and technology, including convoys of driverless trucks.
- Iris Tsidon: With increasing automation will come sweeping organizational change. Tsidon says, “Operations are going to reduce hierarchy and make management easier, so, while many are concerned about the loss of low-level jobs, I see that there will be a sweeping change at every level, including upper management. Previous positions that needed highly skilled workers will no longer exist because artificial intelligence will provide better results without human error. In the future, the most valuable management skills will be the ability to combine data analysis with emotional intelligence. This is something that no algorithm can replace and that will be more crucial than ever.”
- Daisy Jing: “Remotely handled operations management. Nowadays, there's nothing a remote worker cannot do. It is possible, and it will be the next trend.”
- Katharine Leonard: “I envision operations management becoming a high-tech position, requiring a highly analytical skill set and product-focused mindset. With Amazon delivering packages on the same day, customers are coming to expect instantaneous results, and, to maintain competitiveness, operations needs to drive toward that type of success.”
- David Shelton: “There are opportunities presented by technology to build or service faster, better, and cheaper. It’s critical to utilize technology, interpret data, source new materials, and identify talented labor. You must confront labor challenges and build a better workforce. How do you better utilize your labor force? Improved recruiting techniques allow you to draw in new labor, but how can you also better train existing staff to advance within the organization? This is a key area we are focusing on. We strongly believe we have an obligation to train our existing team to grow and advance internally.”
- Matt Wilhelmi: “I have lots of clients who ask me to look into my crystal ball. My crystal ball gets a workout! The future of operations management is sliding toward creating data (so it can be measured and studied from an objective position) around the healthiness (culture) of a company’s human operations. Dozens of reports have come out in the past few years that are confirming that lack of engagement by employees leads to a substantial loss of productivity or worse, high turnover. In the truest sense, it’s the operations manager’s responsibility to maximize his or her operations. The better your culture, the better your operations.”
- Chris Wiegand: The future will include location-aware devices and “smart buildings that will maintain themselves. For example, an elevator could know that it needs service work through data inputs and could initiate the repair as part of a structured workflow,” he notes. “There will be greater use of artificial intelligence to recognize a problem and start a workflow. There will also be more use of predictive analytics. Moreover, you’ll see greater protection of proprietary data, especially if problems result from data being too available. Finally, you’ll find greater gender equality in operations management. We certainly have great female leaders in operations today. That diversity brings a lot of value.”
- Richard Lowe, Jr.: The future features the coming wave of the Internet of Things, including a rapidly growing number of connected devices at home and work. It could include homes with 50 computer devices and entire car factories with virtually no people. “We’re in the middle of the beginning of the tidal wave of the Internet of Things,” Lowe says. Understanding this trend is essential. “You better push your company in that direction…The machines are going to take over a lot of things,” he adds. “In addition to driverless cars, you might see a convoy of 30 driverless trucks on the highway transporting goods. What’s holding it back right now is more a legal issue than a technical one. The trend is more and more automation, more and more artificial intelligence…The people who can’t keep up with that will need to find something else to do.”
Other Resources for Operations Management
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