Chapter 1 - Introduction to Operations Management

Operations management is the administration of business practices aimed at ensuring maximum

efficiency within a business, which in turn helps to improve profitability.

It involves resources from staff, materials, equipment, and technology, converting these inputs into
efficient and effective outputs on both day-to-day and strategic levels within an organization.

If you think that sounds super theoretical, we agree – it does. As with most business buzzwords, it
can be a bit hard to understand in terms of REAL practice. And that’s what we’re going
to simplify – how to use operations management to improve your business.

In this guide, you’re going to learn…

 What is operations management, exactly?

 What does an operations manager do?
 Why Operations management is important
 How to put operations management into practice with 4 of the most popular methodologies

What is Operations Management – A Simple Introduction

Operations management is basically people management. Most business departments focus

on very specific goals – marketing means getting more sales for your business, HR keeps your
employees happy, and so on.

Operations management, on the other hand, involves getting the most out of your company
resources. These can involve your employees (doing more work that creates
value), technology (maximum efficiency in manufacturing, for example), equipment (help
employees do more work), and so on.

As you’ve probably figured, operations management involves dealing with a lot of different areas.
Hence, it’s important for your COO (chief operations officer) to have a background in all sorts of
disciplines, from manufacturing to people-management.

What Does an Operations Manager do?

Depending on the organization, an operations manager can be responsible for a lot of different
things.

Unlike other executive positions, operations management is cross-department. A CMO

specifically works with the marketing department, CFO with finance, and so on. A COO, on the
other hand, might need to work with just about every department (if there’s need for it).
 In most cases, their work involves…

 Process Design – Figuring out the exact steps needed to be carried out so that the organization
meets its business goals. This can mean helping plan out a one-time project or creating procedures
for repeatable work. A real-life example of operations in projects would be, for example, creating
a timeline for developing some software for the client. For a process example, the COO could
create a structured employee onboarding procedure to make the whole onboarding more efficient.
 Standard Management – Helping create and optimize budgets, scheduling equipment
maintenance, ensuring that the employees are following standard procedures, etc.
 Process Improvement and Optimization – Most businesses have a “don’t fix what’s not broken”
policy towards their processes. More often than not, though, you could potentially get a lot more
from your business if you constantly check on your processes. The COO is supposed to make sure
that all your processes are as efficient as they can be.

Why Operations Management is Important

In smaller companies, operations are very simple and straightforward. Everyone takes part in
managing the processes, and more or less, things go smoothly.

The same, however, doesn’t apply to companies with 20+ employees. That’s when things start
getting complicated. You can’t just rely on your employees to do work right – you need to have
standardized procedures to ensure that everything as efficient as possible.

If done right, operations management can lead to…

Better Output – The operations manager optimizes and improves processes that have a heavy
impact on the product or service. This usually leads to higher output, lower defect rates, lower
costs, and so on.

Competitive Advantage – Better output leads to a better product or service. This allows your
organization to stand out from the competition, gaining new customers.

Higher Profits – As a combination of the first two, you end up improving the company bottom
line and making more profits.

How to Manage Your Operations

Sadly, there’s no step-by-step guide to operations management. Unlike most fields, it involves
knowing a lot of different things, from finance to HR.

Knowing your way around process management, though, will make operations significantly easier.

While there are a lot of different approaches there, the following 4 are the most popular.
 Business Process Management (BPM)

BPM is something every operations manager should have a good hang of. Chances are, you’ve
heard the term before – and no, it’s not just another buzzword.

Business process management is the methodology of constantly analyzing, improving and

automating processes. It’s not something you do just once, though – you need to be on a constant
lookout for potential improvements.

Putting that into practice, you should have a general idea of what the BPM lifecycle consists of.
i.e, the exact steps you need to take to work on any given process.

The steps are…

 Design – Every company has processes. Not all of them, however, are really outlined. More often
than not, they’re implicit. The “design” part means identifying a process and figuring out where it
starts, what it consists of, and where it ends. To learn more about business process design, check
out our guide.
 Modeling – Once you’ve identified a process, you need to put it down on paper. Without
something to look at, the analysis part can be quite hard. Usually, you’d go for a workflow diagram
if the process is simple, or one of the many business process mapping techniques, if it’s not. To
learn more about business process modeling, check out our guide.
 Analysis – Now that you have a workflow diagram ready, you can start analyzing it. Are there any
steps within the process that don’t really add value? Are there any ways to remove them? Are there
any steps you could just automate using software? To learn more about business process analysis,
check out our guide.
 Monitoring – You can’t improve a process without knowing how well it’s performing as-is. Plus,
you should also be able to figure out whether the changes you’re making have a positive impact
or not. So, gather the benchmark data for the process as-is and compare it to the data you get post-
improvements.
 Improving or Automating – Use the insights you’ve identified in the “analysis” step to make
changes to the process. You can either improve it by working with the process steps or automate
certain steps using software or hardware.
Learning Objectives
• Identify current trends in OM
• Describe the flow of information between OM and other business functions
 Differentiate Manufacturer vs Services
 Define areas of management
 Identify factors of production

Operations Management is the business function responsible for planning, coordinating, and
controlling the resources needed to produce products and services for a company
Operations Management is:
• A management function
• An organization’s core function
• In every organization whether Service or Manufacturing, profit or Not for profit

Typical Organization Chart

What is Role of OM?
• OM Transforms inputs to outputs
– Inputs are resources such as
• People, Material, and Money
– Outputs are goods and services

OM’s Transformation Process

OM’s
Transformation Role
• To add value
– Increase product value at each stage
– Value added is the net increase between output product value and input material value
• Provide an efficient transformation
– Efficiency – means performing activities well for least possible cost
Similarities for Service/Manufacturers
• Both use technology
• Both have quality, productivity, & response issues
• Both must forecast demand
• Both can have capacity, layout, and location issues
• Both have customers, suppliers, scheduling and staffing issues
Service vs Manufacturing
• Manufacturing often provides services
• Services often provides tangible goods
• Some organizations are a blend of service/manufacturing/quasi-manufacturing Quasi-
Manufacturing (QM) organizations
• QM characteristics include – Low customer contact & Capital Intensive

OM Decisions
• All organizations make decisions and follow a similar path
– First decisions very broad – Strategic decisions
• Strategic Decisions – set the direction for the entire company; they are broad in scope and
long-term in nature
OM Decisions
• Following decisions focus on specifics
- Tactical decision
– Tactical decisions: focus on specific day-to-day issues like resource needs, schedules, &
quantities to produce – are frequent
• Strategic decisions less frequent
• Tactical and Strategic decisions must align
Today’s OM Environment
• Customers demand better quality, greater speed, and lower costs
• Companies implementing lean system concepts – a total systems approach to efficient operations
• Recognized need to better manage information using ERP and CRM systems
• Increased cross-functional decision making
OM in Practice
• OM has the most diverse organizational function
• Manages the transformation process
• OM has many faces and names such as; – V. P. operations, Director of supply chains,
Manufacturing manager – Plant manager, Quality specialists, etc.
• All business functions need information from OM in order to perform their tasks
OM Across the Organization
• Most businesses are supported by the functions of operations, marketing, and finance
• The major functional areas must interact to achieve the organization goals
• Marketing is not fully able to meet customer needs if they do not understand what operations can
produce
• Finance cannot judge the need for capital investments if they do not understand operations
concepts and needs
• Information systems enables the information flow throughout the organization
• Human resources must understand job requirements and worker skills
• Accounting needs to consider inventory management, capacity information, and labor standards.
Chapter 1 Highlights
• OM is the business function that is responsible for managing and coordinating the resources
needed to produce a company’s products and services.
• The role of OM is to transform organizational inputs into company’s products or services outputs
• OM is responsible for a wide range of decisions, ranging from strategic to tactical.
• Organizations can be divided into manufacturing and service organizations, which differ in the
tangibility of the product or service
Many historical milestones have shaped OM. Some of these are the Industrial Revolution,
scientific management, the human relations movement, management science, and the computer
age
• OM is highly important function in today’s dynamic business environment. Among the trends
with significant impact are just-in-time, TQM, reengineering, flexibility, time-based competition,
SCM, global marketplace, and environmental issues
• OM works closely with all other business functions
AREAS OF MANAGEMENT:
PLANNING- dictates how to effectively organize a business. It encompasses determining
necessary future activities, assigning them to the right personnel, delegating authority, providing
tools and raw material, etc.

ORGANIZING- defined as a process that initiates implementation of plans by clarifying jobs,

working relationships and effectively deploying resources.
ADVANTAGES DISADVANTAGES
Specialization Segregation
 Operational Speed Weakening of Common Bonds
Operational Clarity Lack of Coordination
Territorial Disputes

STAFFING - process of recruiting, selecting and training of man

- refers to the continuous process of finding, selecting evaluating and developing a
working relationship with current or future employees. The main goal of staffing is
to fill the various roles within the company with suitable candidates.

“putting the right people to the right position”

ACHIEVING - to get or attain as the result of exertion

MISSION-defines the organization's business, its objectives, and how it will reach these
objectives.
VISION- details where the organization aspires to go. Why does your company exist? What do
you hope to accomplish in the next several years.

CONTROLLING - defined as ensuring that activities in an organization are performed as per the
plans. Controlling also ensures that an organization’s resources are being used effectively & efficiently
for the achievement of predetermined goals.
ADVANTAGES DISADVANTAGES

Accomplishment of Objectives on Time Difficulty in Measuring Qualitative Factors

Efficient Use of Resources No control over External Factors

Timely Correction of Deviations Employees Dissatisfaction

DECISION MAKING - is the process of making choices by identifying a decision, gathering

information, and assessing alternative resolutions. Using a step-by-step decision-making process
can help you make more deliberate, thoughtful decisions by organizing relevant information and
defining alternatives.
ADVANTAGES DISADVANTAGES
Gives more information Costly
Increase people's participation Time-consuming
Provide more alternatives Individual Domination
 Improves the degree of acceptance and
commitment

DIRECTING - is an aspect of management that deals directly with influencing, guiding,

supervising, and motivating staff for the achievement of organizational goals.
ADVANTAGES DISADVANTAGES
It provides structure to unstructured tasks It restricts the initiative of certain workers
It emphasizes safety and security It avoids the use of collaboration.
It creates clarity within role expectations It reduces overall morale for most teams.
It is very easy to learn It increases the work burden for the supervisor.
It reduces issues with de-motivated workers It requires the leader’s skills to be higher than
the worker’s skills.
It is highly dependent upon the leader.

The factors of production consist of many factors such as land, labour, capital, entrepreneurship
and management in which management is a vital factor of production, an entrepreneur may
establish the organization as its owner, but it is management that make various resources
productive. They simply require the catalyst of management to produce results because it is
management that coordinates various factors of production.
Therefore, management occupies a central place among all the factors of production.
There are other factors of production too, which are money, manpower, materials, machinery
and methods known as the five m's of management. these are known as the five m's of
management because of their initials which is 'M'.
The five M's of management are analyzed below:

1. Money: money is the most critical and all purpose resource because it is used to acquire or
hire other resources. In organization , money is employed to generate more money in the form of
profits or surplus. A business firm or enterprise requires money in the form of fixed capital and
working capital.

2. Manpower : manpower refers to the managerial and non-managerial personnel employed

I an organization.other resources cannot act by themselves and have to be utilised by human
beings. Therefore ,human resources mobilize, allocate and utilize the physical and financial
resources of an organization.

3. Materials : materials represent the physical raw materials and intermediate products (semi-
finished goods ) which are converted and/or assembled into finished products with the help of
certain processes and technology.
4. Machinery: machines are the equipment used to process the materials into finished or semi-
finished products. Employment of modern machinery helps to reduce costs and to improve the
quality of output.technology has therefore become an important ingredient in the efficient
management of organizations.

5. Methods: methods refer to the normal and prescribed ways of doing things various
operations are performed according to certain systems and procedures. Use of right methods helps
to increase efficiency of operations and contributes to effective management.

Every other factor which is a part of the five M's has it's own dynamics. it is the duty of
management or managers to understand or analyze the basic nature and the functions of each M
and the source of its availability. Managers must clearly know the purposes for which the other
factors are employed and coordinate them in such a way as to optimize their combined
productivity.
(Note: Management must establish input goals, process goals and output goals with regard to the
deployment of all the five M's.)
What is the marketing mix (4 P's of marketing)?
The marketing mix, also known as the four P's of marketing, refers to the four key elements of a
marketing strategy: product, price, place and promotion. By paying attention to the following four
components of the marketing mix, a business can maximize its chances of a product being
recognized and bought by customers:

 Product. The item or service being sold must satisfy a consumer's need or desire.

 Price. An item should be sold at the right price for consumer expectations, neither too low nor
too high.

 Promotion. The public needs to be informed about the product and its features to understand
how it fills their needs or desires.

 Place. The location where the product can be purchased is important for optimizing sales.