Let’s start off with a question for once, dear reader. You’ve heard words like efficiency, synergy, productivity, sustainability, alignment, and cost-effectivity. But do you know what ties them all together? Here are a few options.
All these words are:
- Buzzwords
- Things managers always say
- Operation management goals
- All of the above
Ding ding ding, if you answered “D)”, you’re absolutely correct! However, today, we’ll focus on their place within Operations Management, how they impact your business both day-to-day and long-term, and most importantly, all the roles, tools, and strategies that’ll allow you to benefit from them.
What is operations management?
Investopedia defines Operations Management (OM) as “the administration of business practices to create the highest level of efficiency possible within an organization; concerned with converting materials and labor into goods and services for maximum profit”.
In practice, operation management balances costs with revenue to achieve the highest net profit possible. However, that’s easier said than done. OM teams must understand and coordinate nearly every company process to achieve their goals.
History of operations management
In a way, the history of operations management is the history of human progress and our entrepreneurial spirit. Ancient Sumerians in 5,000 B.C. were already using some of the strategies companies leverage to this day for tracking inventory and managing payments and taxes. The Egyptians then took those same principles to build the pyramids.
Day by day, OM strategies developed across millennia until they brought us the conveniences of modern-day, like same-day delivery. Here are some of the historical landmarks that got us to this point.
- 1760 – 1800 | The industrial revolution: Established practices for division of labor and interchangeable parts, which were key to efficient production.
- 1883 | The stopwatch method: Frederick Winslow Taylor developed the stopwatch method to time tasks for complex jobs and shaped employees into effective specialists.
- 1912 | Predetermined motion time systems: Frank and Lillian Gilberth created the PMTS to predict the time needed to complete any specific task.
- 1913 | Ford’s assembly line: Henry Ford used OM strategies to establish production lines that cut down automotive assembly to only 12 hours.
- 1970s | Toyota’s just-in-time system: JIT, also known as the Toyota Production System, came into existence to eliminate waste and boost productivity and quality.
- 1971 | Overnight deliveries: FedEx laid the groundwork for overnight deliveries, which Amazon tweaked into same-day deliveries.
What do operations managers do?
Operations Managers hold the highest possible position within OM and are the strategic backbone of the entire process. They’re responsible for developing and coordinating new processes while reevaluating existing systems. Their daily responsibilities include:
- Communicating with relevant stakeholders,
- Coordinating team efforts,
- Gathering information,
- Brainstorming new solutions,
- Evaluating the efficiency of existing processes.
What are the key principles of operations management?
Randall Shaffer, a renowned manufacturing and operations management professional, outlined 10 key principles for OM success. These include:
- Success: Striving for customer satisfaction and achieving organizational goals provides a roadmap for performance improvement, ensures loyalty, and drives revenue.
- Reality: Accurately identifying your current situation, performance, and desired future position allows for data-driven decision-making and effective improvement strategies.
- Change: Embracing and managing change allows companies to adapt to market dynamics while ensuring efficiency, growth, and long-term stability.
- Fundamentals: Holding onto industry best practices and core operation principles helps ensure efficient operations, timely execution, sustained productivity, and profitability.
- Organization: Careful production planning and control help achieve company-wide interconnectivity, predictability, and consistency.
- Humility: Recognizing your limitations allows for efficient resource utilization without costly trial-and-error experiments, maximizing time and cost savings.
- Accountability: Holding individuals and teams responsible for their role within OM promotes ownership and exceptionality.
- Managed passion: Nurturing employee enthusiasm and commitment enhances productivity and overall performance.
- Causality: Understanding cause-and-effect through data-driven approaches enables effective problem-solving and continuous improvement in eliminating underlying issues.
- Variance: Promoting consistency and avoiding operational variability helps enhance efficiency, product quality, and customer satisfaction while reducing waste.
The 4 V’s of operations management
Another approach to breaking the main principles of OM is through the “4 V’s”. This stands for volume, variety, variation, and visibility and describes a company’s main product deliverables and key takeaways.
- Volume: This metric tracks the exact number of units a company has to ship to satisfy market demand. It can be particularly problematic for organizations that produce products in large quantities, as manufacturing the necessary amount while maintaining quality requirements can strain processes.
Volume is also the dimension that helps identify a company’s performance in the market. Contrasting the number of units shipped vs. purchased lets you make informed decisions on your desirability and tweak production accordingly. - Variety: Referring to the range of products on offer, variety outlines the vitality of a company’s portfolio. On the one hand, diversifying your products may allow you to not rely on a single item and drive revenue even amid changing trends.
On the other hand, being unfocused in your production can harm your bottom line. Putting your eggs into too many baskets may cause your production to slow down, result in lower-quality items, and ultimately fall out of favor. - Variation: We evaluate how different external factors impact a product’s desirability within this context. For example, look no further than the difference between online-based technologies and on-location services during the COVID-19 pandemic.
You can determine your company’s variation metric by considering your product and its audience. From there, you can identify the factors that impact your sales (i.e., seasonality, weather, etc.) and plan for them in the future. - Visibility: Finally, let’s (literally) look at your organization’s position in the market and the customers’ conception of it. Visibility primarily focuses on marketing, though product design and quality also play a crucial role.
To maintain positive visibility, you must ensure your advertising is understandable and engaging for your main audience. From there, you can evaluate your overall customer experience – from online/retail interactions to individual use.
Consider the customer at every stage of your production, marketing, and sales process. Doing right by them will result in a better reputation, positive reviews, and higher revenue from new and repeat purchases.
Types of operations management
Due to the vastness of the subject matter, it can sometimes be difficult to tell where operations management starts and ends. Even industry professionals can’t come up with a segmentation everyone would agree with.
For example, some define the 7 types/functions of OM as follows:
- Operational planning involves the development of detailed plans and strategies to achieve the company’s organizational goals. It takes into consideration resource allocation, scheduling, and process optimization. Its objective is to ensure smooth and efficient daily operations aligning with the company’s KPIs.
- Finance focuses on budgeting, cost control, and resource allocation. This aspect of OM ensures the company has the necessary means to continue its operations. At the same time, it strives to maximize profitability while continuing to deliver high-quality products and services.
- Product design affects manufacturing processes, costs, and quality. Product designers help ensure the organization’s output can be manufactured efficiently and meet customers’ expectations.
- Quality control creates new processes and incorporates strategies to monitor and maintain the quality of products and services. This aspect of OM also sets quality standards and works to exceed them with each new iteration.
- Forecasting involves predicting future demand for products and services. This helps ensure effective production planning, inventory management, and resource allocation.
- Strategy aligns an organization’s operation strategy with its business goals. This aspect of OM considers facility location, technology adoption, capacity planning, and outsourcing to support the company’s long-term functioning.
- Supply chain management focuses on the end-to-end coordination of processes involving the movement and transportation of materials, finances, information, and final products from suppliers to customers. Combining sourcing, procurement, logistics, and distribution, this aspect of OM ensures the right materials are available at the right time, place, and cost.
Meanwhile, others divide the field into three categories, as seen in the image below – individual supervision, task management, and objectives management. They then separate these categories into smaller focuses, further broken down into specific tasks and goals.
The one thing everyone can agree on is that OM affects everything from manufacturing to marketing. However, as a consequence, operations management specialists would have to juggle every process within the company while accounting for the need to constantly change and evolve.
Understandably, that’s a task beyond any human’s capacity. So, how do companies divvy the responsibilities to operate logically and efficiently? Let’s talk about that.
What roles fall under operations management?
The roles involved in operations management are just as varied as the field’s segmentation. Industries and organizations differ in job titles and specific responsibilities, but there are some everyone can agree on. These include:
- Operations managers: Set goals, develop strategies, and oversee operations to ensure efficiency and effectiveness. They’re commonly considered middle-management and often report to the top brass directly.
- Production managers: Focus on the manufacture of goods and services. They plan, coordinate, and control production processes to meet quality and quantity targets while optimizing resources.
- Supply chain managers: Oversee an organization’s end-to-end flow of goods, services, and information. They also work with suppliers, distributors, and logistics providers to ensure smooth and reliable operations.
- Quality control managers: Focus on maintaining and improving product/service quality by implementing new quality control processes, conducting inspections, and analyzing data to identify areas for improvement.
- Inventory managers: Track stock levels and ensure materials and products are available when needed without excessively overstocking. They balance the cost of holding inventory with the need for timely availability.
- Logistics managers: Guarantee the efficient movement and transportation of goods and services. They plan and coordinate distribution, shipping, and warehousing to optimize delivery times and costs.
- Procurement managers: Source and purchase materials, goods, and services required for operations. They negotiate with suppliers, establish contacts, sign contracts, and manage business relationships.
- Operations analysts: Using data and analytics to identify trends, bottlenecks, and areas for improvement, they provide insights and recommendations to optimize processes and boost efficiency.
- Process improvement managers: Consider insights from analysts and work towards set goals by leading initiatives to streamline and optimize operational processes. They often use methodologies like Six Sigma, Lean, etc.
- Project managers: Plan and execute specific projects within OM, including process redesign, system implementation, facility expansion, and more. Their primary focus is to finalize efforts on time and within budget.
- Maintenance managers: Oversee equipment and facilities maintenance to ensure they are in good working condition. They schedule preventive maintenance, manage repair teams, and reduce downtime.
- Health & safety managers: Ensure compliance with safety regulations and implement measures to protect employees and the workplace. They develop safety policies, conduct training, and investigate accidents.
- Capacity planners: Assess an organization’s production and service capacity to meet current and future demands. They make decisions about resource allocation, staffing, and capacity expansion.
- Customer service managers: Manage customer interactions, complaints, and feedback by organizing CS agents, as well as tracking and optimizing performance. Typically, they align with operations to distribute factual information.
All these roles are intertwined in one way or another, and have to collaborate to ensure their company runs as smoothly as possible. In reality, operations management results from tens, if not hundreds, of employees working together across all levels of seniority.
How operations management fits into organizational hierarchy
What skills are important for operations management?
The skills required for operations management are just as varied as the many roles that influence it. Naturally, not every OM employee needs to have all of these. Rather, the list below is the combination of everything you will need to run your business efficiently.
The most important skills for operations management include:
- Analytical skills
- Strategic planning
- Problem-solving skills
- Project management
- Time management
- Quality management
- Supply chain management
- Inventory management
- Communication skills
- Negotiation skills
- Leadership skills
- IT and technology
- Financial expertise
- Risk management
- Regulatory compliance
- Innovative mindset
- Customer focus
- Environmental awareness
How specific skills relate to operations management activities
Why is operations management important?
It’s logical that the field’s numerous focus activities also impact many aspects of your business. OM is important due to its beneficial effects on:
- Profitability: The ultimate goal of any business, and consequently operation management, OM increases company profits by cutting production and delivery costs while improving customer research, targeting, marketing, and product design.
- Company-wide efficiency: OM helps increase productivity by streamlining processes, onboarding time-effective tools, aligning teams, removing communicational silos, optimizing production and shipping, and many others.
- Product quality: Operation management assists in delivering consistently high-quality products by standardizing production practices, incentivizing additional innovation, and enhancing product targeting.
- Customer satisfaction: On top of higher CSAT stemming from better products both in quality and design, OM helps increase customer happiness and loyalty by improving marketing and customer support.
- Operational costs: By targeting production, shipping processes, and resource management, operation managers can significantly reduce costs (time, finances, raw materials) necessary to create and deliver products.
- Resource optimization: OM also allows companies to reduce waste and utilize their resources better. Managers can discover and remove inefficiencies by closely examining labor, materials, and equipment.
- Supply chain resilience: Risk mitigation is also associated with operation management, in which officers and managers consult ground employees to identify potential issues and malfunctions and create strategies to overcome them.
- Environmental sustainability: As a bonus, optimizing processes and resource management allows companies to limit the amount of waste and pollution they create due to their operations.
- Regulatory compliance: Thanks to OM’s dynamic and ever-evolving nature, the field is perfectly suited to anticipating and adjusting to new regulations, helping prevent fines, lawsuits, etc.
- Competitive advantage: We could write more here, but for the sake of brevity, let’s say that all of operations management’s effects and benefits help companies outperform their direct competitors and earn larger market shares.
And those are just the ones that came to mind. So, as you can see, there are more than enough reasons to invest in your operational management if you’ve got the means to do so. But then it’s only right we ask ourselves, what techniques does OM use to achieve all this?
What techniques does operations management use?
After all those exhaustive lists of roles, responsibilities, and benefits, you can probably imagine that operations management involves too many strategies and best practices to wrap your head around in a single sitting. However, 4 core techniques are worth knowing about. These include:
- Business Process Reengineering (BPR): Also known as “redesign”, this practice investigates end-to-end business processes and identifies tasks/activities that do not meaningfully contribute to the desired outcome.
After an inefficiency is discovered, BRP streamlines existing workflowswith IT and automation to create the most effective string of processes with the same or better result while consuming fewer resources.
- Reconfigurable Manufacturing Systems (RMS): As the name would suggest, RMS targets companies’ manufacturing processes. More specifically, it emphasizes the need to be able to change, adapt, and evolve production systems in response to market changes to be as efficient as possible.
In other words, RMS incentivizes businesses to set up production lines and procedures in a way that allows them to create different products or ramp up output with only minimal changes to the existing solutions.
Reconfigurable Manufacturing Systems value six characteristics above all else – modularity, integrability, customized flexibility, scalability, convertibility, and diagnosability. - Six Sigma: Unlike the previous techniques primarily focused on production, Six Sigma is a methodology equally used in the manufacturing and service industries. It removes variability, errors, and defects to achieve the highest customer satisfaction at the least cost.
Six Sigma is a data-driven practice that tends to rely on the DMAIC (Define, Measure, Analyze, Improve, Control) structure. It is usually carried out by a cross-functional team of individuals from various departments to streamline brainstorming efforts.
- Lean Manufacturing: Often referred to as “Lean”, this OM methodology seeks to minimize waste, increase efficiency, and optimize processes to create additional value for customers. Despite its name, LM can adapt to many industries, including healthcare, software, etc.
To achieve its goals, Lean combines leverages several tools and concepts, including Just-In-Time (JIT), Kanban, 5S, Poka-Yoke, Kaizen, and Anban. Its core principles include Value, Value Streams, Flow, Pull, and Perfection.
More operations management strategies
For good measure, we’re adding a few more strategies OM professionals use. Although these don’t have fancy names or dazzling graphs, they’re still very good to know.
So, to complete your conception of operations management, keep in mind the following practices:
- Data use: As digital solutions develop, the amount of data companies have access to is always growing. AI can distill these big-data packets into relevant information, which we can then mine for insights via Analytics.
- Inventory analysis: Also known as ABC / Pareto Analysis, this method divides inventory into three categories (A, B, C) based on their value and the tightness of control. This strategy is vital for effective supply-chain management.
- Process design: Combining research and forecasting allows companies to develop long-term plans that remain stable and effective for years to come.
- Forecasting & goal setting: Historical data lets OM professionals semi-accurately predict future trends with some room for variation. By setting achievable goals in accordance with these estimates, companies can grow rapidly.
- Cross-department collaboration: Creating resilient communication channels is necessary to ensure effective collaboration across all aspects of the company without creating information silos.
- Green strategy: Consulting experts on ecology and keeping to sustainable practices helps companies increase their reputation, win deals, and ultimately limit their negative impact on the environment by cutting down on waste.
How is operations management used in different fields?
Now, we understand if all that sounds a little too vague. So, let’s look at some practical examples of how OM works in different industries and see if that does us any better. Operations management is used in:
- Manufacturing to optimize processes, manage the supply chain, plan out production lines, schedule maintenance, and guarantee quality standards.
- Healthcare to efficiently manage the flow of patients, allocate resources, and make the most of available inventory and medical supplies in hospitals. In pharmacies, operations management ensures timely prescription filling and regulation control.
- Retail to effectively utilize shelf space, handle stocking and storage, and streamline check-out processes in brick-and-mortar stores. Online, OM focuses on managing the supply chain, order fulfillment, and optimizing the e-shop experience.
- Hospitality handles room reservations, housekeeping, and food service in hotels. In restaurants, operations management streamlines kitchen operations manages stocking, and helps ensure quality customer service.
- Banking for trade execution, risk management, compliance, and ATM and teller operations.
- Construction leverages OM for project planning, resource allocation, and scheduling to ensure projects are finished on time and within budget.
- Transportation uses OM best practices for overseeing vehicle maintenance, fuel supply, routing, staffing, and communication for the highest efficiency possible.
How to implement operations management for your niche
As you can imagine, each of the examples described above leverages OM in a different way. But despite their differences, each industry uses the same set of building blocks to start implementing operation management best practices. To do the same, you should:
- Understand your organization: The first thing you need to do is take a high-level look at your company. Consider your goals, challenges, and operational requirements. From there, you can start reevaluating your existing strategies and aligning the previous factors to your strategy for desired outcomes.
- Build a competent team: Next, find capable stakeholders to oversee each aspect of the 14 roles that fall under OM. Ideally, you’ll want one person to only focus on a single aspect of operations management to avoid burnout. However, if you’re a smaller company, you can let some people sit on multiple chairs until you grow.
- Create a detailed plan: Look at your current situation and desired future position. Start bridging the gap between the two by creating detailed steps, accounting for required resources, and setting them to a specific timeline.
- Implement the right tools & technology: Research operations management software and tools relevant to your niche. Consider pricing, necessary training, and implementation time.
- Engage stakeholders: Onboard senior management, department leads, and relevant employers. Kick off discussions, communicate objectives, address concerns, and ensure their support.
- Provide training & support: Once you initiate the OM process, offer training for overarching ideas and strategies and specific tools you’ll use.
- Monitor & evaluate performance: Keep to your timeline and continuously assess your performance at specific points. If you find yourself veering from the direction of your KPIs, stop the process, realign, and only then continue.
- Drive continuous improvement: Finally, encourage and accept feedback. Learn from both your successes and failures, adapt to changing company and market needs, and keep growing!
The best key performance indicators (KPIs) for operations management
Naturally, you can’t measure something you can’t identify. Therefore, you also need to set adequate KPIs for your OM journey. These can span several aspects of your company and should include:
- Financial metrics:
- Gross profit
- Net profit
- Revenue
- Administrative costs
- Net profit margin
- Employee performance metrics:
- Quality of work
- Quantity of work
- Productivity
- Compliance metrics:
- Risk management
- Policy compliance
- Safety management
- Marketing metrics:
- Return on ad spend
- Conversion rates
- Bounce rates
- Website traffic
- Quality metrics:
- Defect rate
- Customer complaints
- First-pass yield
- Warranty claims
- Overall equipment effectiveness (OEE)
Current & future operation management trends to watch
As we discussed at the very beginning of this article, operations management is a constantly evolving field that can be tracked down to 5,000 BC. And this progress isn’t stopping anytime soon. So, let’s explore some of the trends within the OM space that’ll allow you to keep up with your competition and stay efficient for years to come.
Current operation management trends to watch
- Business Process Reengineering (BPE): The reorganization and re-assigning of processes to better align with company goals.
- Lean Manufacturing: Focus on efficient, adaptable production (as described above).
- Reconfigurable Manufacturing Systems: Implementing technologies that can be reconfigured to produce different products and keep up with changing markets.
- Behavioral operations systems: Focusing on human behavior as it relates to operations management to motivate employees and drive continuous excellence.
- Automation: Removing mundane and repetitive tasks in order to avoid human mistakes and boost efficiency with specialized systems.
- Data visualization: Combining data analysis and KPIs to create comprehensive and easily understandable reports for easy communication and on-the-fly changes.
- Location technology: Leveraging highly accurate GPS services allows companies to address issues on location faster than ever before with real-time alerts.
- Internet: Offer on-demand quick orders for online shoppers using JIT and other methods to maximize revenue and customer satisfaction.
Future operation management trends to watch
- Artificial Intelligence (AI): Supplement human decision-making with AI-based data analysis and forecasting to accurately meet market and customer demands.
- Remote management: Invest in decentralized solutions to coordinate global company efforts anytime and anywhere, even from a mobile phone.
- Human resources: Focus on the impact of the individual employee on overall OM efficiency. Implement better performance tracking and motivation for great results.
- Location-based services: Anticipate location-aware devices and smart buildings that will be able to evaluate and request service without human intervention.
Conclusion: What’s next?
As we’ve showcased throughout this article, operations management is a complex topic with many moving parts (literally and figuratively). However, the contents featured here should at least give you a leg to stand on if you’re just beginning to explore OM within the means of your company.
Moving forward, we urge you to assemble a team to reevaluate your operations, explore options for filling the necessary OM positions, and look into new solutions to help you maximize process efficiency.