Operations management: ‘The art of managing production to get the best end product’.
Businesses in the private sector produce and sell products to customers with the primary objective of earning profit. These goods and services are the output of a production process which uses different production methods.
Many different factors influence the production process. Businesses must measure and improve the efficiency and effectiveness of their production processes and the impact that modern technology has on these processes.
Production is not the same as operations management
Production is not entirely the same as operations management. Here is the different between these two terms.
- PRODUCTION: Production in the traditional view refers to turning inputs such as land, labor and capital into producing physical goods such as cars, clothes, furniture or computers. It is narrow and describes a relatively static process. With the growth of the tertiary sector of the economy, the term production now includes production of goods and services from all businesses in the primary, secondary and tertiary sectors.
- OPERATIONS MANAGEMENT: Operations management includes a far wider range of activities and refers to the management of all production process. It is concerned with producing the right goods and services in the right quantities and at the right quality level. Also, it analyses how Research and Development (R&D), planning, quality and workforce issues interrelate to achieve operational objectives. It is also far better suited to firms that produce services rather than physical goods.
While the term production often refers to large-scale capital-intensive production with assembly lines such as car plants or oil refineries, small businesses such as a private school, pizza restaurants or a small bakery also have operations.
Definition of operations
Operations are the fundamental activities of business organizations:
- What do business organizations do?
- What products do they deliver?
- How does a business produce the goods and services to meet consumer demand?
Operations in a business are done by people – human resources. Operations need to be funded by money – accounts and finance. And finally, operations produce goods and services which need to be promoted and sold at the right price to the right people and in the right place – marketing and sales.
Before products are physically sold to customers, the operations process typically involves several stages:
- Converting a consumer need into a product design that can be produced efficiently.
- Organizing business operations, so that production is carried out efficiently such as ordering stocks to arrive on time.
- Deciding on the most appropriate production method.
- Assuring quality and setting quality standards while checking whether they are maintained throughout the production process.
As operations are influenced by economic, social and environmental factors, they need to be sustainable in all three areas.
Definition of operations management
Operations management refers to the design, operation, and improvement of the processes that create and deliver the firm’s primary products.
It is the management function responsible for managing resource efficiently in providing the right goods and services in the right quantities and at the right quality level in a cost-effective and timely manner. Specifically, the acquisition, development and utilization of scarce resources that a firm requires to produce and deliver the goods and services that their customers want.
Operations management is concerned with supervising, designing and controlling the procedures of the production process. Managing the production process that converts inputs in the form of materials, labor, and energy into outputs in the forms of finished goods, services and components throughout the production process that can be sold to other businesses or customers.
Example 1: A pizza maker (labor) will take ingredients such as flour, yeast, salt and water to his kitchen (land) and using mixers and ovens (capital) to make pizza (the output) which he sells in his restaurant to hungry customers.
Operations management must guarantee that business operations are efficient in that the processes are using as few resources as needed, and are effective in terms of meeting customer requirements.
Key aspects of operations management
The main role of operations management is to look at the need for businesses to decide how production should take place. In order to ensure that output can be sold for more than the cost of inputs, Operation Managers need to deal with the following key aspects of operations management:
- Methods of production: job production, batch production, mass production, mass customization and cell production.
- Size of production.
- Scope of production.
- Timing of production.
- Production planning and inventory management: purchasing, stock control.
- Quality management systems.
- Research and Development (R&D) of new products, and innovation.
- Engineering.
- Maintenance of machinery.
The nature of the product and the condition of the firm will affect those key aspects of operations management.
Additionally, the operations department must research, design and develop new products together with the marketing department to allow production to take place. It will decide on appropriate production methods as well as the optimal mix of labor and machinery. Any purchase of raw materials or new machinery will also involve the finance department.
Features of operations management
Operations management is concerned with the use of resources called inputs to provide outputs in the form of goods and services. In doing this, operations managers must ensure:
- Efficiency of production. Keeping costs as low as possible while producing as much as possible in the certain period of time will allow the firm to gain competitive advantage.
- Quality of production. The products produced must be suitable for the intended purpose and meet customer’s expectations. Ways to maintain quality are related to customer requirements and include Quality Control (QC), quality circles, Total Quality Management (TQM) and Benchmarking.
- Flexibility of production. The business might need to adapt to introduce new processes and produce new products in order to remain relevant in today’s dynamic business environment.
The ultimate aim for operations management is to use resources in the most cost-effective way to produce the required output that meet consumer demand and the quality standard expected.
Operations management and sectors of the economy
Operations management does not only apply to manufacturing only in the secondary sector of the economy. It is because production is concerned with all four sectors of the economy:
- Primary sector. Extracting raw materials, harvesting crops and rearing animals. For example, mining, agriculture and fishing.
- Secondary sector. Turning natural resources into processed or finished goods. For example, steel production and car manufacturing.
- Tertiary sector. The provision of services. For example, financial services, insurance, travel, tourism, transportation and healthcare.
- Quaternary sector. The provision of intellectual, knowledge-based activities that generate and share information. For example, ICT, Research and Development (R&D), consultancy services and scientific research.
Need for flexibility and innovation
To support businesses effectively, the operations department must recognize the importance of innovation in dynamic business environments.
Operational flexibility refers to the ability of a business to adjust both the level of production as well as the range of products following expected and unexpected changes in customer demand. This flexibility can be achieved in a number of following ways:
- Increase productive capacity by adding new buildings and buying more equipment. However, this is a very expensive option.
- Hold high stocks. However, there is an opportunity cost to the capital tied up to inventories.
- Hire adaptable workforce by using temporary and part-time contracts. However, while this can reduce fixed salary costs, worker motivation may decrease.
- Have flexible assembly line production equipment. However, this requires implementing mass customization production method.
Because future demand patterns are difficult to predict accurately, there is a great need for operational flexibility in case actual demand turns out to be either higher or lower than the sales forecast.
Current issues in operations management
- Raising the awareness of operations management as a significant competitive weapon – a new source of competitive advantage.
- Coordinate the relationships between mutually supportive, but separate organizations.
- Optimizing global supply chains, production and distribution networks.
- Increased co-production of goods and services.
- Managing the customers experience during the service encounter.
All in all, synergies must exist with between the operations department and other functional areas of the business organization. It is because operations management account for 50% to 80% of the direct expenses that burden a firm’s profit. Hence, production processes must be management properly to allow businesses in the private sector to earn profit.
