What is Operations Management
Understand the basics of operations management and how it can help you think about profitability, efficiency and quality in your business.
Operations Management is the process of implementing business practices that provide the highest efficiency while converting raw materials, labor and time into goods and services. The goal of Operations Management is to increase productivity and quality while minimizing costs in order to maximize the profitability of an organization.
The focus of Operations Management is on managing resources and activities that produce and deliver goods and services. This involves coordination of materials, equipment, and human resources throughout an organization. Operation managers seek to drive efficiency by reducing unnecessary labor, inventory, and waste in order to convert inputs into outputs in the most cost-effective and timely manner possible while still maintaining acceptable quality standards.
By optimizing the production process, Operations Management ensures businesses can adapt to market changes, new technologies, and customer expectations. The strategies and principles of Operations Management are essential for any organization looking to maximize profit by reducing costs and boosting efficiencies. With strong Operations Management, companies can gain a sustainable competitive advantage even with constrained resources.
Efficiency is the key optimization target for operations management teams. Efficiency is typically calculated at a per unit level to evaluate profit or loss at the single unit level. By increasing efficiency, operations teams can produce more units, reduce costs per unit, and boost profit margins.
A typical operations system has multiple interconnecting and interdependent components and sub-processes. For example, a manufacturer may have inbound logistics to source raw materials, manufacturing facilities to transform materials into products, outbound logistics to distribute finished products, plus purchasing, budgeting, and more back-office functions.
Rather than optimizing single sub-processes in isolation, optimal efficiency comes from taking a holistic view and globally optimizing the entire flow. Bottlenecks and waste in one area can hinder the entire supply chain. As explained in Goldratt’s business novel “The Goal”, operations should be oriented toward keeping the system flowing smoothly rather than maximizing utilization of each component.
There are strategic tradeoffs to evaluate between efficiency, costs, risks, and other factors. But generally optimizing the whole system, keeping inventory lean, and balancing flow are proven approaches for getting the most out of operations. Operations teams use continuous analysis and innovations to further drive efficiency over time.
Operations management encompasses a wide array of business functions and responsibilities, including:
Creating financial plans and budgets for operational activities and tracking performance against those budgets.
Developing operating plans and strategies to maximize efficiency and output.
Analyzing production and operational processes to identify opportunities for improvement.
Implementing quality control processes and setting quality standards.
Conducting periodic audits of operational processes and practices to ensure they meet requirements.
Collecting, organizing, analyzing and reporting on operations data to support optimization.
Scheduling staff, production jobs, equipment usage, and inventory to smooth flow.
Assigning resources and allocating materials to balance capacity and demand.
Managing relationships with suppliers of raw materials and tracking performance.
Monitoring dates and inventory levels to minimize write-offs.
Placing orders and reallocating stock as needed to maintain operation efficiency.
Operations management spans both strategic responsibilities around budgets, plans, and processes as well as day-to-day tactical execution of scheduling, allocating resources, managing vendors and inventory, and data analysis to drive optimization. The specific activities depend on the industry, company size and complexity of operations. But all operations teams focus on maximizing efficiency of the production system.
Operations teams rely on proven methodologies and frameworks for analyzing and improving efficiency across complex systems. Some of the most widely adopted include:
BPM provides modeling and analysis tools to map operational processes end-to-end, identify redundant or inefficient steps, and optimize processes. BPM software can even automate workflows.
Six Sigma uses statistical analysis and a formal 5-step improvement methodology (DMAIC) to reduce defects and variation in outputs through deep quantitative understanding of processes. Certified Six Sigma experts lead teams on targeted improvement projects.
Originating with the Toyota Production System, Lean Manufacturing focuses on targeted elimination of any waste in the system that does not directly create value for the customer. This ranges from physical waste, excess inventory, unnecessary transport, overproduction, and aims to smooth flow.
These frameworks provide data-driven approaches to deeply analyze complex systems, identify and address root causes of inefficiency in processes, reduce variability and defects, eliminate waste and non-value-add work, balance capacity to demand, improve quality, and smooth workflow.
It's common for people to confuse between project management and operations management. Project management is a local phenomenon. It works on a task that has defined scope, budget, people and quality parameters. Whereas, operations management is the process of continuous improvement over the life of a company. Here's a picture to illustrate the difference.
Today, operations management tends to be reactive, responding to orders and issues as they arise. But future leading operations will become more proactive, using intelligence to foresee and mitigate challenges before they occur.
Better operational intelligence will enable organizations to anticipate fluctuations in demand, risks to supply availability, equipment failures, staffing gaps, and other changes that impact workflow and costs. Proactively addressing these issues will minimize firefighting and workflow disruptions.
Increased adoption of artificial intelligence, machine learning, and advanced analytics will drive this shift from reactive to proactive operations management. By unlocking insights from data across the operational landscape, even small and mid-sized businesses will achieve efficiencies once only accessible to large corporations.
Cloud-based solutions like ZORP are democratizing operations optimization for all players by centralizing planning, execution, monitoring, and automation. As operations platforms leverage big data and AI, nearly any organization will be able to dynamically adapt their processes, staffing, inventory, and workflows to maximize efficiency as conditions evolve.
The future of operations is intelligent. Predictive capabilities will enable organizations to operate more nimbly at lower costs, no matter their size. Operations management will transition from responding to events to using technology to get ahead of events altogether. This fundamental shift promises significant productivity and competitive advantages to those companies leading the charge.
