Operations management focuses on the careful management of the processes that produce and distribute goods or services. It also deals with the development, acquisition, and efficient utilisation of resources that are required to satisfy customers.
Operations management is defined as “the management of the conversion process, which converts land, labour, capital, and management inputs into desired outputs of goods and services.”
– Roy, 2005.
The field of operations management is gaining importance and popularity in the business world because businesses are fully aware that in order to survive and prosper, especially in the current economic climate, the need for lean and streamlined value-adding operations in the delivery of goods and services is crucial.
Operational efficiency is just as important for manufacturing as it is for the services industries. Although manufacturing and service operators have a common primary function to satisfy customer wants and needs, the two types of operations differ. The main differences are:
- Intangibility – manufacturers produce a tangible product, whereas service providers tend to produce intangibles;
- Customer contact – manufacturing workers typically never have contact with customers, whereas services employees have a propensity to be in direct contact with customers much more often;
- Customisation – manufactured goods, despite the advent of mass customisation, still tend to be more of the standardised type, which subsequently result in production in large quantities. Services, by contrast, are more likely to be customised to meet specific customer needs.
In order to compete in the marketplace, a company must transform its resources into quality goods or services efficiently. The operations manager is the person who is responsible for this conversion process – the process that converts inputs into outputs. Operations management consists of planning and controlling the systems, as well as directing all the activities that are involved in converting ideas and materials into finished goods or services.
Successful operations managers need to have strong communication and leadership skills, along with effective problem-solving abilities, since their role usually involves interfacing with people from other parts of the organisation. An important function of the operations manager’s job is the need to tackle and make various decisions. Decision-making is influenced by three major factors namely:
- Desirability – associated with business objectives;
- Feasibility – associated with the operating system structure;
- Preference – the operations manager’s preferred course of action.
There are two main objectives of operations management:
- Customer service – this is a key operations management objective since the purpose of an operating management system is to utilise resources as a means to satisfy customer wants. In order to provide something meaningful to customers, the system must provide goods and services to specification, at the right price and time.
- Resource utilisation – this is about utilising system resources effectively to satisfy customer wants and is the other key objective of operations management. Effective resource utilisation is concerned with minimising losses/waste or maximising the inputs from the available pool or resources.
Operations management is concerned with managing all aspects of an organisation’s internal processes. The major aspects of operations management include:
Facility location and layout
Invariably, an important strategic decision for any organisation is the determination of the ideal place or facility to base its operations. An ideal location is one that results in the lowest production or servicing cost, the highest revenues or a combination that establishes an acceptable balance in the trade-off that often exists between the two. Before selecting a location, managers of manufacturing or service companies must consider many factors such as proximity to markets, infrastructure, government policy, materials supply, supporting industries, availability of human resources, labour costs and transportation costs.
At Equinox our legal, economic and corporate services teams have the expertise to guide you go through this major decision making process.
Judgement typically varies in complexity and requires anything from a simple rule of thumb decision to complex analyses and decision support infrastructures. Some decisions can be taken on the basis of common sense, knowledge and experience. However, complex judgements require the use of scientific tools such as economic and statistical models to improve the analysis of data when available with a view to informing and enhancing the decision-making process of management.
Undoubtedly one of the most important aspects of operations management, capacity management involves managing the levels of demand that are placed on the organisation system with the capacity of the organisational system. Forecasting the capacity based on fixed demand is a simple task. In reality, however, demand fluctuates, and determining the system capacity in volatile situations is of strategic importance. Good capacity planning is crucial because:
- It is required to meet customer demand;
- It affects the cost of operations;
- It cannot be increased instantaneously.
This function is concerned with the purchase, quality control and the use of materials throughout an organisation. The main objectives are to:
- Reduce or keep to a minimum the amount of inputs consumed;
- Increase inventory turnover in cases where inventory exists;
- Achieve lower material and material storage costs through simplification, standardisation and optimal stock management;
- Reduce transport costs;
- Ensure supply continuity;
- Ascertain quality control.
This function involves assigning jobs to persons or workstations and the setting-up of a timetable in order to meet customer deadlines. Effective scheduling helps to achieve the full potential of the operational system and as a result reduces the operating cost.
- Work methods & workforce management– this entails the establishment of the most economical manner to do the work, and is thus a critical aspect of operations management. The aim is to standardise the materials and equipment required so that workers can eventually be instructed in the use of the most efficient work method. If workers are to give their utmost, work method strategies need to be supported with fair rewards and payment incentives to encourage high-quality work from employees.
The above-mentioned aspects highlight the importance of operations management. Nowadays, operations management is no longer subservient to other organisational functions such as finance and marketing, but is considered to be as critical a function for most organisations as marketing and finance.
Our data analysis, quantitative modelling and scenario model building team can help you build, set up and learn to interpret the relevant information required through various tools and models in order to aid your operations management team in their decision-making processes.
Our operations management support services can help your organisation in:
- Improving processes and quality;
- Decreasing costs to improve the competitiveness of your brand position;
- Using various scientific tools and models to support decision making;
- Making use of expert advice on various legislative aspects that need to be considered when setting up new facilities;
- Achieving operational excellence and improving the attainment of corporate goals.