Bite-Sized Training™

What is Operations
Management?
 What is Operations Management? Bite-Sized TrainingTM | Mind Tools

What is Operations
Management? Bite-Sized
Training
This e-book is published by:

Mind Tools Ltd.

Copyright © Mind Tools Ltd, 2008-2012. All rights

reserved.

Version 1.3

This e-book is protected by international copyright

law. You may use it only if you are a member of
the Mind Tools Club™. If you have any queries,
please contact us at
[email protected].

Cover image © iStockphoto/ermingut

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Contents

1. Introduction .................................................................................................................................... 4

2. Operations Management Basics .................................................................................................... 5

3. Operations Management Decisions ............................................................................................... 7

4. Operations Managers................................................................................................................... 11

5. Key Points.................................................................................................................................... 15

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1. Introduction
What your organization does for its customers is Human resource decisions, marketing decisions,
the domain of the operations department. engineering decisions, logistics decisions, and
Whether you’re manufacturing or distributing finance decisions are all based on operational
goods, or providing services, the operations need. And whether the function has its own
department transforms inputs to outputs, and department, or is done by a variety of people in
delivers those outputs to your clients. many departments, operations decisions are
made constantly.
Many people think of operations as boring and
process-related. The truth is, operations stretches With this Bite-Sized Training session, we’ll
its influence right across an organization and introduce you to the operations management
plays a driving role in most of the decisions that function, and we’ll help you understand how this
are made on a daily basis. That’s because the job department supports the growth and development
of the operations department is the reason that of an organization as a whole.
the organization exists. And in companies – along
with the sales and marketing department – the The objectives for this session are to understand:
operations department delivers the revenue that’s
the lifeblood of the organization.  The fundamental role of operations within
organizations.
Many top executives have an operations  The skills required to be an effective
background because operations managers operations manager.
intimately understand the mechanics of meeting  The challenges of operations
client needs, and have a detailed understanding management.
of what the organization can and cannot do. And,
along with top salespeople, operations managers
are the “heroes” of the organization – the people
who’ve been “through the blood and fire” to help
the organization achieve its objectives. This
makes them natural candidates for top jobs.

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2. Operations Management Basics

Operations management deals with the charge of a call center, or the vice-chancellor of a
production and delivery of goods and services university might not have the title of “operations
that we purchase every day, either as consumers manager,” but that is still essentially what they are
or as businesses. doing.

It used to be thought of strictly in manufacturing The Operations Management System

terms. Now we refer to operations management
as the direction and control of the process that Operations are part of the entire production
transform inputs into finished goods and services. system. You have inputs (people, capital, and
purchased materials and services) on one side,
From manufacturers of snowboards and transformation operations in the middle, and
surfboards to those producing steel and outputs (finished goods and services) on the
pharmaceuticals, and from providers of services other.
from the banking sector to air travel, operations
management is essential across all industries for This is shown in the simple diagram below:
successfully managing people, capital, and
material. In the service sector, the person in

Inputs
Transformation
People. Outputs
Equipment. Physical (manufacturing).
Materials. Location (transportation).
Goods.
Facilities. Exchange (retail).
Services.
Land. Personal (health or education).
Energy. Information processing.
Information.

The type of transformation varies, as do the technology, people, and materials needed in
specific inputs and outputs. these examples are different, and the result is a
different product or service. Regardless, there is
For instance, in a manufacturing company, the still an operations system.
transformation may be a physical change from
raw materials to a finished product. In a Action: Think about the operations function in
university, the transformation is the education of your organization. What are the inputs,
students. With an airline the transformation transformations, and outputs that you can think
involves moving passengers from one location to of? Note your answers on the next page.
their destination. The facilities, machines,

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Inputs Transformations Outputs

The scope of the operations that create these The outputs that customers are supplied with can
transformations is considerable, and will usually be anywhere along this spectrum, from physical
involve a number of sub-departments supporting products such as fruit and vegetables, to pure
the core production activities. services such as counseling.

These may include: In most cases, what they purchase will be

somewhere in between. For example, restaurants
 Purchasing. provide food products, but they also provide the
 Logistics/transportation. services of a pleasant place to eat, and the
 Facilities management. attention of a waiter. And when you buy an iPod
 Maintenance. (product), you probably also make use of services
 Inventory and storage. such as iTunes.

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3. Operations Management Decisions

Operations is one of several functions within an  How will the quality of the outputs be
organization. Whether each of these has a controlled?
separate department depends largely on the size
of the organization, of course. Whatever the In some organizations, operations management is
structure, the functions are all interrelated, and core to the business strategy, and essential to
decisions about operations need to be creating competitive advantage. For instance, the
coordinated with the wider organization. McDonald’s operational strategy for fast food
production maximizes the throughput of people
Three key types of operational decisions are: needing to be fed, and minimizes production
costs. Customers at IKEA collect and transport
 Strategic decisions. their own goods, which minimizes store-staffing
 Design decisions. costs. Its shop is also its warehouse, so facilities
 Operating decisions. are efficiently managed as well. Banks like First
Direct in the U.K., that only connect with
Strategic Decisions customers through the Internet and other
technologies and that don’t have “bricks and
Strategic decisions are those that affect the future mortar” facilities, are other examples of
of the organization: organizations that depend on efficient service
delivery to customers.
 What are the company’s competitive
priorities? Cost, speed, quality, reliability, Action: Think about the transformations you
design innovation, customizability, or listed in the first activity. Which ones are key to
breadth of range? the strategic choices that your organization has
 How will the organization position itself? made? How does the transformation create
 How will it add value and create competitive advantage or benefit to the
competitive advantage? customer?

Key Transformation Competitive Advantage/Customer Benefit

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Design Decisions

Design decisions relate to the specifics of the Rail passengers can buy tickets online, and then
production system that an organization has collect their tickets at the station by inserting their
chosen. Managers have to decide how operations credit cards into a self-service machine. This
can be designed to meet the performance reduces the number of ticket sales clerks needed,
objectives: as well as cutting out queuing time for the
passengers.
 What types of input from workers and
other key resources are needed? Operations design decisions need to balance
 What are the capacity requirements? costs and benefits, and are related to volume and
 Where should facilities be located? to the relationship between fixed and variable
 How should the facility be laid out? costs of producing the item in question.
 What do departments need to collaborate
on to ensure quality outputs? For example, newspaper publishers produce such
 How should jobs be designed? large numbers of papers each day that it’s cost
 What role should technology play in the effective for them to invest in their own printing
process? presses. On the other hand, most book publishers
(apart, perhaps, from the very largest) don’t
Car manufacturers use quick release fixings so produce enough books to keep presses running,
that they can rapidly change over the different so they simply buy in printing services from
dies used to press the bodywork parts for dedicated printers.
different models, for example. They also use
standardized parts such as bolts wherever Action: Now identify some of the design
possible, to reduce the number of different decisions that have been made with regard to the
inventory parts that they have to hold, as well as transformation process at your organization. For
the number of tool changes required to fit the instance, how is your facility laid out? How are
bolts. computers and information technology involved in
your operations?

Transformation Process Design Decision/Decisions

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Operating Decisions

Operating decisions are concerned with the day- Remember too, that an underlying focus of
to-day running of the organization. The essential operations management is performance
question here is how to balance supply and improvement. Thinking of ways to make the
demand. operations run smoother, faster, more efficiently,
and more cost effectively are key to creating and
 How should inventory be managed? What sustaining competitive advantage.
type of inventory system should be used?
 How are materials managed, purchased, Action: Finally, identify some of the operating
distributed, and inventoried? decisions that your organization has made for
 How should staff be scheduled? each of the transformations it uses for creating
 How are supply levels forecasted and outputs from inputs. For instance, what inventory
delivered? or scheduling system is used? How is quality
 How are suppliers chosen and managed? assured?
 How should work be prioritized?
 What can be done to prevent and recover
from failures or disasters?

Transformation Operating Decision/Decisions

With all the activity that goes on in the operations

department it’s easy to see why operations
management depends heavily on cross-functional
coordination.

In many organization structure diagrams,

operations is shown in the middle of the
organization with the other functional areas
stemming from it. Alternatively, you might see a
Venn diagram with the other functions
overlapping some part of operations as shown in
this diagram.

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What does this mean in reality? work together to make sure that the market
knows about the improved delivery times. Cross-
Here’s an example: If the operations department functional team work is imperative to operations
comes up with a way to speed delivery and lower success.
costs, then the rest of the organization has to
adapt to the new quality and process Action: Think about the cross functional role of
requirements that come with this. Finance needs operations in your organization. How do the
to feed new information to operations for analysis. different departments and teams interact with the
Human resources helps to ensure that there are operations function at your workplace? What
enough workers with the right skills to implement decisions do you make together and what impact
the operational vision. Marketing and operations do operations have on the work you do?

Department/Activity Nature of the Interaction

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4. Operations Managers
Operations managers, or those who are making in process and system design
operational decisions, are often at the center of optimization.
strategic decision-making. Decisions made in this
functional capacity determine not only how goods  Strong interpersonal skills, and the ability
and services will be made, but also how to work effectively with other departments
customers will receive them. Creating a great to coordinate and share information.
customer experience is ultimately what will
generate profit, and sustain the organization.  Good leadership, as the role of operations
demands that decisions be carried out
Operations managers plan, direct, or coordinate across the organization.
the operations of companies or public and private
sector organizations. Their duties include  Good financial acumen, as many
formulating policies, managing daily operations, decisions have a cost component, and key
and planning the use of materials and human information comes from the finance
resources, but are too diverse and general in department.
nature to be classified in any one area of
management or administration, such as  Knowledge of project management skills
personnel, purchasing, or administrative services. like scheduling, analyzing probabilities,
and diagramming.
As well as requiring strong technical knowledge of
the issues specific to the industry they’re working
Operations management is a high profile career,
in, effective operations managers need the
and many top executives have an operations
following general skills and abilities:
background. The fact that operations acts as a
hub for the rest of the functional areas means that
 An excellent understanding of materials people in this role learn about all aspects of the
and/or resource planning. business, and develop a keen appreciation for
how they can all come together to achieve
 Excellent decision-making skills, and the extraordinary performance.
tools associated with this.

 Confidence in making decisions involving Action: Think about the operations people in your
uncertainly and risk. organization. What skills make them most
effective? What can you learn from these people
 Excellent numerical abilities, as there are and/or develop in yourself to improve your
many calculations and formulae involved understanding of the business? Write your
answers in the table on the next page.

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Skills and Qualities of Effective Operations Things I can Learn From These People
Managers

Challenges Facing Operations Managers

Ever since Henry Ford introduced the management, and Six Sigma has become
revolutionary production line concept to widespread as a way of improving quality.
manufacture the Model T, operations
management has been driven ahead by big new All of these developments are simply new ways to
approaches, which are often highly formalized, create value for customers and profit for
organizations in a changing environment.
In the sphere of manufacturing operations, Just-
In-Time and quality systems like TQM were hot Some of the key challenges facing most
topics for many years. Business Process operations managers at the moment include:
Reengineering was popular in service industries
in the 1990s, followed by a technology-driven  Building closer relationships with
focus on Supply Chain Management. Many larger suppliers. The entire supply chain is an
manufacturers implemented enterprise resource area of management that requires much
planning software such as SAP in somewhat of a coordination to ensure that an
panic in the run-up to the Millennium when organization has the materials it needs,
concerns about the “Y2K bug” were rife. when it needs them. This field is changing
quickly, as organizations adapt to the
Since then, Radio Frequency Identification (RFID) rapidly increasing cost of inputs, and
technology has become reliable enough to be sometimes-intense competition for
widely adopted for inventory tracking and resources.

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 Emphasis on operations in service sweatshop labor have been called to task

management. This is no longer an add-on and even boycotted over these types of
to the manufacturing function and many issues. In the UK in particular, food
companies are using service as a key producers are under new pressure ensure
profit center. For example, IBM is no that poultry and other animals have a high
longer simply a business machine quality of life, even if this leads to
manufacturer; it is involved with web increased costs.
design, network installation, e-commerce,
management consultancy, and more.  New technology advances in
communications and production also
 Consumer demands for ecologically- impact operations decisions. Recognizing
friendly practices, backed by stringent and preparing for how new developments
legislation, as well as the recent massive can benefit the way operations work is a
increases in fuel and power costs. key consideration for operations
Operations managers are continuously managers as they try to predict the future.
seeking new ways to reduce both the cost
of inputs and the environmental impact of Action: Note down some of the ways that the
their organizations, whether that involves challenges above have changed the way your
cutting packaging or switching to organization does business and operates. What
sustainable types of cardboard instead of operational challenges do you foresee for your
Styrofoam; reducing their energy and organization?
water usage; or sourcing raw materials
locally to limit their operation’s carbon
Note:
footprint. For a summary of some of the techniques and
approaches that operations managers use
 Ethical production practices are also (including Kaizen, Just-In-Time, Total Quality
important considerations. Socially aware Management, and Six Sigma), see our menu here.
consumers are demanding that products
be manufactured fairly, and that human
rights be upheld in product and service
suppliers all over the world. Users of

Operational Changes Operational Challenges

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Operational Changes Operational Challenges

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5. Key Points
It goes without saying that organizations need Operations involves high-level strategic decisions
sound operations management. Sometimes their like competitive positioning as well as more
operations will be the source of their competitive tactical and operational decisions like designing
advantage (as it is for IKEA, for example, or processes, managing inventory, and monitoring
Amazon), and at other times, sound operations quality. Whatever operations people are involved
are an essential foundation for a different source in, it has an impact on the whole organization.
of alternative advantage (The New York Times,
for example, needs efficient production The people that work in this area need to
processes, but it’s the quality and slant of its understand the business and the product
journalism that gives it the edge). intimately. They also need to scan the
environment constantly for new developments
With the pressures of a global and highly and influences that have the potential to impact
competitive economy, organizations need to find supply and demand. Operations management is
ever more effective and efficient ways to satisfy at the heart of an organization – it’s an exciting
increasing demanding consumers. As a functional and vibrant place to be that is always changing,
area, operations supports corporate strategy and always challenging, and certainly never boring.
it works in conjunction with other functions to
design, produce and deliver products and
services.

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