Operations management

Operations management is an area of business concerned with the production of goods

and services, and involves the responsibility of ensuring that business operations are
efficient in terms of using as little resource as needed, and effective in terms of meeting
customer requirements. It is concerned with managing the process that converts inputs (in
the forms of materials, labor and energy) into outputs (in the form of goods and services).
Operations traditionally refer to the production of goods and services separately, although
the distinction between these two main types of operations is increasingly difficult to
make as manufacturers tend to merge product and service offerings. More generally,
Operations Management aims to increase the content of value-added activities in any
given process. Fundamentally, these value-adding creative activities should be aligned
with market opportunity (see Marketing) for optimal enterprise performance.
According to the U.S. Department of Education, Operations Management is the field
concerned with managing and directing the physical and/or technical functions of a firm
or organization, particularly those relating to development, production, and
manufacturing. Operations Management programs typically include instruction in
principles of general management, manufacturing and production systems, plant
management, equipment maintenance management, production control, industrial labor
relations and skilled trades supervision, strategic manufacturing policy, systems analysis,
productivity analysis and cost control, and materials planning.

What is operations management?

Although we may not consciously think about it in these terms, life for most of us
without the goods and services we consume would be a lot different to what it is today.
Consider these examples. Banks process billions of transactions every year. Telephone
companies switch billions of phone calls and data packets around the globe every day.
Most of us take the supply of electricity, water and gas for granted most days, but it is
worth noting that these utilities are created and supplied to our homes and businesses
through massive operations and supply networks. Car companies are able to assemble
seven to ten thousand individual parts into a complete car in about four days, and have
them rolling off the production line every ninety seconds or so. Government agencies
such as Centre link in Australia make hundreds of thousands of social security benefit
payments every week.
How are all these things possible? The answer is quite simple: they all depend
ultimately on operations management. The whole built environment and all the services
we consume, are deliberately produced, and the design, conduct and continual
improvement of these systems of production is the province of operations management.
A sound operations management system leads to timely, reliable and accurate provision
of goods and services to end-users. In this sense, one could think of operations
management as being the productive heart of the organization.
To define the term operations management, let us consider the two words separately.
Operations, at the most general level, are all about the conversion or transformation of
inputs into outputs. Inputs can be traditional resources such as labor, equipment,
facilities, raw materials, processed components, time, and non-traditional resources in the
form of knowledge, skills, customer relationships and reputation. The outputs can be
products, services, information and experiences. The transformation of inputs into
outputs can be physical conversion or alteration, transportation, storage or inspection
when dealing with goods. For services, the change would be more at a personal or even
psychological level. From a value perspective, value is created when the value of the
outputs is greater than the sum total of the value of inputs.
As for the word ‘management’, there has been long debate about its meaning. For our
purpose, we take the perspective of the functions that managers perform. The five
traditional functions that managers perform are planning, organizing, coordinating and
controlling of resources.
Combining these separate definitions into one, operations management can therefore be
defined as the planning, organizing, coordinating and controlling of transformation of
inputs to outputs.

Role of operation management

The above definition of operations management covers all aspects of an organization that
is involved in the creation and delivery of products and services to customers. As such,
operations management plays a critical role in the success of organizations. The exact
role of operations management can be viewed from multiple perspectives. One could
look at it as a standalone unitary function within an organization. It is also possible to
look at operations management as it is practiced across all functional areas in the
organization. Further still, since outside parties such as suppliers and customers are
inherently involved, there is a logical reason to view operations management from this
extended perspective that is described as supply chain management. Aside from the
functional role, operations management can be analyzed for the strategic role it plays in
organizations.
 Operations management as a standalone function
At the most basic level, operations is frequently seen as a distinct functional area
alongside other key areas such as finance and marketing. In this context, the role of the
operations management function is limited to simply producing goods and services.
As examples: in manufacturing firms, the operations area would be dealing with the
production and assembly tasks that takes place on the factory-floor; in the school
education context, operations is what happens in the classroom; in the hospital,
operations would be what happens in the surgical theatres and wards; and in the
hospitality industry, operations is about what happens in the kitchens and bars.
The standalone approach to operations management has many weaknesses. Many
organizations that face stiff competition in their industries find that this structure makes
them slow, cumbersome, bureaucratic, and generally unresponsive to customers. These
organizations have largely abandoned this form of organizational structure in favors of
one where there is a high level of inter-functional interaction. A strong feature of these
organizations is the presence of teams in which members are drawn from different
functional groups. This approach has proven to be a boon particularly at the design stage
of new products. For example, Japanese car manufacturers have used this approach to
design totally new cars and associated production facilities in less than eighteen months.
Their competitors, who have long used the sequential approach to design, which used to
take at least three years, have only now caught up with modern practices.

 Operations management as a ubiquitous function

As opposed to a separate function, it is possible to view operations management as a
ubiquitous concept that has a pervasive presence and permeates all aspects of the
organization. For example, operations management in a hospital would involve
determining the size of the facility, deciding which types and quantities of equipment to
acquire, arranging these facilities and equipments so the hospital is run efficiently,
determining staffing levels and schedules to provide quality care, managing inventories
of food and bedding, all in addition to the activities that clinical and medical work that
takes place in the theatres and wards.
When viewed from this wider perspective, it is evident that operations are not confined
to a specific area. The broader role can be difficult to deal with as the traditional
functional boundaries are blurred, and members of the organization need to develop
strong understanding of what happens within other functional groups as well as their
own. Further, all functional groups need to be able to practice effective operations
management.

Batch production system

• A production system in which a process is broken down into distinct operations

that are completed on a batch or group of products before moving to the next
production stage. As batch sizes can vary from very small to extremely large
quantities, batch production offers greater flexibility than other production
systems.

 Flexible manufacturing system

A flexible manufacturing system (FMS) is a manufacturing system in which there is

some amount of flexibility that allows the system to react in the case of changes, whether
predicted or unpredicted. This flexibility is generally considered to fall into two
categories, which both contain numerous subcategories.

The first category, machine flexibility, covers the system's ability to be changed to
produce new product types, and ability to change the order of operations executed on a
part. The second category is called routing flexibility, which consists of the ability to use
multiple machines to perform the same operation on a part, as well as the system's ability
to absorb large-scale changes, such as in volume, capacity, or capability.

Most FMS systems comprise of three main systems. The work machines which are often
automated CNC machines are connected by a material handling system to optimize parts
flow and the central control computer which controls material movements and machine
flow.
The main advantages of an FMS are its high flexibility in managing manufacturing
resources like time and effort in order to manufacture a new product. The best application
of an FMS is found in the production of small sets of products like those from a mass
production.

 Lean manufacturing system

Lean manufacturing or lean production, which is often known simply as "Lean", is a

production practice that considers the expenditure of resources for any goal other than the
creation of value for the end customer to be wasteful, and thus a target for elimination.
Working from the perspective of the customer who consumes a product or service,
"value" is defined as any action or process that a customer would be willing to pay for.
Basically, lean is centered on preserving value with less work. Lean manufacturing is a
generic process management philosophy derived mostly from the Toyota Production
System (TPS) (hence the term Toyotism is also prevalent) and identified as "Lean" only
in the 1990s. It is renowned for its focus on reduction of the original Toyota seven wastes
to improve overall customer value, but there are varying perspectives on how this is best
achieved. The steady growth of Toyota, from a small company to the world's largest
automaker, has focused attention on how it has achieved this.

Lean manufacturing is a variation on the theme of efficiency based on optimizing flow; it

is a present-day instance of the recurring theme in human history toward increasing
efficiency, decreasing waste, and using empirical methods to decide what matters, rather
than uncritically accepting pre-existing ideas. As such, it is a chapter in the larger
narrative that also includes such ideas as the folk wisdom of thrift, time and motion
study, Taylorism, the Efficiency Movement, and Fordism. Lean manufacturing is often
seen as a more refined version of earlier efficiency efforts, building upon the work of
earlier leaders such as Taylor or Ford, and learning from their mistakes.

PLANNING AND CONTROL

The PPC Cycle refers to Production Planning Control. The PPC Cycle has 3 phases—
preplanning, planning, controlling. The Pre-Planning Phase consists of product
development, sales forecasting, factory or plant layout, equipment selection policy, and
preplanning of production just prior to large scale production. The Planning Phase
consists of planning of the 4 M's (methods, materials, men and machines), routing,
estimating, scheduling, and dispatching. The Controlling Phase consists of follow up,
inspecting, and evaluating.

Planning is the process of gathering information that helps the planner overcome present
or future hurdles. The initial planning consists of patent searches, to check if the product
is already patented, or needs patenting for IPR protection, feasibility report making,
marketing research about other manufacturers, prices, prototype or pilot run, large scale
production, and marketing
The Management Planning Process

Few managers realize that a company plan must provide the framework for the company
control system. If missions, goals, strategies, objectives, and plans change, then controls
should change. Unfortunately, they seldom do. Although this error occurs at the top,
repercussions are felt at all levels.

Often, too, the standards of the control systems are derived from previous years budgets
rather than from current objectives of company plans The result is that employees at
lower levels are simply given "numbers to make" based on factors of which they have
little knowledge and over which they have practically no influence.

The above schematic shows the important interrelationships between planning and
control. As you can see, the control process does not begin after the entire planning
process ends, as most managers believe.

After objectives are set in the first step of the planning process, appropriate standards
should be developed for them. Standards are units of measurement established to serve as
a reference base and are useful in determining time lines, sequences of activities,
scheduling, and allocation of resources.

For example, if objectives are set and work is planned for 18 people on an assembly line,
standards or reasonable expectations of performance from each person then need to be
clearly established.

The second significant interaction between planning and control occurs with the final step
of the control process-taking corrective action. This can take several forms, but two of the
most effective are to change the objectives or alter the plan.
Managers dislike doing either; but if a positive motivational climate is to be established,
these ought to be the first two corrective actions attempted. Objectives and standards are
based on assumptions, but if these assumptions prove inaccurate, then objectives and
standards require alteration. Thus sales quotas assigned on the premise of a booming
economy can certainly be altered if, as is often the case, the economy turns sour.

Likewise, if the assumptions are accurate and objectives and standards have not been
met, then it is possible that the plan developed was inadequate and needs to be changed.

The control process - consider the effects

Planning and organizing are two management functions that have been popular research
areas in recent years. Control, the third well-known management function, has received
surprisingly little attention.

This is perhaps because the task side of control is noticed and the behavioral or human
side is largely overlooked. But as previously noted, managers should carefully consider
the behavioral aspects of the process when designing a control system if employees are to
be motivated to accomplish assigned tasks.

Management Planning and Control Systems

Step 1: Setting Performance Standards

Performance standards may be set by staff or managers, by managers and staff, or by

managers with input from employees whose performance is being measured. The last
method is the best because employees believe that line and staff do not have enough
information about the conditions of various jobs to set realistic standards.

Managers should see that objectives and standards are measurable and that individuals
are held accountable for their accomplishment. The level of difficulty should be
challenging but within the capabilities of the employee. Standards set too low are usually
accomplished but not exceeded, while standards set too high usually do not motivate the
employee to expend much effort to reach the goal.

It is important that standards be complete; however, it is difficult to develop a single

standard or goal that will indicate the effective overall performance. For example,
consider the automobile dealer who decided to measure sales people’s performance on
the basis of the number of automobiles sold. Sales increased impressively, but it was later
learned that many sales had been made to poor credit risks, and too high prices had been
allowed on trade-ins.

Too many managers are looking for that one magic number that will tell them how well
the company is doing or how their employees are performing. Standards for the
automobile salespeople might have included number of sales, losses from poor credit
risks, and profit on resales. Standards should also be expressed in terms that relate to the
job and are meaningful to the employees.

For example, the foremen in one plant were assigned standards based on break-even
analysis, although none of them had any knowledge of this analytical technique. From a
behavioral standpoint, it is extremely important that the employee be able to significantly
influence or affect the standard assigned.

In the early 1970's, the performance of a hotel manager in Florida was based on profit
and room occupancy rates. During this period, OPEC caused a fuel crisis and relatively
few tourists could travel to Florida. The hotel manager was penalized for failing to
accomplish a standard over which, in this case, he had no influence.

Finally managers should see that the number of standards assigned, like planning
objectives, are limited and placed in priority order for the employee. If there are too many
controls assigned, the employee will not be able to give enough attention to any of them
and will become frustrated and confused.

Step 2: Measure and compare actual with planned results

As with setting standards, the objectivity of the measurement and the person who
measures and compares the performance are important. Measuring and comparing can be
accomplished by the person performing the task, by the boss, or by a staff person; even
an automated system can measure and compare. From a behavioral standpoint, the last
method is the least popular, followed by measurement by a staff person only.

An employee believes an automated system, a staff person, or even the boss does not
know enough about the conditions of the job to make a fair comparison between actual
and planned results.

Also, the employee often distrusts the staff person and sometimes even the boss. At the
same time, the employee is usually not trusted enough by the company to perform the
measurement and comparison alone. The best solution is to have the measurement done
by the person most trusted by the employee and to allow the employee some input.

Behavioral Responses to Control Systems

When employees have relatively low trust in a control system, they sometimes behave in
various ways that are harmful to the organization. They may do what is required by the
system.

For example, when bonuses for salespeople in a department store were based on sales
volume, many employees soon lost interest in customers who did not immediately
purchase an item, and they spent little time helping customers, making merchandise
attractive, or performing stock work.
Quite often employees will report data in such a way that performance will look good for
a particular time period. Some control systems will also cause employees to report invalid
or misleading data about what can be done.

For example, it is not uncommon at budget time for managers to ask for larger amounts
than needed if they believe their requests will be reduced. In many organizations budget
setting sessions are largely negotiating games with little effort given to establishing
realistic standards. The advent of computer-based management information systems has
also caused invalid data to be provided. These systems sometimes require historical cost,
production, and other data that are simply not available and cannot be provided. When
pressed, however, the data are estimated, often inaccurately.

Finally, control systems that employees view as clearly threatening will cause strong
resistance, perhaps the best example of this is automatic data systems. These systems
create new experts with much power, are often not well understood, and, therefore are
feared by many employees.

Step 3. Evaluate results, give feedback and coach

The third step is most effective when steering controls are selected. With these controls,
forecasters of the results can also be used for early warning that specific actions may be
required.

For example, high morale is a popular goal but one that is difficult to measure.
Forecasters such as number of accidents, absenteeism, and employee turnover may be
evaluated together and serve as a surrogate measure for increasing or declining morale.

However, careful evaluation must be used. If the accident rate increases rapidly in the
production area, it would suggest declining morale when a significant increase is caused
by employee carelessness. However, if the cause is related to equipment that suddenly
wears out, then there probably is not a relationship between accident rate and low morale.

It is essential that managers carefully evaluate deviations before taking action. It is also
important that they remember that deviations can be positive as well as negative and that
they reward employees for positive deviations. Unfortunately, this step is often omitted
and only the negative aspects of deviation receive attention.

Who should receive feedback from this evaluation and how often should it be offered?

• The person who is accountable for accomplishing the standard should receive the
information first.
• The employee's boss or whoever is in a position to reward the employee should
receive the information at about the same time or a little later.
• Then peers, staff people, subordinates, and other line people can receive the
information. At this time, the boss ought to have some suggestions about how to
get back on course if the employee needs help.
The boss's most important job is coaching subordinates and a good planning control
system provides an excellent framework for such coaching.

Feedback must be reliable, relatively frequent, and prompt. The feedback has to be
reliable for the employees to be able to change the behavior or plan in order to get on
course. Frequency of information has to do with the interval for which data are received.

If, for instance, costs would not normally get out of control in a short period, then
monthly reports might be adequate. On the other hand, a delay of six months might allow
the situation to get so far out of control that it would be too late to take corrective action.

Sometimes prompt feedback can create problems. Today's computer-based control

systems can provide feedback on a real time basis, but such speed can be harmful from a
behavioral standpoint. This kind of speed causes undue pressure because there is no time
for the manager to use discretion and make changes.

A company director recently described his company's "outstanding" planning-control

system. He proudly explained a feedback system that provided information on a
continuous basis to every employee concerning his or her progress toward a numbers
goal. 'When numbers weren't being made, more pressure was applied.'

Employees were confused because there was no plan to change, and consequently,
standards and objectives were not changed. The company had a standards-control system
based on numbers: but objectives, plans, evaluation, and coaching did not exist. It is this
sort of system that causes low morale and unethical and illegal behavior - all in the name
of control.

Step 4. Take corrective action

Making changes as the activity is in progress is a form of corrective action. The real
correction occurs when warnings rose by the forecasters or predictors are confirmed.

The corrective action can be changing objectives, standards, plans, and the like, but it can
also be penalizing employees when the objectives, standards, and plans are determined to
be appropriate and employees have not met them.

However, there usually are several alternative corrective actions that can be taken and
often more than one will prove effective. The planning control system is not effective
until corrective action is taken and this action begins a new planning-control cycle