Operations

Management
What is Operations
Management?
Operations Management (OM)
▸ is the business function that plans, organizes,
coordinates, and controls the resources needed
to produce a company’s goods and services.
▸ is a management function
▸ involves managing people, equipment,
technology, information, and many other
resources.
▸ is the central core function of every company.
The role of operations management
▸ is to transform a company’s inputs into the
finished goods or services.
▸ Inputs include human resources (such as
workers and managers), facilities and
processes (such as buildings and equipment),
as well as materials, technology, and
information.
▸ Outputs are the goods and services a
company produces.
 The transformation process
▸ At a factory the transformation is the physical change
of raw materials into products, such as transforming
leather and rubber into sneakers, denim into jeans, or
plastic into toys.
▸ At an airline it is the efficient movement of
passengers and their luggage from one location to
another.
▸ At a hospital it is organizing resources such as
doctors, medical procedures, and medications to
transform sick people into healthy ones.
 Value added
▸ Is the net increase created during the
transformation of inputs into final
outputs.

▸ “The greater the value added, the more

productive a business is.”

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 Efficiency
▸ performing activities well and at the
lowest possible cost.

▸ An important role of operations is to

analyze all activities, eliminate those
that do not add value, and restructure
processes and jobs to achieve greater
efficiency.
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 Operations Management
Decisions

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Strategic decisions
▸ Decisions that set the direction for the entire
company; they are broad in scope and long-term
in nature.
▸ They are broad in scope and set the tone for
other, more specific decisions.
▸ They address questions such as: What are the
unique features of our product? What market do
we plan to compete in? What do we believe will
be the demand for our product?
 Tactical decisions
▸ Decisions that are specific and short-
term in nature and are bound by
strategic decisions.
▸ It focuses on more specific day-to-day
issues, such as the quantities and timing
of specific resources.

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 Relationship between Strategic and
Tactical Decision

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 Today’s OM
Environment

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▸ Today’s OM environment is
very different from what it
was just a few years ago.
Customers demand better
quality, greater speed, and
lower costs. In order to
succeed, companies have to
be masters of the basics of
operations management.

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 Lean systems
▸ A concept that takes a total system
approach to creating efficient
operations.

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 Enterprise resource planning
(ERP)
▸ Large, sophisticated software systems
used for identifying and planning the
enterprise-wide resources needed to
coordinate all activities involved in
producing and delivering products.

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 Customer relationship
management (CRM)
▸ Software solutions that enable the firm
to collect customer-specific data.

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 Cross-functional decision
making
▸ The coordinated interaction and decision
making that occur among the different
functions of the organization.

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 Operations Management
in Practice

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 Shows the flow of information from the top to each business
function, as well as the flow between functions.

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 ▸ Many of the decisions made by
operations managers are dependent on
information from the other functions. At
the same time, other functions cannot be
carried out properly without information
from operations. The next slide shows
these relationships…

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 Marketing
▸ is not fully capable of meeting customer
needs if marketing managers do not
understand what operations can produce,
what due dates it can and cannot meet,
and what types of customization
operations can deliver.

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 Finance
▸ cannot realistically judge the need for
capital investments, make-or-buy
decisions, plant expansions, or
relocation if finance managers do not
understand operations concepts and
needs.

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 Information systems (IS)
▸ is a function that enables information to
flow throughout the organization and
allows OM to operate effectively. OM is
highly dependent on information such as
forecasts of demand, quality levels being
achieved, inventory levels, supplier
deliveries, and worker schedules.

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 Human resource managers
▸ must understand job requirements and
worker skills if they are to hire the right
people for available jobs. To manage
employees effectively, operations
managers need to understand job market
trends, hiring and layoff costs, and
training costs.

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 Accounting
▸ needs to consider inventory
management, capacity information, and
labor standards in order to develop
accurate cost data. In turn, operations
managers must communicate billing
information and process improvements
to accounting, and they depend heavily
on accounting data for cost management
decisions.

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 How to Manage Your
Operations (4 Popular
Theories)

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 Business Process Management (BPM)

▸ Business process management is the

methodology of constantly analyzing,
improving and automating processes.

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 Design
▸ The “design” part means identifying a
process and figuring out where it starts,
what it consists of, and where it ends. 

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 Modeling
▸ Once you’ve identified a process, you
need to put it down on paper. Without
something to look at, the analysis part
can be quite hard. Usually, you’d go for
a workflow diagram if the process is
simple, or one of the many business
process mapping techniques, if it’s not. 

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 Analysis
▸ Now that you have a workflow diagram
 ready, you can start analyzing it. Are
there any steps within the process that
don’t really add value? Are there any
ways to remove them? Are there any
steps you could just automate using
software? 

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 Monitoring
▸ You can’t improve a process without
knowing how well it’s performing as-is.
Plus, you should also be able to figure
out whether the changes you’re making
have a positive impact or not.

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 Improving or Automating 
▸ Use the insights you’ve identified in the
“analysis” step to make changes to the
process. You can either improve it by
working with the process steps or
automate certain steps using software or
hardware. 

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 Business Process Reengineering
▸ Sometimes, improving processes isn’t
the most efficient thing you can do.
Instead, you want to re-engineer it.
Meaning, instead of improving a
process, you re-create it from scratch.

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 Example
▸ How 
Ford completely re-engineered their accou
nts payable department
.
▸ The major problem was that the
department was significantly overstaffed.
▸ Ford launched a BPR initiative to figure
out why they were underperforming. The
old process worked as follows…
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 ▸ The old process worked as follows…
▸ The purchasing department receives a
purchase order. The copy is forwarded
to the accounts payable
▸ Material control receives the goods &
send a copy of the delivery document
to accounts payable
▸ The vendor sends a receipt to accounts
payable
▸ The accounts payable matches the
three separate documents, and only
then is the payment issued

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 ▸ Realizing this, Ford completely
re-engineered the process.
Instead of doing everything
manually, they created an
online database which was used
to match the different
documents.
▸ Accordingly, an operations
manager can use business
process reengineering to make
significant improvements to
company processes.
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 Six Sigma

▸ Six Sigma, on the other hand, focuses on

manufacturing processes. The main idea behind
it is minimizing defect rates.
▸ While there are a lot of Six Sigma tools out
there, DMAIC is one of the most popular ones.
The methodology helps perfect your
manufacturing processes & consists of 5 steps.
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▸ Define – Outline what the issue with any given manufacturing process
is. Decide on the improvement goal & which tools or resources you’re
going to use
▸ Measure – Look at the process as-is and measure its performance.
Once you know what the metrics are, you’ll have a better idea on how
to improve them.
▸ Analysis – Find the root cause of the issue. Why is the process
underperforming?
▸ Improvement – Once you’ve identified the problem, try finding
potential solutions.
▸ Control – Implement the new process on a small scale and benchmark
the new results to the old.
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 Supply Chain Management
▸ Involves managing the flow of materials
and information from suppliers and
buyers of raw materials all the way to
the final materials.
▸ The objective is to have everyone in the
chain work together to reduce overall
cost and improve quality and service
delivery.
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 SUMMARY

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1. Operations management is the business function that is
responsible for managing and coordinating the resources needed
to produce a company’s products and services. Without operations
management there would be no products or services to sell.

2. Organizations can be divided into manufacturing and service

operations, which differ in the tangibility of the product and the
degree of customer contact. Manufacturing and service operations
have very different operational requirements.

3. Operations management is responsible for a wide range of

decisions, ranging from strategic decisions, such as designing the
unique features of a product and process, to tactical decisions,
such as planning worker schedules.
 4. A number of historical milestones have shaped operations
management into what it is today. Some of the more significant of
these are the Industrial Revolution, scientific management, the
human relations movement, management science, and the computer
age.

5. OM is a highly important function in today’s dynamic business

environment. Among the trends that have had a significant impact on
business are just-in-time, total quality management, reengineering,
flexibility, time-based competition, supply chain management, a
global marketplace, and environmental issues.

6. Operations managers need to work closely with all other business

functions in a team format. Marketing needs to provide information
about customer expectations. Finance needs to provide information
about budget constraints. In turn, OM must communicate its needs
and capabilities to the other functions.

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