What is Operations Management and Why is it Important?
What are the key areas to focus on for operations managers?
Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
Effective operations management is essential for business success. It covers everything from how your product or service is produced to improving process efficiencies which boost your profits.
It’s not something that gets a huge amount of attention but rather takes place quietly in the background, making sure the business functions optimally.
In this guide, we’ll talk about why operations management is important, how it affects your business and discuss some strategies for best practice.
Understanding the functions of operations management
The definition of operations management will differ between industries but the principles of efficiency and expediency to maximise profits and delivery are universal. Think of it like this: if the CEO is the captain, then operations managers are the engineers that keep the ship running smoothly – their job isn’t at the glamorous end of a business but they are essential for its forward momentum.
In summary, business operation management:
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Covers the practice of turning raw materials and labour into goods and services as efficiently and cost-effectively as possible
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Involves implementing strategies for day-to-day management not just reactive measures in the event of a problem
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Avoids ineffective operational management which can lead to mismanagement and underfunding in critical business areas e.g., R&D and inventory management
Operations and supply chain management (OSCM)
Operations management refers to the overall efficient running of the business through optimised business processes. It can cover strategic management such as determining the size of manufacturing facilities and implementing technology workflows. But it also works on an operational level e.g. ensuring sufficient inventory and reordering processes.
Supply chain management – a subsection of operations management – deals with the procurement of raw materials, labour, services and products. It also involves the flow of data and finances.
Today’s supply chains are continually evolving and, while they are still about operational efficiency, they are much more customer-centric. Customers have more choices about how and where they buy – which agile supply chain management can deliver.
What does an operations manager do?
An operations manager is responsible for overseeing the smooth running of a business. They will manage the resources required to create and deliver products and services. As well as dealing with the day-to-day operations they must be prepared for unexpected problems and challenges. They are a critical part of any business and its ability to run at optimum productivity.
Operations manager responsibilities
An operations manager ensures an organisation’s resources are used to their full potential to improve productivity, save costs and increase profitability.
In a product-based business, their role will involve overseeing the procurement of raw materials, managing the production process and ensuring quality control. In a service-based organisation, their work will be more focused on information workflows, ensuring customer needs are met and managing customer service.
What are the ideal skills of an operations manager?
The skills and responsibilities will vary according to industry and the size of the business but some of the skills you’d expect them to have include:
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Leadership and staff management
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Problem-solving
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Technical proficiency
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Data processing skills
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Logistics capabilities
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Risk analysis
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Strategic planning
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Budget management
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Product development
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Motivational
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Analytical
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Strong organisational and time management skills
Effective strategies of operations management
Operations management should give you an edge over your competitors by implementing strategies that deliver excellent customer value and experience. There are three major strategies for this: differentiation, low cost and response.
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Differentiation – This involves taking operations beyond mere product or service supply and focussing on everything that adds value or that influences your customers to buy from you. Basing differentiation around customer experience will enable you to focus on what the customer really wants, and elevate your operations to match their expectations.
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Low cost – A low-cost operation management strategy is about achieving maximum value from your resources and involves analysis of the following: product, process, quality, location, layout, supply chain, inventory, human resources, scheduling and maintenance.
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Response – Response-based operations management focuses on being able to keep up with market changes and adapt quickly as they arise. It also includes the ability to develop and deliver new products and services rapidly whilst maintaining customer experience.
Key principles of operations management
Whether running a product-based or service-based business, there are a number of key principles that apply regardless.
Efficiency vs. effectiveness: Balancing priorities in operations management
Efficiency is about reducing costs and optimising resources to produce the product or service so waste and time are minimised. Effectiveness focuses on how well management achieves the desired result and how well those efficiencies align with the business vision or goals.
Often, if one improves so does the other and the ultimate aim is to hit both goals at the same time but it is a delicate balancing act for every operations manager. The most efficient method to produce something may not be effective, e.g. using lower cost materials might make a product cheaper but it could lead to customer dissatisfaction and more returns.
Understanding the importance of forecasting in operations management
Good operations managers won’t simply consider the daily running of the business, they’ll look to the future too. Only by using past and present data to forecast can they foresee future risks and put contingencies in place.
Forecasting enables an operations manager to consider future market demands, the availability of resources and changing customer trends, and plan for them accordingly. As a result they can adjust production as necessary, ensure they have adequate budgeting and reduce wastage within the business. It also aids longer term planning, for example when changes in infrastructure will be required to meet demand.
Quality control in operations management
Quality refers to the ability of goods or services to meet their defined purpose and quality control is a procedure designed to ensure the goods or service meet a set of predefined criteria. Part of effective business operation management involves creating the process that allows this to happen and ensuring it takes place.
Properly defined quality control reduces room for errors and avoids staff being involved in areas they aren’t adequately trained. Once again, it can improve production efficiency and customer experience because it results in products that meet the required standards.
Lean management: A cost-saving approach to operations management
Lean operations management focuses on reducing waste and costs as much as possible while maximising output. By continuously improving their methodology an operations manager can achieve both those objectives. Essentially, it’s the principle of doing more with less where businesses find better, faster and cheaper ways to operate.
Examples of lean operations management include just-in-time inventory where materials arrive as production starts and no sooner, and value stream mapping – a visual diagram of all critical processes and the time each stage takes.
Managing risk in operations management
Managing operational risk is another important part of operation management. By examining and analysing potential risks, then implementing risk control procedures, a business is better equipped to handle things when such threats come to pass.
The relationship between operations management and business strategy
Operations management focuses more on the day-to-day while business strategy involves long-term planning for future results. However, the two are not mutually exclusive. Business strategy will have a direct impact on operations. For example, if a company has a business expansion strategy in place and plans to open a new production site or a second restaurant as part of the overall business goals, operations managers will be heavily involved in the implementation.
Frequently asked questions
Operations managers have a huge array of responsibilities. Three key areas that they run include planning, organising and controlling/improving.
Planning involves setting a business’ strategic objectives and deciding how the company is going to use its resources to reach those objectives.
In the context of operations management, organising describes creating an internal structure for the business, deciding which jobs are needed and making sure that departments are sufficiently staffed to reach their targets.
Controlling and improving involves making sure that a business both maintains its standards and, where appropriate, exceeds them.
The four Vs of operations management are volume, variety, variation and visibility.
Volume refers to the overall amount of products or services the business produces. Some businesses will create a huge amount of products, like fast food restaurants, for example. Others, such as a hand-crafted furniture business, will have a much lower output.
Variety describes the number of different types of products and services a business produces, and how different they are from each other.
Variation covers how predictable a business’ operations are. Is there always a spike in sales over certain months and a drop in others, for example.
Visibility is how much the business sees the customer and vice versa. A restaurant or shop, for example, would have high visibility. Something like a factory, on the other hand, would have low visibility.
The five basic principles of operations management are planning, process, people, possessions and profits.
Planning involves setting goals and strategies and creating budgets. Process describes how the business is run. Technology such as Square’s online checkout and point-of-sale system can help ensure the payment-processing side of the business runs smoothly.
The people are the staff working for the business. Possessions are the business’ assets and capital, while profit is the money the business generates after all of its outgoing costs have been accounted for.
A manufacturing firm might make household appliances, say irons or kettles, for example. They will have processes in place to turn the raw materials into the finished article and it’s quite common to employ an operations manager who will oversee the procurement of materials, the production line, inventory, quality and maintenance.
Healthy profits rely on good, lean and efficient running of a business. A poorly run business is at risk of lower profits or even closure. Operations management ensures resources are used effectively and efficiently to achieve maximum output whilst minimising cost and risk.
Operations management may not be the most captivating part of business but it is a critical one. It’s the oil that keeps the engine running smoothly, it streamlines and optimises business processes, reducing costs and increasing profits. It has a direct impact on a business’s reputation and perceived customer experience increasing its chances of growth and long-term success.
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