Operations management is the activity of managing the resources which produce and deliver products and services.
Every business is managed through three major functions: ﬁnance, marketing, and operations management. Finance is the function responsible for managing cash ﬂow, current assets, and capital investments. Marketing is responsible for sales, generating customer demand, and understanding customer wants and needs. Most of us have some idea of what ﬁnance and marketing are about, but what does operations management do?
Operations Management is the function of managing the operating core of an organization: the activities associated with creation, production, distribution and delivery of the organization’s goods and services. Operations management is a management function. It involves managing people, equipment, technology, information, and many other resources. Operations management is the central core function of every company.
Without operations, there would be no goods or services to sell. Consider a retailer such as Gap that sells casual apparel. The marketing function provides promotions for the merchandise, and the ﬁnance function provides the needed capital. It is the operations function, however, that plans and coordinates all the resources needed to design, produce, and deliver the merchandise to the various retail locations. Without operations, there would be no goods or services to sell to customers.
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 below figure shows this transformation process.
At a factory the transformation is the physical change of raw material into final goods or products.
Operations Management is essential in orchestrating all the resources needed to product the final product. This includes designing the product; deciding what resources are needed; arranging schedules, equipment, and facilities; managing inventory; controlling quality; designing the jobs to make the product; and designing work methods. Basically, operations management is responsible for all aspects of the process of transforming inputs into outputs. Customer feedback and performance information are used to continually adjust the inputs, the transformation process, and characteristics of the outputs.
For operations management to be successful, it must add value during the transformation process. We use the term value added to describe the net increase between the ﬁnal value of a product and the value of all the inputs. The greater the value added, the more productive a business is. An obvious way to add value is to reduce the cost of activities in the transformation process. Activities that do not add value are considered a waste; these include certain jobs, equipment, and processes. In addition to value added, operations must be efﬁcient.
Efﬁciency means, being able to perform 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. Today’s business environment is more competitive than ever, and the role of operations management has become the focal point of efforts to increase competitiveness by improving value added and efﬁciency
Within operations functions, management decisions can be divided into three broad areas:
- Strategic (long-term) decisions
- Tactical (intermediate-term) decisions
- Operational planning and control (short-term) decisions
The strategic issues are usually broad, addressing questions such as
– How will we make the product?
– Where do we locate the locate the facility or facilities?
– How much capacity do we need?
– When should we add capacity?
Thus, by necessity, the time frame for strategic decision us typically long – usually several years or more, depending upon the type of industry.
Operations management at the strategic level affects the company’s long-range effectiveness in terms of how it can address its customer’s need. Thus, for the firm to succeed, these decisions must be in alignment with the corporate strategy. Decisions made at the strategic level become the fixed conditions or operating constraints under which the firm must operate in both intermediate and short term.
At next level the decision-making process, tactical planning primarily addresses how to efficiently schedule material and labor within the constraints of previously made strategic decisions. Issues which Operations management concentrates at this level include
– How many workers do we need?
– When do we need them?
– Should we work overtime or put on second shift?
– When should we have material delivered?
These tactical decisions, in turn, become the operating constraints under which operational planning and control decisions are made.
Management decisions with respect to operational planning and control are narrow and short term by comparison. Issues at this level include:
– What jobs do we work on today or this week?
– Whom should we assign which task?
– What jobs have priority?