Why is operations management critical?
Effective operations management ensures adequate resources are available, including those related to raw materials, machinery, and production equipment. Moreover, it deals with allocating resources optimally to get maximum results.
Furthermore, management deals with obtaining inputs, designing production systems, selecting production methods, controlling quality, and managing inventory according to designed standards and procedures. Thus, the production process is efficient in producing quality output. In addition, it avoids unnecessary costs and increases customer satisfaction by minimizing defective products.
Let’s summarize now. Effective operations management offers the following benefits:
- Ensuring adequate resources are available
- Reduce costs through efficient operations
- Reduce waste by avoiding unnecessary costs
- Increase productivity by optimizing resources
- Designing more efficient work methods
- More efficient inventory management
- Creating value throughout operating activities
- Improve quality by maintaining standards and procedures
- Satisfy customers with product quality improvement
Operations management responsibility
Production is all about processing inputs into outputs. The process involves taking input, converting input, and producing output.
Inputs, also known as production factors, include land, labor, capital, and entrepreneurship. And within a company, operations management is responsible for the “5Ms”:
- Material – input process flow and related information.
- Men – personnel working within the operating system.
- Machinery – technology, machinery, and equipment used in making products or providing services.
- Money – asset utilization and financing, including capital expenditure and procurement for inputs such as raw materials
- Methods – design and production methods.
In general, operations management makes decisions and manages aspects such as production methods, production design, production plans, quality control systems, and research and development.
Production can occur at the primary, secondary, or tertiary levels. At the primary level, businesses take from nature and make raw materials. The secondary level involves converting raw materials into outputs. The output at the secondary level might be:
- Semi-finished goods for further processing
- Finished goods for end use
Meanwhile, the tertiary level involves providing services. Businesses provide services to other companies in the same sector or at the primary and secondary levels.
Operations department objectives
The operations department has the following objectives:
- Design, manufacture, and produce products effectively and efficiently
- Direct and control the operational process to be efficient and effective
- Adding value to each operation activity
- Get the right inputs in a cost-effective way
- Manage adequate inventory levels effectively
- Improve quality, response speed, and flexibility in operations
- Incorporate the latest technological approaches into the production process
The relationship between the operations function and other business functions
The operations function is closely related to other business functions. Here are some examples:
Marketing department. The production department requires input or feedback from the marketing department regarding customer requirements, especially product quality. The link between the two can also be related to decisions about:
- Production volume
- Product customization
- Product delivery
- New product development
Human resources department. The operations and human resources departments work together to ensure the necessary labor is available to produce the product. Such decisions may relate to the following:
- The number of workers adjusted to the production plan
- Quality of workers – such as required skills and education
- Employee motivation, for example, overtime incentives
- Training to make workers more productive
- Packages and incentives for different workers
Finance department. The production method chosen affects the company’s cost structure. For example, labor costs will predominate when a company adopts labor-intensive processes. In contrast, capital-intensive production requires high investment in machinery and equipment.
Because it does not hold company money, the operations department depends on the finance department for salaries and investment spending. In addition, cooperation between the two departments can be related to the following:
- Investment valuation for various projects
- Budgeting for operating expenses
- Emergency funding
Added value in operations
Value added refers to the difference between input costs and selling prices. For example, companies incur costs to buy raw materials and other inputs, such as semi-finished goods. The resulting output has a higher value than it costs to produce, enabling a business to sell it at a higher price.
Value creation in operations involves adding value at every stage. Companies maximize it by minimizing costs and maximizing value. In operations, minimizing costs can involve:
- Getting input according to standards and specifications but at a lower cost
- Maintaining efficient inbound and outbound logistics
- More efficient operating methods, for example, adopting more up-to-date technology
- Making workers and machines more efficient, allowing more output from the same input
- Reducing wastage to reduce associated costs
- Optimizing productive capacity to spread fixed costs over more output
Meanwhile, maximizing value in operations could involve the following:
- Ensuring input quality to produce quality output
- Achieving zero defects to minimize customer disappointment due to defects
- Improve quality to create higher customer satisfaction
Sustainability strategies and practices in operations management
Operations management must align with overall company goals and strategies, including sustainability. Sustainability management applies ethical practices for ecological, social, and economic sustainability. That is by, for example, choosing production technology and design to reduce waste. Or it is by adopting ethical employment practices.
Ecological sustainability emphasizes environmentally friendly practices, for example:
- Minimize waste
- Adopt a zero pollution policy
- Using environmentally friendly materials
Social sustainability emphasizes positive impacts on employees, workers in the value chain, customers, and society. In operations, this can be related to:
- Fair wages
- Worker health and protection
- Impartiality and without discrimination
- Diversity practice
Economic sustainability emphasizes long-term growth without compromising ecological and social sustainability. For example, a company producing aluminum cans can maintain its operations by recycling used cans. So, they don’t have to continue mining aluminum ore to increase production.
Operations planning involves determining actionable steps to prepare input resources to produce products to meet expected demand. Planning provides a clear picture to the team of their tasks and responsibilities. The operational plan outlines employees’ daily, weekly, and monthly tasks.
Managers make decisions for operational planning, including those related to scheduling labor, materials, and capital inputs to produce the desired outputs. In addition, they make decisions for operational control to ensure activities are consistent with established plans.
Operational decisions are often influenced by factors such as:
Marketing factors. The operations manager will try to match supply with potential demand. But, first, they need market demand forecast data from the marketing department. This information forms the basis for them to plan future production levels. Then, they take the necessary decisions and steps.
Availability of resources. The operations department needs inputs to produce goods, including land, labor, capital goods, and raw materials. Their availability can affect operating decisions.
Effective operations involve managers making decisions regarding:
- The best location for production
- The production method used
- Required capital goods (machinery and equipment)
- Labor force: their quantity and quality
- Supply of raw materials and other inputs
Technology. Technological changes in production affect operational decisions. For example, some manufacturers use robotic technology to automate production processes. Thus, they get standard output at higher volumes and with fewer defects. There is also Computer-Aided Design (CAD) and Computer-Aided Manufacturing (CAM).
Computer-Aided Design (CAD)
Computer-Aided Design (CAD) uses computer programs to create 2 or 3-dimensional graphical representations of physical objects. It is widely used in architectural design. Computer animation also relies on it. Additionally, CAD is commonly used in many industries, including automotive, shipbuilding, and aerospace.
CAD offers several benefits, such as:
- Minimizing errors with a more accurate design
- Better visualize the final product and its components
- Lower product development costs
- Productivity improvements
- Product quality improvement
But CAD also has some limitations to using it effectively, including:
- Program complexity
- Requires extensive employee training
- Expensive to get used to computer software
- Vulnerable to digital attacks such as viruses
Computer Aided Manufacturing (CAM)
Computer Aided Manufacturing (CAM) utilizes computer software to control machine tools and related machines in making components or products. The process is controlled by a computer resulting in higher precision and consistency than if the machine is controlled by a human. Then, CAM also enables faster production processes, reduces energy consumption, and reduces waste. In addition, CAM also offers other benefits such as:
- Quality products and according to standards because the machine is more precise
- More flexible production by enabling fast switching from one product to another
But CAM also has some limitations. So, not all businesses can use it. Among its limitations are the following:
- High costs to purchase hardware and related programs
- Requires extensive employee training
- Complex and time-consuming to solve if a hardware failure occurs
- Vulnerable to digital attacks such as viruses against computer systems
Operational flexibility refers to how well a company can vary production levels, and product ranges to keep up with changes in demand. Demand volume is not constant. They can increase or decrease. Likewise, the product requested may vary from time to time, for example, due to changes in tastes.
A flexible company must be able to respond quickly to these changes. They can adjust production volume and product variety. A flexible company requires an agile organization and operation.
Why is flexibility necessary?
Several reasons explain this. Flexible operations allow companies to quickly introduce new products. Likewise, they can easily adjust capacity and customize products according to demand. Finally, flexible operations enable companies to respond effectively to changes in the external environment.
How to achieve operational flexibility can vary between businesses and may involve:
- Adopt advanced equipment such as robotic and computer-assisted machines to facilitate mass customization
- Manage stock efficiently, for example, by relying on just-in-time inventory management
- Employing part-time or temporary workers, allowing companies to add or reduce workers as needed
Innovation in operations
Process innovation introduces new or better methods in a company’s operations. It can be related to production methods, service delivery, or other areas.
For example, automation and robotics production systems are an innovation in production. Automation allows companies to control production systems using production management software or robotic tools. Meanwhile, robotics uses intelligent machines or robots to work like humans in operations.
Other examples of innovation are:
- Moving assembly line – when it was first introduced by Henry Ford
- Software solutions to assist supply chain and delivery systems
- Barcode and scanner to track inventory
- Internet to track goods/inputs during delivery
- Computers to help with daily work
Process innovation offers several benefits. Increased productivity is an example. Other benefits include:
- More effective and efficient operations, enabling the business to be more competitive
- Cost reduction in the long run even though, in the short run, the company has to incur high costs to acquire the related machinery or equipment
- Enables companies to obtain more accurate and reliable information about the performance of various operating areas
- Being able to save time by enabling faster work and less paper involved, such as by using a computer