Contents
What’s it: The operations department is the business area dealing with production. This department is a strategic area besides marketing, finance, and human resources. It is responsible for converting raw materials and components into finished goods, ready to be sold and shipped to customers. In addition, duties include planning, coordinating, and controlling resources to facilitate production. Also known as the production department.
Operations in a business are complex and vary widely between companies. For example, automobile manufacturing involves a different process from food manufacturing. Likewise, manufacturing operations differ from service sectors such as hotels, restaurants, beauty salons, and financial institutions.
Take the oil refinery, for example. Its operations include separation, conversion, and treatment before the products are sold as finished goods. First, the company heats crude oil in hot furnaces and sends it to a distillation section for separation by boiling point. The next process is the conversion into finished products such as gasoline. Then, the product is given a final touch, for example, related to the octane level. Finally, upon completion, the product is temporarily stored in large tanks before being shipped.
Operations in manufacturing vs. service industries
Operations in a manufacturing company are mostly factory-centered. Inbound logistics send raw materials to production facilities to be processed into output, which can be finished or semi-finished goods. The company’s production method determines how to process the materials.
Several different methods are used in the production process. Which one is appropriate depends on the company’s product. For example, a food product might use the batch production method, while car manufacturers rely on cellular manufacturing methods.
If the product is finished, operations help to ensure quality control during manufacturing and distribution. Packaging is also important before the product is delivered to the customer. All these activities—from manufacturing to goods ready to ship—occur in the factory.
Meanwhile, operations in service businesses are highly different from manufacturing. The process can happen anywhere, not only in offices, branch offices, or other physical locations.
Broadly speaking, it occurs when there is direct contact between the customer and the service provider, which can be people or their representatives, such as websites and applications. That’s because services are consumed as they are produced.
For example, retail companies provide services when we visit their retail outlets. However, if they have a website or app, the service is provided when we open their app to shop.
The role of the operations department
The operations department plays a critical role in transforming resources into finished products or delivering services to customers. Here, we’ll explore the key differences between manufacturing and service operations:
Manufacturing
In manufacturing, the operations department oversees the entire production process, which transforms raw materials into finished goods. This involves several key steps:
- Sourcing raw materials: The operations team identifies and procures the raw materials needed for production. This may involve negotiating with suppliers, ensuring timely delivery, and maintaining appropriate inventory levels.
- Production processes: The raw materials undergo various transformations using machinery, equipment, and human labor to create the final product. This may involve assembly lines, chemical processing, or other production methods.
- Quality control: Throughout the production process, the operations department implements quality control measures to ensure the finished goods meet specifications and customer requirements. This may involve inspections, testing, and rework processes if necessary.
- Finished goods: Once the products meet quality standards, they are packaged, labeled, and prepared for shipment to warehouses or directly to customers.
Production methods
The production methods and technology used can greatly affect the cost and structure. For example, labor costs dominate the cost structure when relying on labor-intensive methods. In contrast, if the company relies on capital-intensive methods, the costs for machinery and equipment are the most dominant.
Specifically, the four available production methods are:
- Job production
- Flow production
- Batch production
- Batch production
Job production produces products according to customers’ specific requirements. This method is labor-intensive and suitable for products such as tailor-made clothing and handicrafts.
Flow production produces identical products in large quantities and is processed through continuous production lines – hence, it is also called continuous production. This method is suitable for standardized products such as electronics.
Batch production involves several operations to produce many different products (‘batch’). The production process is stopped when one batch has been completed and is continued to another batch to produce a different product. This method is common to food manufacturers.
Cellular manufacturing involves multiple workstations. Each station is responsible for a specific section, which will be further processed to the next station until it finally produces a product. Automobile and equipment manufacturers generally adopt this method.
Service industries
In service industries, the operations department focuses on delivering intangible services to customers. Unlike manufacturing, services are produced and consumed simultaneously. Here’s a breakdown of the service production system:
- Inputs: These can include physical resources like equipment and technology, as well as human resources like customer service representatives or healthcare professionals. Customer input is also a distinguishing factor, as the service can be tailored to individual needs.
- Transformation process: This is where the service is delivered to the customer. It may involve direct interaction between a service provider and a customer or may be facilitated through technology like online platforms or mobile apps.
- Results: The outcome of the service experience is intangible. Customer satisfaction is a key measure of success. Effective service operations strive to deliver value that meets or exceeds customer expectations consistently.
Core responsibilities of the operations department
Broadly speaking, the operations department plays a role in the following areas:
- Production process
- Procurement
- Quality control
Production process
The operations department is responsible for gathering resources and using them to make goods or provide services. In manufacturing, raw materials are processed – using machines or by hand – to become output; it can be finished goods or semi-finished goods. The output is inspected to ensure the quality meets the standards – quality control can also occur during the process – before being shipped to the customer.
Meanwhile, the production process for services involves inputs, transformation processes, and results. However, it differs from the production process in a manufacturing business. For example, in contrast to manufacturing, where inputs are clearly defined, inputs in the service production process can vary widely, often including customer input. Take banking services as an example. When opening a mobile banking application, the bank offers several standard services. Which service we use depends on our needs.
The transformation process is then an open system. Take barber services as an example. We ask the barber to shave as we ask, not just shave.
Results represent the output. Manufacturing output has physical substance. Therefore, we see or feel them determine their quality.
But, it doesn’t apply to services. Services are intangible. So, we can only judge its quality based on the benefits we receive. In addition, because services are unique to each customer, benefits vary greatly between individuals. Finally, and broadly speaking, a service is quality if it gives us satisfaction.
Procurement and warehousing
The operations department also plays a role in raw material procurement and warehousing. Procurement involves obtaining the raw materials needed to support daily production and operations. It involves some work such as:
- Selecting potential suppliers
- Negotiating terms
- Purchasing raw materials and inputs
- Sending raw materials to the warehouse
- Receiving and inspecting raw materials
Procurement is vital to ensuring smooth production and business activities. It must also be supported by effective warehousing. Thus, the company has raw materials available when needed for the production process.
In addition to inputs, warehousing also manages intermediate goods and finished goods. Intermediate goods are further processed, while finished goods are sent to customers through outbound logistics.
How much raw material should be stored depends on the inventory control method. For example, using the just-in-time (JIT) method, the company does not store any raw materials. Instead, they will regularly ship as much as the production process requires. As a result, raw materials will arrive just before the existing raw materials run out. Thus, the company does not need a buffer inventory.
But on the other hand, using the just-in-case (JIC) method, the company stores raw materials as buffer inventory. As a result, the company sends more raw materials than the production process requires. Buffer inventory aims to anticipate a sudden increase in demand, which requires firms to increase output immediately. Because it has buffer inventories, companies can quickly increase production and meet demand without additional inbound logistics costs.
Quality control
The operations department is also responsible for quality. The department ensures that each raw material meets the standards set before further processing. Likewise, the output must meet the required quality and specifications before being delivered to the customer.
Quality raw materials enable the product to meet its quality attributes. In other words, a quality product is only a quality product if it has quality raw materials, and vice versa.
In addition, quality raw materials reduce other work, such as sorting. Thus, checking raw materials not only guarantees product quality but also saves costs by reducing wastage and production time.
Meanwhile, maintaining quality is also vital to satisfying customers. Superior quality attracts potential customers to buy, and it satisfies existing customers, encouraging them to be loyal and keep buying.
But, on the other hand, if the product is of poor quality, the company’s reputation can be ruined. As a result, customers no longer want to buy the product. Eventually, the company loses sales and market share.
Several methods to ensure quality are available, including quality control, quality assurance, and Total Quality Management (TQM).
Relationship between the operations department and other business functions
The operations department cannot work independently without the support and cooperation of other business functions. For example, this department coordinates with the marketing department to determine product specifications and customer-wanted quality.
How much output is produced also depends on information from the marketing department. If coordination is poor, departments may overproduce, stockpile goods in warehouses, and increase costs. Likewise, if too little is produced, sales and revenue are not maximized.
Then, the operations department coordinates with the human resources department regarding the number of workers needed and their qualifications. In addition, the selected production method also affects the motivation level, thus requiring a different motivational program to be effective. Finally, the two departments coordinate training and compensation packages.
The company’s operations also have financial implications. For example, if a company relies on capital-intensive production, the operation requires a significant investment in machinery and equipment. On the other hand, labor-intensive production consumes more labor costs.
Daily operations also require money, for example, to buy raw materials and production equipment. So, without sufficient budget support, production can be disrupted. Likewise, when planning for expansion, the finance department assists in evaluating various investment opportunities to make the best decisions.
