Operations Management is everywhere around us. The concept of operations management applies to every business activities (manufacturing of products or rendering of services) that involves or requires a sequential process. Operations management is about understanding how organizations produce goods and services.
Operations refers to the resources that create products and services; it refers to detailed, localised, short-term, day-to-day activities. While supply chain is about how you get raw materials and take the finished products to the customers, Operations is about how the product is created from raw materials.
Related: Transformation Process in Operations
The Strategic Role of Operations is to implement the business strategy, support business strategy (help develop capabilities that allow organisation to improve and refine its strategic goals) and to drive the business strategy (provide a long term advantage).
Strategic Operations Dilemma
When the marketing context is Fast and Turbulent: New products/services, New competitors in the marketplace, Changes in customer preferences, Economic environmental changes.
Resource Management is slow and incremental as the firm factors in ‘Long Term financial commitments’, there is ‘slow uptake of technology’, and the focus is on providing ‘Long term financial returns’.
Operations Strategy
Operations strategy concerns the pattern of strategic decisions and actions which set the role, objectives and activities of operations (Slack, Chambers and Johnston, 2007). Operations strategy is the functional strategy derived from corporate strategy by which operations managers make sure that operation system’s resources are aligned to market and financial requirements (Leseure, 2010).
Stages of Operations Contribution
(Hayes and Wheelwright, 1984)
- Internal Neutrality: Poorest level of contribution, Inward looking, Operations does not help in creative, Originality or competitive flair
- External Neutrality: Operations compares itself externally, Attempts to implement best practice
- Internally Supportive: Aspires to be best in market, Credible Ops strategy, Clear view of org strategy, Supports org strategy by appropriate resourcing
- Externally Supportive: Ops providing foundation for competitive success, Forecasts and adapts to changes in market and supply. Ops is creative, innovative and one step ahead of competitors.
Operations Strategy (Decision Areas)
Major strategic decision areas in operations can be conveniently divided into ten categories under two broad headings:- structure (the physical attributes of operations; the hardware) and
- infrastructure (the people and systems of operations; the software).
Structural Decision Areas
- Facilities: the location, size and focus of resources.
- Goods or services should be produced at each location,
- Capacity: the capacity of operations
- Process technology: the technology of the equipment
- Supply network: the extent of in-house or outsourced.
- Involve major capital investment decisions
- Set the direction of operations for many years to come.
- Expensive to change such decisions once implemented
Infrastructure Decision
- Planning and Control: the systems used for P and C
- Quality: quality management policies and practices.
- Work Organization: organizational structures, responsibilities and accountabilities in operations.
- Human Resources: recruitment, selection, training and development,
- Performance Measurement: financial/non-financial performance, recognition and reward systems
Performance of Operations and Competitive Factors
Operations Management (Definition)
Operations Management (OM) is the management of business processes ‘typically’ associated with cost reduction. It is concerned with how resources can be utilised in organisational activities, which in turn, help the company earn profits. Companies use operations principles to increase revenues by reducing stock-outs and reduce time-to-market for new products.
Operations management is the management of a system which provides goods or services to or for a customer and involves the design, planning, control and improvement of a system.
All operations are transformation processes which takes various inputs in order to produce goods and services.
Process Types
Everything that we wear, eat, sit on, use, etc. is produced by firms that make use of operations.
Operations make use of several processes that transform inputs (raw materials, labour, equipment, information, and money) into outputs.
Once the requirements of consumers are determined, operations managers design the transformations process by which some functional requirement of people is met. Process design is about ordering of the stages involved in producing a product or rendering a service, which should be be in line with the performance objectives of the operations.
Various types of Processes:
- Project Processes
- Jobbing Processes
- Batch Processes
- Mass Processes
- Continuous Processes
Project Process:
- One-off, complex, large scale, high work content “products”
- Specially made, every one customized
- Defined start and finish: time, quality and cost objectives
- Many different skills have to be coordinated
- Example: Building a college, hospital
Jobbing Process:
- Very small quantities: “one-offs”, or only a few required
- Specially made. High variety, low repetition. “Strangers”
- Skill requirements are usually very broad
- Skilled jobber, or team of jobbers complete whole product
- Example: Furniture restorers
Batch Processes:
- Higher volumes and lower variety than for jobbing
- Standard products, repeating demand. But can make specials
- Batches could be small
- Specialised, narrower skills
- Set-ups (changeovers) at each stage of production
- Example: Production of most clothing
Mass (Line) Processes:
- Higher volumes than Batch
- Standard, repeat products (“runners”)
- Low and/or narrow skills
- No set-ups, or almost instantaneous ones
- A fixed sequence of operations
- Example: Bottling beer
Continuous Process:
- Extremely high volumes and low variety: often single product
- Standard, repeat products (“runners”)
- Highly capital-intensive and automated
- Few changeovers required
- Difficult and expensive to start and stop the process
- Example: Petrochemical refinery
Typology of Operations: 4Vs
Operations can be categorised into four dimensions, referred to as The 4Vs typology.
Operations Management Objectives
Performance objectives of operations management.
Productivity Measurements & Calculations
Productivity measures efficiency of a company’s production process. Here’s the formula to calculate productivity.
Productivity = Units of Output / Units of Input
Common inputs are labor hours, capital and natural resources, while outputs are generally measured in sales or the amount of goods and services produced.
Importance of Operations Management
Students who complete a Master’s in this discipline can work for FMCG and technology companies, among others. Apart from these, a number of e-tailers are hiring professionals trained in operations/supply chain management.
Manufacturing sector, financial services and healthcare delivery companies are also increasingly absorbing students trained in OM to streamline in-house operations. To make a career in this area one, must be interested in Finance and have analytical and problem-solving skills. They must demonstrate leadership traits as well. Effective communication skills act as a plus point.
Importance of Process in achieving Operations Management Objectives
Operations performance objective | Typical process design objectives | Some benefits of good process design |
Quality | Provide appropriate resources, capable of achieving the specification of product of services, Error-free processing. | Products and services produced to specification, Less recycling and wasted effort within the process. |
Speed | Minimum throughput time. Output rate appropriate for demand. | Short customer waiting time, Low in-process inventory |
Dependability | Provide dependable process resources, Reliable process output timing and volume. | On-time deliveries of products and services, less disruption, confusion and rescheduling within the process. |
Flexibility | Provide resources with an appropriate range of capabilities. Change easily between processing states (what, how, or how much is being processed?) | Ability to process a wide range of products and services. Low cost/fast product and service change. Low cost/fast volume and timing changes. Ability to cope with unexpected events (e.g. supply or a processing failure) |
Cost | Appropriate capacity to meet demand. Eliminate process waste in terms of excess capacity, excess process capability, in-process delays, in-process errors, inappropriate process inputs. | Low processing costs. Low resource costs (capital costs). Low delay/inventory costs (working capital costs) |
Sustainability | Minimize energy usage Reduce local impact on community Produce for easy disassembly | Lower negative environmental and societal impact |
Capacity Management
Capacity is the capability of an individual to perform a particular work in a given time period. Thus, capacity of a production plant refers to its ability to produce output over a period of time under normal conditions.
Capacity management refers to the ability to manage customer demand using the available resources and to optimize a company’s capacity to the fullest. It involves the management of the limits of an organization’s resources, such as its labor force, manufacturing and office space, technology and equipment, raw materials, and inventory.
In operations management, the term capacity is the maximum level of value-added activity over a period of time that the process can achieve under normal operating conditions.
Capacity management is the activity of understanding the nature of the demand for products and services, and effectively planning and controlling capacity in the short term, medium-term and long term to respond to demand. This is another activity that involves reconciling supply ability to demand and supply chain management plays an important role in this activity.
Types of Capacity Management Techniques
- Level capacity plan: Ignore the fluctuations in demand and keep nominal capacity levels constant.
- Chase demand plan: Adjust capacity to reflect the fluctuations in demand.
- Demand management: Attempt to change demand to align with capacity
Inventory Management
Inventory refers to the storage of materials, information as they flow through processes or networks. Inventory management involves using practices to ensure there is always enough stock to fulfill customer orders without having to tie up excess cash.
Lean Management
The main purpose of Lean management is to maximise value to the customer by optimizing resources and minimising waste.
The concept of lean management aims to improve operations and supply chain in a way that reduces waste. This management approach ensures either using the same amount of resources to produce more output or using fewer resources to produce the same amount of output.
Lean management focuses on the flow of materials, information, or customers that delivers exactly what customers want in perfect quality, in exact quantities, exactly when needed (with no delays), exactly where required (in the right location), and at the lowest possible cost.
Some studies describe lean management as a ‘just-in-time’ (JIT) approach which was pioneered by Toyota using their ‘Toyota Production System’ (TPS), ‘stockless production’ and ‘lean synchronization’.
Lean management can be applied in operations and supply chain management.
An important part of lean philosophy is its focus on the elimination of all forms of ‘waste’, which can be defined as any activity that does not add value (Slack et al., 2016).
While using lean management in operations and supply chain management to reduce waste, consider how these performance objectives are achieved; Cost Reduction; Quality of Products and Services; Speed of operations and supply chain; Flexibility of the operations and supply chain; & Dependability.
A firm faces several productivity problems (such as downtime, defective deliveries, poor floor layout, untrained operators, unstable demand) that could impede lean management. When inventory/ capacity drops, the organisation is able to see the problems in their operations and supply chain and they are able to work towards mitigating them. To mitigate these issues or problems, organisations often use a strategy called ‘buffering inventories’.
Total productive maintenance (TPM)
In industry, Total Productive Maintenance (TPM) is a system of maintaining and improving the integrity of production and quality systems through the machines, equipment, processes, and employees that add business value to an organization. TPM focuses on keeping all equipment in top working condition to avoid breakdowns and delays in manufacturing processes.
TPM is basically a maintenance program which is based on a fairly recent concept for maintaining plants and equipment. The TPM program takes into account the several evolutionary changes that is happening in the business environment and allows manufacturing units to inculcate those in the production process.
Several manufacturing companies have adopted TPM as a holistic approach to equipment maintenance and to enhance the overall production process.
At the most basic level, TPM emphasizes proactive and preventative maintenance to maximize the operational efficiency of equipment. It more or less removes or blurs the distinction between the roles of production and maintenance by placing a strong emphasis on enabling operators to help maintain their equipment.
TPM suggests several key performance indicators on which companies should try to improve upon. The goal is to have an environment with no breakdowns, no small stops or slow running, no defects, and providing a safe working environment, which means no accidents as well.
The concept of TPM is based on several pillars (eight to be precise) and most of it is focused on proactive and preventative techniques for improving equipment reliability. Here’s more about those pillars.
- Autonomous Maintenance: Places responsibility for routine maintenance, such as cleaning, lubricating, and inspection, in the hands of operators.
- Planned Maintenance: Schedules maintenance tasks based on predicted and/or measured failure rates.
- Quality Maintenance: Design error detection and prevention into production processes. Apply Root Cause Analysis to eliminate recurring sources of quality defects.
- Focused Improvement: Have small groups of employees work together proactively to achieve regular, incremental improvements in equipment operation.
- Early Equipment Management: Directs practical knowledge and understanding of manufacturing equipment gained through TPM towards improving the design of new equipment.
- Training and Education: Fill in knowledge gaps necessary to achieve TPM goals. Applies to operators, maintenance personnel and managers.
- Safety, Health, Environment: Maintain a safe and healthy working environment.
- TPM in Administration: Apply TPM techniques to administrative functions.
Companies use these pillars to increase productivity and to offer better manufacturing support. Like many other improvement initiatives, implementation of a TPM program encourages greater involvement by plant floor workers because of their increased responsibility, which is quite effective in improving productivity (increasing up time, reducing cycle times, and eliminating defects).
Companies that use TPM see several benefits.
OEE (Overall Equipment Effectiveness) is increased due to proper utilization of machine. In-process scrap gets reduced due to development of gauges for measuring the dimension near the machining area and inspection area near the machining center. Companies should strive to reduce cleaning and inspection time and machine setting change to utilize the machine as much as possible to increase production capacity and to further increase the OEE.
It helps reduce costs, enhance quality performance, and increased profitability. Workers are also given more responsibility on production and profitability.
With advancements in technology, manufacturing firms are moving towards automation, maximizing productivity levels by reframing their all legacy applications. Total Productive Maintenance (TPM) helps firms maximize the equipment effectiveness till the expiry of the equipment.
It helps organizations in maintaining equipment to protect from quality defects, speed losses and also prevent unexpected breakdown because of accidental and incidental losses. Getting operators involved in maintaining their own equipment, and emphasizing proactive and preventive maintenance helps companies improve production (fewer breakdowns, stops, and defects) and improves overall equipment effectiveness (OEE).
Through TPM practices manufacturing organizations ultimate goals transformed themselves towards zero defects, zero break downs and zero accidents all the time.
Operations Planning and Control
Operations planning and control about planning the details of operations and then controlling things to ensure things are going as planned.
Planning and control of operations concerns with managing the ongoing activities of the operation that facilitates the satisfaction of customers’ demand.
It involves improving the potential of operation to supply products and services, and reconciling demands of its customers to the ability of operations to supply. It encompasses the set of day-to-day activities that run the operation on an ongoing basis.
While Planning is formalization of what is intended to happen at some time in the future, Control is the process of coping with changes to the plan and the operation to which it relates. Although planning and control are different (theoretically), they are usually treated together.
All operations require plans and controlling.
What is Planning?
Planning is deciding;
- what activities should take place in the operation?
- when they should take place?
- what resources should be allocated to them?
What is Control?
These things come under Control;
- understanding what is happening in the operation?
- deciding whether there is a significant deviation from what should be happening?
- (if there is deviation) changing resources in order to affect the operation’s activities?
- To be able to plan and control operations well, it is imperative to understand the nature of demand being dealt with.
Planning usually dominates in the long term and is usually done on an aggregated basis. Control usually operates (in the short term) within the resource constraints of the operation but makes interventions into the operation (as needed) in order to cope with short-term changes in circumstances.
To be able to plan and control the volume and timing of the various activities within operations, these activities also need to be considered:
- Loading: amount of work allocated to each part of the operation
- Sequencing: order in which work is managed within the operation
- Scheduling: timetable of activities – when they start and finish
- Monitoring and Control: observing what is happening in operations, re-planning if necessary, intervening in order to introduce new plans.
Related: service operations and service management
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