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ACADEMIC TOPIC OVERVIEWS

Operations Management
Management > Operations Management

Table of Contents
Abstract
Keywords
Overview
Applications
Terms & Concepts
Bibliography
Suggested Reading

Abstract
Operations management comprises those areas of management
that are concerned with the productivity, quality, and cost in the
operations function as well as strategic planning for the organization. This discipline covers not only manufacturing processes,
but support processes that add value to the product or service as
well as the management of the entire supply chain. There are a
number of ways that organizations can streamline their operations to meet the demands of todays marketplace. However,
for these to have any significant or lasting effect, they must be
done within a coordinated strategy for both short and long-term
organizational effectiveness. There are a number of tools and
techniques that can be used by managers to improve the effectiveness and efficiency of business operations. These include lean
manufacturing, total quality management, and business process
reengineering strives to improve the effectiveness and efficiency
of the various processes within an organization.

Overview
Business organizations exist to provide something of value to
their stakeholders. For stockholders, this may mean profitability and return on investment. For employees, this may mean job
security and a wage that is at or above industry standards. For

distributors and suppliers, this may mean sufficient commerce to


keep their own operations going. To meet these disparate objectives, organizations need to be able to offer a product or service
of value to the customer, whether it is light-weight running
shoes, steel rivets, or consulting services. Operations management comprises those areas of management that are concerned
with productivity, quality, and cost in the operations function
(i.e., activities necessary to transform inputs such as business
transactions and information into outputs such as completed
transactions) as well as strategic planning for the organization.
Business operations include any processes that transform any
inputs such as labor, capital, materials, and energy into products and services that are of value in the marketplace. Operations
management draws from multiple disciplines in order to optimize the effectiveness of operations within the organization.
Operations management is more than an emphasis on manufacturing processes. There are many activities within an organization
that add value to the end product or service but that do not
directly provide goods or services to the customer. For example, the accounting department adds value to the organizations
activities by making sure that the employees, distributors, and
suppliers are all paid promptly and accurately. Human resources
also supports business operations by developing and implementing policies and procedures that ensure that employees are
treated fairly and are motivated to use their skills and talents
in helping the business become a high performing organization.
In addition, operations management is not only concerned with
the operations within the single organizational entity, but also of
the smooth and efficient operations of the entire supply chain.
This is the network of organizations involved in the production,
delivery, and sale of a product. The supply chain may include
suppliers, manufacturers, storage facilities, transporters, and
retailers. The supply chain includes the flow of tangible goods
and materials, funds, and information between the organizations
in the network, all of which adds value to the product or service
being offered to the customer.
Historically, operations management focused on providing the
highest possible quality for the lowest possible price. Increasingly, however, customers are also demanding greater product

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Operations Management

Keywords

Essay by Ruth A. Wienclaw, Ph.D.

Applications

Six Sigma (6)

There are a number of tools and techniques that can be used by


managers to improve the effectiveness and efficiency of business operations. These include lean manufacturing, total quality
management, and business process reengineering. Lean manufacturing strives to eliminate waste and continually improve
productivity. Total quality management strives to improve
customer satisfaction by improving quality. Business process
reengineering strives to improve the effectiveness and efficiency
of the various processes within an organization.

Stakeholder

Lean Manufacturing

Strategic Planning

Lean manufacturing is manufacturing philosophy that attempts


to eliminate all waste from production processes. The objectives
of lean manufacturing are to lower production costs, increase
output, and shorten lead times. To do this, lean manufacturing
efforts attempt to do several things. First, lean manufacturing
efforts attempt to reduce defects and unnecessary physical waste
during the production process. This includes reducing the excess
or unnecessary use of raw materials or other inputs, reducing the
number of defects and their associated costs, and reducing or
eliminating product features that are not of value to the customer.
Lean manufacturing efforts also attempt to reduce manufacturing lead times and production cycle times in the manufacturing
process. This can result in less cost associated with storage of
materials and products and the ability to get products to the customer in a more timely manner. Similarly, lean manufacturing
attempts to minimize inventory throughout the production process. This practice helps reduce the amount of working capital
needed to sustain operations. Just-in-time manufacturing is a
manufacturing philosophy that strives to eliminate waste and
continually improve productivity. The primary characteristics of
just-in-time manufacturing include having the required inventory only when it is needed for manufacturing and reducing lead
times and set up times. In addition, lean manufacturing attempts
to optimize the use of equipment and space to reduce or eliminate bottlenecks in manufacturing processes and optimize the
rate of production. Lean manufacturing also examines business
processes (see below) and their effect on the productivity of
employees. Under the lean manufacturing philosophy, idle time
is reduced and workers efforts are streamlined so that they contribute directly to the value of the product or service.

Business Process Reengineering (BPR)


Just-in-Time Manufacturing (JIT)
Lean Manufacturing
Operations Management

Total Quality Management (TQM)


variety, short life cycles, and other qualities that require organizations to more closely examine their operations for ways to
better meet the needs of the marketplace. In addition, globalization has brought with it increased competition from overseas
operations that are able to provide products or services at lower
cost. This results not only in greater competition but also in the
need to put even more emphasis on optimizing the effectiveness
and efficiency of operations in order to stay viable in the marketplace.
There are a number of ways that organizations can streamline
their operations to meet the demands of todays marketplace.
However, for these methods to have any significant or lasting effect, they must be done as part of a coordinated strategy
designed to improve both short and long-term organizational
effectiveness. A strategy is a plan of action to help the organization reach its goals and objectives, including organizational
effectiveness and marketplace viability. A good business strategy should be based on the rigorous analysis of empirical data,
including market needs and trends, competitor capabilities and
offerings, and the organizations resources and abilities. The
strategic planning process helps the organization determine what
goals to set and how to reach them. This process also allows the
organization to determine and articulate its long-term goals and
to develop a plan to use the companys resources including
materials, equipment and technology, and personnel in reaching these goals.
Because of its concern with organizational performance and
effectiveness, one of the tasks of operations management is to set
the strategy including goals and objectives of the organization. Strategic planning is the process of determining the best way
to accomplish the goals of the organization. Goals and objectives
define in practical terms what the organization would like to be
within a specific period of time. Determining the organizations
business goals requires an examination of all the organizations
operations and processes to determine which add value to the
organizations products or services and which do not.

One lean manufacturing approach is the Six Sigma process. This


term is a statistical reference to how far (i.e, the number of standard deviations, symbolized by the Greek letter sigma, ) a
data point is from the middle of the normal curve. Six sigma
distance signifies the degree to which a product reaches its quality goal. Specifically, at six sigma above normal, a product is
reaching its quality goal 99.9999997 percent of the time, or has
only 3.4 defects per million. Six Sigma projects set this as the
goal toward which manufacturing and quality control efforts in
the organization are focused.
Six Sigma programs are targeted at reducing costs by making
changes before defects or problems occur. As part the Six Sigma

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Operations Management

program, employees and managers are trained in statistical


analysis, project management, and problem solving methodology. These skills are used to help them reduce defects in their
products. Most organizations that have implemented Six Sigma
programs report increased profitability resulting from lower
production costs from doing the thing correctly the first time in
combination with reduced costs for not having to redo the work
previously done.
Total Quality Management
Another strategy for increasing the quality of goods and services
and concomitant customer satisfaction is Total Quality Management (TQM). TQM attempts to improve the quality of products
or services by raising awareness of quality concerns across the
organization. This management strategy emphasizes developing
an organizational environment that supports innovation and creativity as well as taking risks to meet customer demands using
such techniques as participative problem solving that includes
not only managers, but employees and customers as well.
There are five cornerstones to TQM: The product, the process
that allows the product to be produced, the organization that provides the proper environment needed for the process to work,
the leadership that guides the organization, and commitment to
excellence throughout the organization. To be successful, TQM
programs need to consider all five of these primary emphases. To
help ensure the success of the TQM strategy, it is necessary that
an environment of quality be fostered within the organization.
This requires not only an emphasis on the efficiency of processes, but also an emphasis on consistency, integrity, and other
positive interpersonal relationship skills. To foster the teamwork
necessary to bring about high quality, TQM encourages organizations to implement a decentralized authority structure where
decisions are made close to those affected and all have a chance
to participate in the process. This practice helps employees feel
part of the system and that they are a vital part of the organization, not just hirelings. Ownership of team members working on
the product can also be fostered by increasing the flow of communication across all levels of the organization and providing
each employee the training that s/he needs to successfully add
value to the product.
TQM looks not only at the bottom line in terms of profits or other
relevant numbers, but also helps link the concepts of value to
the customer with the cost of the product. This practice can help
with market positioning and increasing market share. This can be
enabled by continually assessing the marketplace of the organizations product vis a vis the organizations skills and resources
to better position the organization to excel in the marketplace.
Business Process Reengineering
Business process reengineering is a management approach that
strives to improve the effectiveness and efficiency of the various
processes within an organization. Business process reengineering
is a radical rethinking and redesign of business processes so that
they achieve dramatic improvements in critical organizational
performance criteria such as cost, quality, service, and speed. To

Essay by Ruth A. Wienclaw, Ph.D.

be successful, business process reengineering requires organizations to reexamine the assumptions underlying their business
operations and to question why they do things the way that they
do. The purpose of this analysis is to get at the root of any business process problems that the organization is experiencing. This
will allow managers to reinvent the way that things are being
done as opposed to modifying current practices to be somewhat
more effective. This analysis often reveals obsolete, erroneous,
or inappropriate practices or procedures that do not add value to
the product or service being offered by the business.
While business process reengineering is not appropriate for
every organization, it is most appropriate where more traditional
methods fail or where there is a major discrepancy between
where the organization is and where the organization needs
to be. Businesses that are in serious trouble can often benefit
from business process reengineering. Symptoms of this serious
trouble can include having costs that are significantly higher the
competitions, customer service that is causing the organization
to lose a significant number of customers, or failure rates that are
significantly above those for the industry. Organizations that find
themselves in such situations have little choice than to perform
a major overhaul of their business processes if they want to be
viable. In addition, organizations that are not yet in such dire
straits but that are headed on a trajectory to that condition can
also often benefit from reengineering efforts. Symptoms of these
situations include increased competition or competitors that have
significantly improved their offerings or new customer needs
that cannot be adequately met by the current business processes.
Business process reengineering may often enable organizations
to avoid falling into the first category where reengineering is
mandatory if the organization is to survive. Not only failing or
inefficient organizations can benefit from reengineering efforts,
however: Top performing organizations with aggressive management that wants to take them further may also benefit from this
analysis and redesign. Business process reengineering in highly
successful organizations can help them further consolidate their
position in the marketplace and create further barriers to their
competitors.
The goal of business process reengineering efforts is to improve
the effectiveness of the organization. This is commonly demonstrated in a number of ways. For example, reengineering
frequently results in several jobs being consolidated into one.
Business process reengineering efforts also often change processes so that workers who better understand the situation can
make decisions rather than submitting these up the line for a
supervisor to consider. Similarly, business process reengineering often results in work being performed where it makes the
most sense. This situation results in less delays, lower overhead
costs, and higher job satisfaction for the employees. As a result,
reengineered processes can help improve customer satisfaction
by providing quick resolution to their problems.
One of the basic tenets of the business process reengineering
process is that steps in any business process must be performed
in a natural order and all the steps must add value to the product or service rather than activity for the sake of activity. So,

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Operations Management

for example, a manufacturing company process might analyze


the customer requirements and then translate these into internal product codes, transmit this information to various plants
and warehouses, receive the various components, assemble the
components into a finished product, and deliver and install the
equipment, requiring the involvement of a different organization
for each step in the process. Although these steps might traditionally be performed sequentially, if some of the data collected
are not needed until delivery, time could be saved by not waiting
until all of these steps were completed before starting the rest of
the process.
Reengineered processes frequently have different versions that
take into account various situations so that value is added to the
product or service and the customer is better served. Although
standardization of business process works fine in an assembly
line, many jobs today do not need this degree of structure. For
example, clerks in a retail store could be given the authority to
take care of customer problems at the point of sale rather than
making the customer go to the customer service department or
waiting for a manager to come and authorize a simple activity.
Similarly, a technician on a technical help line might be given
the authority to treat customers according to their individual
needs rather than going through a pre-ordained script. In this
way, reengineering processes reduce the amount of time for the
transaction. This results in lower costs for the organization as
well as increased customer satisfaction and loyalty.

Terms & Concepts


Business Process: Any of a number of linked activities that
transforms an input into the organization into an output that
is delivered to the customer. Business processes include management processes, operational processes (e.g., purchasing,
manufacturing, marketing), and supporting processes, (accounting, human resources).
Business Process Reengineering (BPR): A management
approach that strives to improve the effectiveness and efficiency
of the various processes within an organization.
Globalization: Globalization is the process of businesses or
technologies spreading across the world. This creates an interconnected, global marketplace operating outside constraints of
time zone or national boundary. Although globalization means
an expanded marketplace, products are typically adapted to fit
the specific needs of each locality or culture to which they are
marketed.
High Performing Organization: Businesses that consistently
out-perform their competitors.
Just-in-Time Manufacturing (JIT): A manufacturing philosophy that strives to eliminate waste and continually improve
productivity. The primary characteristics of JIT include having
the required inventory only when it is needed for manufacturing and reducing lead times and set up times. Also called lean
manufacturing.
Lean Manufacturing: A set of tools and techniques used to
eliminate all waste from production processes.
Operations Management: Those areas of management that
are concerned with productivity, quality, and cost in the opera-

Essay by Ruth A. Wienclaw, Ph.D.

tions function (i.e., activities necessary to transform inputs such


as business transactions and information into outputs such as
completed transactions) as well as strategic planning for the
organization.
Return on Investment (ROI): A measure of the organizations
profitability or how effectively it uses its capital to produce
profit. In general terms, return on investment is the income that
is produced by a financial investment within a given time period
(usually a year). There are a number of formulas that can be used
in calculating ROI. One frequently used formula for determining
ROI is (profits costs) (costs) x 100. The higher the ROI, the
more profitable the organization.
Six Sigma (6): An approach to improving quality. The term
six sigma is a statistical term referring to the degree to which a
product reaches its quality goal. At six sigma, a product is reaching its quality goal 99.9999997 percent of the time, or has only
3.4 defects per million. The six sigma system was originally
developed by Motorola.
Stakeholder: A person or group that can affect or be affected by
a decision or action. In marketing, stakeholders may include the
organizations employees, suppliers, distributors, and stockholders.
Strategic Planning: The process of determining the long-term
goals of an organization and developing a plan to use the companys resources including materials and personnel in reaching
these goals.
Strategy: In business, a strategy is a plan of action to help the
organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including
market needs and trends, competitor capabilities and offerings,
and the organizations resources and abilities.
Supply Chain: A network of organizations involved in production, delivery, and sale of a product. The supply chain may
include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a
value-added activity to the product or service. The supply chain
includes the flow of tangible goods and materials, funds, and
information between the organizations in the network.
Total Quality Management (TQM): A management strategy
that attempts to continually increase the quality of goods and
services as well as customer satisfaction through raising awareness of quality concerns across the organization.

Bibliography
Creech, B. (1994). The five pillars of TQM: How to make total
quality management work for you. New York: Truman
Talley Books/Dutton.
Hammer, M. & Champy, J. (1993). Reengineering the corporation: A manifesto for business revolution. New York:
Harper Business.

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Operations Management

Heger, D. A. (2006). An introduction to operations research


benefits, methods & application. Retrieved July 6, 2007,
from Fortuitous Online Database http://www.fortuitous.
com/docs/primers/OR-intro.pdf
Lowson, R. H. (2002). Strategic operations management: The
new competitive advantage. New York: Routledge.
Lucas, H. C. Jr. (2005). Information technology: Strategic decision making for managers. New York: John Wiley and
Sons.

Essay by Ruth A. Wienclaw, Ph.D.

Suggested Reading
Nerur, S. & Balijepally, V. (2007). Theoretical reflections on
agile development methodologies. Communications of
the ACM, 50(3), 79-83. Retrieved June 27, 2007, from
EBSCO Online Database Business Source Complete.
http://search.ebscohost.com/login.aspx?direct=true&db=bt
h&AN=24209676&site=ehos

Senn, J. A. (2004). Information technology: Principles, practices, opportunities (3rd ed.). Upper Saddle River, NJ:
Pearson/Prentice Hall.

Parker, K. (2006). Emerging trends in plant operations management. Manufacturing Business Technology, 24(12), 2.
Retrieved June 27, 2007, from EBSCO Online Database
Business Source Complete. http://search.ebscohost.com/
login.aspx?direct=true&db=bth&AN=23507918&site=eh
ost-live

Vonderembse, M. A. & Marchal, W. G. (2001). Operations


management. In Saul I. Gass, S. I. & Harris, C. M. (eds.).
Encyclopedia of Operations Research and Management
Science. New York: Wiley, 585-588. Retrieved June 27,
2007, from EBSCO Online Database Business Source
Complete. http://search.ebscohost.com/login.aspx?direct=t
rue&db=bth&AN=21891684&site=ehost-live

Szwejczewski, M. & Cousens, A. (2007). Increasing flexibility: What are your options? Management Services, 51(1),
17-20. Retrieved June 27, 2007, from EBSCO Online
Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25188167
&site=ehost-live

Essay by Ruth A. Wienclaw, Ph.D.

Ruth A. Wienclaw holds a Doctorate in industrial/organizational psychology with a specialization in organization development from
the University of Memphis. She is the owner of a small business that works with organizations in both the public and private sectors,
consulting on matters of strategic planning, training, and human/systems integration.
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