Operations management is a field that can sometimes be misunderstood because of its

multidisciplinary nature. However, its functions form the lynchpin of businesses the world
over and success can often rest squarely on its shoulders. The MBA in operations
management is a common specialization among leading business schools worldwide. So,
what is operations management and what makes a good operations manager?

What does operations management involve?

Operations management is chiefly concerned with planning, organizing and supervising in
the contexts of production, manufacturing or the provision of services. As such, it is
delivery-focused, ensuring that an organization successfully turns inputs to outputs in an
efficient manner. The inputs themselves could represent anything from materials,
equipment and technology to human resources such as staff or workers.

Examples of the types of duties or specialist positions this encompasses are procurement
(acquiring goods or services from external sources), managing relations with those involved
in processes and improving a company’s sustainability with regard to their use of resources.

There are two key terms that can help answer the question of what operations management
is more precisely: supply chain management and logistics. Operations management
has firm foundations in both areas. For example, understanding global trends in supply
chain management in order to meet client demand is often critical. With logistics the careful
and considered use of resources, as well as cost-effectiveness, has become increasingly
important in an era in which resources can often be in short supply and customer
expectations have skyrocketed.

Skills required of an operations manager

There are strong parallels between the skills required for effective operations management
and those needed in both logistics and supply chain management. Excellent organizational
ability is crucial in successfully enhancing efficiency and driving productivity as an
operations manager.

One must be able to understand the series of processes within a company to get them to
flow seamlessly, and in this sense the role is directly related to supply chain management.
Meanwhile, the coordination involved in setting up these processes in practice represents
logistics; the combination of understanding and coordinating the work of a company are
central to becoming a successful operations manager.
The MBA in operations management
An MBA in operations management or a specialization in a related field, such as logistics or
supply chain management, should help students to enter the industry by developing the
requisite skillset or to help those already in the industry to widen their knowledge and push
on into a business leadership role.

Studying an MBA in operations management commonly offers a global perspective on

industry trends and an awareness of any financial regulations or political uncertainties that
could impact an organization. Risk management, getting to grips with the industry’s inherent
complexities and responding well to change will be a strong consideration for students
during their course.

Emphasizing the importance of strategic thinking is also a cornerstone of many leading

operations management programs, something that should enable graduates to ensure their
organization stays ahead of its competition.

Links to supply chain management highlighted by course

options
MIT Sloan offers a dual degree with its engineering school, highlighting its interrelations with
other disciplines. At the end of two years, graduates leave the Leaders for Global
Operations (LGO) program with both an MBA and an MSc. The course has a wealth of
company partners in the field of global operations and manufacturing who host plant visits
and provide opportunities for the program’s six-month internship segment. Indeed, 61
percent of 2018 students found their post-graduate jobs through the LGO network, from a
list including Boeing and American Industrial Partners (AIP).
The UK’s Cass Business School, meanwhile, offers a specialized master’s in Global Supply
Chain Management (GSCM). The one-year course places operations management
alongside insights into strategic supply chain, global procurement, business sustainability
and finance.

Contextualizing the role of the operations manager

The operations manager is able to transcend industries so exact job functions can vary
based on the company you work for. At the base level, the two main streams an operations
manager might belong to can be reduced to companies with a concentration on
manufacturing and production, or those that provide services.

Operations management roles within say, a pharmaceutical company fall under the
category of production. Planning and coordinating the use of resources to ensure products
 are designed, created and dispatched to hospitals, chemists and so on, ensure not only that
these products are prepared, but also that they are available to customers.

Meanwhile, an airline company will often see the operations manager focus on services –
transporting passengers and/or cargo from one place to another.

In addition, it is likely that a manufacturing focus on the delivery of a tangible product will
involve less direct contact with customers than a services role.

These examples illustrate the clear distinction between the roles of an operations manager
in two distinct industries.

However, in reality most companies will not fit easily into one category or the other in the
entirety of its operations. A car company doesn’t simply manufacture cars, it also services
them. A café serving coffee might very easily also produce their own coffee. There is also
what is known as quasi-manufacturing organizations, which seem more like
manufacturing firms, but are clearly providing a service, such as an automated warehouse
dispatching goods.
The more one analyses the question of what operations management is, the more one sees
how integral the position can be to any given company, be it small or large. There can be
strong overlap with supply chain management, logistics or engineering, but there are many
other industries and areas where operations functions and the skills of an effective
operations manager are strongly tied to an organization’s lasting success.
Find out more about specialized MBAs by attending one of our events!

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Home > Articles

Operations Management Defined

 By CSCMP and Nada Sanders
 Jan 23, 2014

📄 Contents

␡
1. Defining Operations Management
2. Organizational Decision Levels
3. Key Terminology
4. Critical Processes
5. Measuring Productivity Levels
6. Inventory Determination
7. Inventory Policy Choices
8. Inventory Policy in a Fixed-Order Quantity System
9. Independent Versus Dependent Demand
10. ABC Inventory Classification
11. Vendor Managed Inventory (VMI)
12. Challenges Facing the Modern Operations Manager
13. Discussion Questions

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The authors of The Definitive Guide to Manufacturing and Service Operations define
operations management and explain why it's critical to the success of any company.

This chapter is from the book

This chapter is from the book

Definitive Guide to Manufacturing and Service Operations, The: Master the Strategies and Tactics
for Planning, Organizing, and Managing How Products and Services Are Produced

Learn More Buy

Defining Operations Management

Every business is managed through multiple business functions each responsible for
managing certain aspects of the business. Figure 1-1 illustrates this by showing that the
vice president of each of these functions reports directly to the president or CEO of the
company. Marketing is responsible for sales, generating customer demand, and
understanding customer wants and needs. Finance is responsible for managing cash flow,
current assets, and capital investments. MIS is responsible for managing flows of
information. Most of us have some idea of what finance and marketing are about, but what
does operations management do?
 Figure 1-1 Organizational chart

Operations management (OM) is the business function responsible for managing the
process of creation of goods and services. It involves planning, organizing, coordinating,
and controlling all the resources needed to produce a company’s goods and services.
Because operations management is a management function, it involves managing people,
equipment, technology, information, and all the other resources needed in the production of
goods and services. Operations management is the central core function of every company.
This is true regardless of the size of the company, the industry it is in, whether it is
manufacturing or service, or is for-profit or not-for-profit.

Consider a pharmaceutical company such as Merck. The marketing function of Merck is

responsible for promoting new pharmaceuticals to target customers and bringing customer
feedback to the organization. Marketing is essentially the window to customers. The finance
function of Merck makes sure that they have needed capital for different processes
including R&D. However, it is the operations function that plans and coordinates all the
resources needed to design, produce, and deliver the various pharmaceuticals to hospitals,
pharmacies, and other locations where needed. Without operations, there would be no
products to sell to customers.

The Transformation Role of Operations Management

We say that operations management performs a transformation role in the process of
converting inputs such as raw materials into finished goods and services. These inputs
include human resources, such as workers, staff, and managers; facilities and processes,
such as buildings and equipment; they also include materials, technology, and information.
In the traditional transformation model outputs are the goods and services a company
produces. This is shown in Figure 1-2.

Figure 1-2 The transformation role of operations management

At a manufacturing plant the transformation is the physical change of raw materials into
products, such as transforming steel into automobiles, cloth into jackets, or plastic into toys.
This is equally true of service organizations. At a university OM is involved in organizing
resources, such as faculty, curriculum, and facilities, to transform high school students into
college graduates. At an airline it involves transporting passengers and their luggage from
one location to another.

The transformation role of OM makes this function the “engine room” of the organization. As
a result it is directly responsible for many decisions and activities that give rise to product
design and delivery problems. The design and management of operations strongly influence
how much material resources are consumed to manufacture goods or deliver a service,
making sure that there is enough inventory to produce the quantities that need to be
delivered to the customer, and ensuring that what is made is in fact what the customer
wants. Many of these decisions can be costly. It is for this reason that OM is a function
companies go to in order to improve performance and the financial bottom line.

Differences in Manufacturing Versus Service Operations

All organizations can be broadly divided into two categories: manufacturing organizations
and service organizations. Although both categories have an OM function, these differences
pose unique challenges for the operations function as the nature of what is being produced
is different. There are two primary distinctions between these categories of organizations.
First, manufacturing organizations produce a physical or tangible product that can be stored
in inventory before it is needed by the customer. Service organizations, on the other hand,
produce intangible products that cannot be produced ahead of time. Second, in
manufacturing organizations customers typically have no direct contact with the process of
production. Customer contact occurs through distributors or retailers. For example, a
customer buying a computer never comes in contact with the factory where the computer is
produced. However, in service organizations the customers are typically present during the
creation of the service. Customers here usually come in contact with some aspect of the
operation. Consider a restaurant or a barber shop, where the customer is present during the
creation of the service.

The differences between manufacturing organizations and service organizations are

typically not as clear-cut as they might appear in the preceding example. Usually there is
much overlap between them, and their distinctions are increasingly becoming murky. Most
manufacturers provide services as part of their business, and many service firms
manufacture physical goods they use during service delivery. For example, a manufacturer
of jet engines, such as Rolls Royce, not only produces engines but services them. A barber
shop may sell its own line of hair care products.
We can further divide a service operation into high contact and low contact segments. High
contact segments are those parts of the operation where the customer is present, such as
the service area of the post office or the dining area of a restaurant. However, these
services also have a low contact segment. These can be thought of as “back room” or
“behind the scenes” segments. Examples would include the kitchen segment at a fast-food
restaurant or the laboratory for specimen analysis at a hospital.

Finally, in addition to pure manufacturing and pure service, there are companies that have
some characteristics of each type of organization. It is difficult to tell whether these
companies are actually manufacturing or service organizations. An excellent example is an
automated warehouse or a mail-order catalog business. These businesses have low
customer contact and are capital intensive. They are most like manufacturing organizations
yet they provide a service. We call these companies quasi-manufacturing organizations.

The operational requirements of these two types of organizations are different, from labor to
inventory issues. These differences are shown in Table 1-1. As a result, it is important to
understand how to manage both service and manufacturing operations.

Table 1-1 Comparing Manufacturing and Service Operations

Manufacturers Services

Tangible product. Intangible product.

Product can be inventoried. Product cannot be inventoried.

Low customer contact. High customer contact.

Longer response time. Short response time.

Capital intensive. Labor intensive.

The Role of Manufacturing and Service Operations in the Organization
and Supply Chain
Operations management plays a critical role in the organization and supply chain. Without
OM there would be no products to sell. However, operations cannot work in isolation from
other business functions. Recall that each business function manages unique aspects of the
business, and they all must work together. For example, operations must work with
marketing to understand the exact wants of a particular group of customers. It can then
design the exact products customers want and create the production processes to efficiently
produce these products. Marketing, on the other hand, must understand operations’
capabilities, including the types of products it can produce and the limitations of the
production process. Without communication between marketing and operations, the
company may find itself in a situation where it is producing products the customers don’t
want.

Operations must also work closely with purchasing to understand availability of materials,
cost and quality issues, availability of sources of supply, and lead times. Operations links
marketing—with its ties to customers—to sourcing—with links to sources of supply.
Operations must understand exactly what customers want and be able to ensure that
sourcing can get the materials needed at the right price and at the right time to support
product designs, or offer alternative material options.

Ensuring that OM fits in with the other organizational functions is necessary but not
sufficient. The reason is that each company depends on other members of its supply chain
to be able to deliver the right products to its customers in a timely and cost-effective
manner. In the upstream part of a company’s supply chain, a company depends on its
suppliers for the delivery of raw materials and components in time to meet production
needs. If deliveries of these materials are late, or are of poor quality, production will be
delayed, regardless of how efficient a company’s operations process is. On the downstream
side, a company depends on its distributors and retailers for the delivery of the product to
the final customer. If these are not delivered on time, are damaged in the transportation
process, or are poorly displayed at the retail location, sales will suffer. Also, if the operations
function of other members of the supply chain is not managed properly, excess costs will
result, which will be passed down to other members of the supply chain in the form of higher
prices.

The bottom line is that companies that comprise a supply chain need to coordinate and link
their operations functions so that the entire chain is operating in a seamless and efficient
 manner. Just consider the fact that most of the components Dell uses are warehoused
within a 15-minute radius of its assembly plant, and Dell is in constant communications with
its suppliers. Dell considers this to be essential to produce and deliver components in a
timely fashion.

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Home > Articles

Operations Management Defined

 By CSCMP and Nada Sanders
 Jan 23, 2014

📄 Contents

␡
1. Defining Operations Management
2. Organizational Decision Levels
3. Key Terminology
4. Critical Processes
5. Measuring Productivity Levels
6. Inventory Determination
7. Inventory Policy Choices
8. Inventory Policy in a Fixed-Order Quantity System
9. Independent Versus Dependent Demand
10. ABC Inventory Classification
11. Vendor Managed Inventory (VMI)
12. Challenges Facing the Modern Operations Manager
13. Discussion Questions

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 < Page 2 >

Organizational Decision Levels

Generally there are two levels of decisions in an organization. The first are strategic
decisions. These decisions are broad in scope and long-term in nature. As a result they set
the direction for the entire company. The second are tactical decisions, which are narrow in
scope and short-term in nature. These two sets of decisions are intertwined with strategic
decisions being made first and determining the direction of tactical decisions, which are
made more frequently and routinely. Therefore, we have to start with strategic decisions
and then move on to tactical decisions. This relationship is shown in Figure 1-3.

Figure 1-3 Levels of operations decisions

Strategic decisions set the tone for the other more specific decisions. They ask questions
such as: What market are we in (and not in)? What are our unique strengths? How do we
compete (and not compete)? These decisions are important as they define exactly how a
company competes in the marketplace and exactly in what markets using specific strengths.

Tactical decisions focus on more specific day-to-day issues, such as the quantities and
timing of specific resources, and how specific resources are used. They are bound by
strategic decisions. Tactical decisions must be aligned with strategic decisions because
they are the key to the company’s effectiveness in the long run. Tactical decisions provide
feedback to strategic decisions, which can be modified accordingly. Without the direction
provided by strategic decisions, companies may pursue competition in areas that do not
directly contribute to the business plan and waste resources. Consider for example a
company such as Southwest Airlines, which has always had a clear strategic direction to
compete on cost. This has directly impacted tactical decisions, such as pursuing cost
cutting efforts in operations in the form of no frills and one aircraft to minimize scheduling
costs.

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Tallyfy - Beautiful Workflow and Process Management Software

What is Operations Management [Theory & Practice]

Operations management is the administration of business practices aimed at ensuring maximum
efficiency within a business, which in turn helps to improve profitability.

It involves resources from staff, materials, equipment, and technology, converting these inputs into
efficient and effective outputs on both day-to-day and strategic levels within an organization.

If you think that sounds super theoretical, we agree – it does. As with most business buzzwords, it can
be a bit hard to understand in terms of REAL practice. And that’s what we’re going to simplify – how to
use operations management to improve your business.

In this guide, you’re going to learn…

What is operations management, exactly?

What does an operations manager do?

Why Operations management is important

How to put operations management into practice with 4 of the most popular methodologies

What is Operations Management – A Simple Introduction

Operations management is basically people management. Most business departments focus on very
specific goals – marketing means getting more sales for your business, HR keeps your employees happy,
and so on.

Operations management, on the other hand, involves getting the most out of your company resources.
These can involve your employees (doing more work that creates value), technology (maximum
efficiency in manufacturing, for example), equipment (help employees do more work), and so on.

As you’ve probably figured, operations management involves dealing with a lot of different areas.
Hence, it’s important for your COO (chief operations officer) to have a background in all sorts of
disciplines, from manufacturing to people-management.

What Does an Operations Manager do

Depending on the organization, an operations manager can be responsible for a lot of different things.
Unlike other executive positions, operations management is cross-department. A CMO specifically works
with the marketing department, CFO with finance, and so on. A COO, on the other hand, might need to
work with just about every department (if there’s need for it).

In most cases, their work involves…

Process Design – Figuring out the exact steps needed to be carried out so that the organization meets its
business goals. This can mean helping plan out a one-time project or creating procedures for repeatable
work. A real-life example of operations in projects would be, for example, creating a timeline for
developing some software for the client. For a process example, the COO could create a structured
employee onboarding procedure to make the whole onboarding more efficient.

Standard Management – Helping create and optimize budgets, scheduling equipment maintenance,
ensuring that the employees are following standard procedures, etc.

Process Improvement and Optimization – Most businesses have a “don’t fix what’s not broken” policy
towards their processes. More often than not, though, you could potentially get a lot more from your
business if you constantly check on your processes. The COO is supposed to make sure that all your
processes are as efficient as they can be.

Why Operations Management is Important

In smaller companies, operations are very simple and straightforward. Everyone takes part in managing
the processes, and more or less, things go smoothly.

The same, however, doesn’t apply to companies with 20+ employees. That’s when things start getting
complicated. You can’t just rely on your employees to do work right – you need to have standardized
procedures to ensure that everything as efficient as possible.

If done right, operations management can lead to…

Better Output – The operations manager optimizes and improves processes that have a heavy impact on
the product or service. This usually leads to higher output, lower defect rates, lower costs, and so on.

Competitive Advantage – Better output leads to a better product or service. This allows your
organization to stand out from the competition, gaining new customers.
Higher Profits – As a combination of the first two, you end up improving the company bottom line and
making more profits.

How to Manage Your Operations [4 Popular Theories]

Sadly, there’s no step-by-step guide to operations management. Unlike most fields, it involves knowing
a lot of different things, from finance to HR.

Knowing your way around process management, though, will make operations significantly easier.

While there are a lot of different approaches there, the following 4 are the most popular.

Business Process Management (BPM)

BPM is something every operations manager should have a good hang of. Chances are, you’ve heard the
term before – and no, it’s not just another buzzword.

Business process management is the methodology of constantly analyzing, improving and automating
processes. It’s not something you do just once, though – you need to be on a constant lookout for
potential improvements.

Putting that into practice, you should have a general idea of what the BPM lifecycle consists of. i.e, the
exact steps you need to take to work on any given process.

The steps are…

Design – Every company has processes. Not all of them, however, are really outlined. More often than
not, they’re implicit. The “design” part means identifying a process and figuring out where it starts, what
it consists of, and where it ends. To learn more about business process design, check out our guide.

Modeling – Once you’ve identified a process, you need to put it down on paper. Without something to
look at, the analysis part can be quite hard. Usually, you’d go for a workflow diagram if the process is
simple, or one of the many business process mapping techniques, if it’s not. To learn more about
business process modeling, check out our guide.

Analysis – Now that you have a workflow diagram ready, you can start analyzing it. Are there any steps
within the process that don’t really add value? Are there any ways to remove them? Are there any steps
you could just automate using software? To learn more about business process analysis, check out our
guide.

Monitoring – You can’t improve a process without knowing how well it’s performing as-is. Plus, you
should also be able to figure out whether the changes you’re making have a positive impact or not. So,
gather the benchmark data for the process as-is and compare it to the data you get post-improvements.

Improving or Automating – Use the insights you’ve identified in the “analysis” step to make changes to
the process. You can either improve it by working with the process steps or automate certain steps using
software or hardware. To learn more about business process improvement or automation, check out
our guides.

Business Process Reengineering

Sometimes, improving processes isn’t the most efficient thing you can do. Instead, you want to re-
engineer it (not just a business buzzword, we promise!). Meaning, instead of improving a process, you
re-create it from scratch.

In most cases, this is done with the help of technology. After all, you can’t really change something
fundamentally just like that.

To give you a better idea of how this works, we’ll look into an example of how Ford completely re-
engineered their accounts payable department.

The major problem was that the department was significantly overstaffed. They employed 500 people,
as opposed to 5 in the same department at Mazda (a partner company).

Ford launched a BPR initiative to figure out why they were underperforming. The old process worked as
follows…

The purchasing department receives a purchase order. The copy is forwarded to the accounts payable

Material control receives the goods & send a copy of the delivery document to accounts payable

The vendor sends a receipt to accounts payable

The accounts payable matches the three separate documents, and only then is the payment issued

Or, as it would look like in a graph…

ford process graph

As you’ve probably already guessed, this makes the whole thing extremely time-consuming. Hence,
you’d need a lot of employees to keep doing this on the go.

Realizing this, Ford completely re-engineered the process. Instead of doing everything manually, they
created an online database which was used to match the different documents.

accounts payable new graph

Accordingly, an operations manager can use business process reengineering to make significant
improvements to company processes.

Six Sigma

The two methodologies we’ve mentioned until now dealt with business processes.

Six Sigma, on the other hand, focuses on manufacturing processes. The main idea behind it is minimizing
defect rates – for every million opportunities, you shouldn’t have more than 3.4 inefficiencies.

While there are a lot of Six Sigma tools out there, DMAIC is one of the most popular ones. The
methodology helps perfect your manufacturing processes & consists of 5 steps…

Define – Outline what the issue with any given manufacturing process is. Decide on the improvement
goal & which tools or resources you’re going to use

Measure – Look at the process as-is and measure its performance. Once you know what the metrics are,
you’ll have a better idea on how to improve them.

Analysis – Find the root cause of the issue. Why is the process underperforming?

Improvement – Once you’ve identified the problem, try finding potential solutions.

Control – Implement the new process on a small scale and benchmark the new results to the old.

Supply Chain Management

Another major aspect of modern operations management is supply chain management.

As organizations have become more complex and much more international in their scope, the strategic
process by which materials, goods and information flow between suppliers, businesses and consumers
has become an industry in itself.

Keeping the supply chain healthy and moving is in the interests of everyone involved, but there are
many factors that can slow things down.

Compared to some of the other aspects of operations management mentioned so far, supply chain
management is relatively recent, with the term only originating in 1982 and not becoming commonly
used until the 1990s.

Supply chain management oversees each touch point of a company’s product or service, from its
creation to the sale, and this makes it an important aspect to manage as getting it right or wrong affects
efficiency, costs, and profits.

Using Software to Super-Charge Operations Management

As we’ve already discussed, one of the biggest aspects of operations management is process
improvement.

If you’re doing this manually, it can be a bit rough…

Your employees won’t always follow the best practice with the process

You’ll need to map business processes & store them manually

You’ll have to keep continuously track process metrics

Let’s finish up here by talking about how people actually run operations. It used to be via BPM software.
“Old BPM” software is tired and broken. It never worked for business users. Here’s why:

Users are now deciding to buy software themselves. Old BPM was bought by your IT department, who
didn’t generally care about user experience – as long as it was made by a large/boring company.

Cloud tools are now free to try by anyone, anytime. With Old BPM you had to call sales and wait for 50
questions just to look at it and finally decide it sucks.

People want to share workflows with clients. With Old BPM you were stuck with trying to automate
internal processes only. Your clients would be very scared and run a mile from it.
People expect to integrate cloud tools without IT. With Old BPM you had get engineers to write code to
make a simple integration. That’s now become a drag-and-drop service.

People expect to work on phones. This means giant, clunky flowcharts in Old BPM are dead – because
they don’t fit on your phone’s screen – and only define “the perfect process”.

People are tired of flowcharts. Old BPM was all about the high priest telling you how a process can/will
be done, and you would obey. Now – modern workers and teams are paid to collaborate.

People expect all the benefits of the cloud. Old BPM was never cloud-born and was never designed for
the cloud. And that creates a massive bunch of missed opportunities.

Companies of all sizes need process management – and never had it. Since Old BPM was so expensive
and complicated, only large companies could afford it. The rest of us were left out.

People are excited about AI – but confused about where to begin. With Old BPM you have zero chance
of using AI without an army of engineers. With cloud-born systems like Tallyfy – it’s childs’ play to use
any AI you like to run amazing automations for photos, voice, video and more.

To make your life as an operations manager easier – try using Workflow Management Software.

Tallyfy is a central hub for all of your company processes – you can see how well each process is going,
whether there are any delays, and so on. This makes process management and improvement
significantly easier.

Are things falling through the cracks at work?

Why bother documenting processes in flowcharts if nobody will ever follow them?

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Tallyfy » Essential Guides » What is Operations Management [Theory & Practice]

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