Bite-Sized Training™

What is Operations
Management?
 What is Operations Management? Bite-Sized TrainingTM | Mind Tools

What is Operations
Management? Bite-Sized
Training
This e-book is published by:

Mind Tools Ltd.

Copyright © Mind Tools Ltd, 2008-2012. All rights

reserved.

Version 1.3

This e-book is protected by international copyright

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the Mind Tools Club™. If you have any queries,
please contact us at
members.helpdesk@mindtools.com.

Cover image © iStockphoto/ermingut

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 What is Operations Management? Bite-Sized TrainingTM | Mind Tools

Contents

1. Introduction .................................................................................................................................... 4

2. Operations Management Basics .................................................................................................... 5

3. Operations Management Decisions ............................................................................................... 7

4. Operations Managers................................................................................................................... 11

5. Key Points.................................................................................................................................... 15

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 What is Operations Management? Bite-Sized TrainingTM | Mind Tools
1. Introduction
What your organization does for its customers is
the domain of the operations department.
Whether you’re manufacturing or distributing
goods, or providing services, the operations
department transforms inputs to outputs, and
delivers those outputs to your clients.
Many people think of operations as boring and
process-related. The truth is, operations stretches
its influence right across an organization and
plays a driving role in most of the decisions that
are made on a daily basis. That’s because the job
of the operations department is the reason that
the organization exists. And in companies – along
with the sales and marketing department – the
operations department delivers the revenue that’s
the lifeblood of the organization.
Many top executives have an operations
background because operations managers
intimately understand the mechanics of meeting
client needs, and have a detailed understanding
of what the organization can and cannot do. And,
along with top salespeople, operations managers
are the “heroes” of the organization – the people
who’ve been “through the blood and fire” to help
the organization achieve its objectives. This
makes them natural candidates for top jobs.
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Human resource decisions, marketing decisions,
engineering decisions, logistics decisions, and
finance decisions are all based on operational
need. And whether the function has its own
department, or is done by a variety of people in
many departments, operations decisions are
made constantly.
With this Bite-Sized Training session, we’ll
introduce you to the operations management
function, and we’ll help you understand how this
department supports the growth and development
of an organization as a whole.
The objectives for this session are to understand:
 The fundamental role of operations within
organizations.
 The skills required to be an effective
operations manager.
 The challenges of operations
management.
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2. Operations Management Basics

Operations management deals with the charge of a call center, or the vice-chancellor of a
production and delivery of goods and services university might not have the title of “operations
that we purchase every day, either as consumers manager,” but that is still essentially what they are
or as businesses. doing.

It used to be thought of strictly in manufacturing The Operations Management System

terms. Now we refer to operations management
as the direction and control of the process that
transform inputs into finished goods and services.
From manufacturers of snowboards and
surfboards to those producing steel and
pharmaceuticals, and from providers of services
from the banking sector to air travel, operations
management is essential across all industries for
successfully managing people, capital, and
material. In the service sector, the person in
Operations are part of the entire production
system. You have inputs (people, capital, and
purchased materials and services) on one side,
transformation operations in the middle, and
outputs (finished goods and services) on the
other.
This is shown in the simple diagram below:

Inputs
Transformation
People. Outputs
Equipment. Physical (manufacturing).
Materials. Location (transportation).
Goods.
Facilities. Exchange (retail).
Services.
Land. Personal (health or education).
Energy. Information processing.
Information.

The type of transformation varies, as do the
specific inputs and outputs.
For instance, in a manufacturing company, the
transformation may be a physical change from
raw materials to a finished product. In a
university, the transformation is the education of
students. With an airline the transformation
involves moving passengers from one location to
their destination. The facilities, machines,
technology, people, and materials needed in
these examples are different, and the result is a
different product or service. Regardless, there is
still an operations system.
Action: Think about the operations function in
your organization. What are the inputs,
transformations, and outputs that you can think
of? Note your answers on the next page.

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Inputs Transformations
The scope of the operations that create these
transformations is considerable, and will usually
involve a number of sub-departments supporting
the core production activities.
These may include:
 Purchasing.
 Logistics/transportation.
 Facilities management.
 Maintenance.
 Inventory and storage.
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Outputs
The outputs that customers are supplied with can
be anywhere along this spectrum, from physical
products such as fruit and vegetables, to pure
services such as counseling.
In most cases, what they purchase will be
somewhere in between. For example, restaurants
provide food products, but they also provide the
services of a pleasant place to eat, and the
attention of a waiter. And when you buy an iPod
(product), you probably also make use of services
such as iTunes.
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3. Operations Management Decisions
Operations is one of several functions within an
organization. Whether each of these has a
separate department depends largely on the size
of the organization, of course. Whatever the
structure, the functions are all interrelated, and
decisions about operations need to be
coordinated with the wider organization.
Three key types of operational decisions are:
 Strategic decisions.
 Design decisions.
 Operating decisions.
Strategic Decisions
Strategic decisions are those that affect the future
of the organization:
 What are the company’s competitive
priorities? Cost, speed, quality, reliability,
design innovation, customizability, or
breadth of range?
 How will the organization position itself?
 How will it add value and create
competitive advantage?
Key Transformation Competitive Advantage/Customer Benefit
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 How will the quality of the outputs be
controlled?
In some organizations, operations management is
core to the business strategy, and essential to
creating competitive advantage. For instance, the
McDonald’s operational strategy for fast food
production maximizes the throughput of people
needing to be fed, and minimizes production
costs. Customers at IKEA collect and transport
their own goods, which minimizes store-staffing
costs. Its shop is also its warehouse, so facilities
are efficiently managed as well. Banks like First
Direct in the U.K., that only connect with
customers through the Internet and other
technologies and that don’t have “bricks and
mortar” facilities, are other examples of
organizations that depend on efficient service
delivery to customers.
Action: Think about the transformations you
listed in the first activity. Which ones are key to
the strategic choices that your organization has
made? How does the transformation create
competitive advantage or benefit to the
customer?
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Design Decisions
Design decisions relate to the specifics of the
production system that an organization has
chosen. Managers have to decide how operations
can be designed to meet the performance
objectives:
 What types of input from workers and
other key resources are needed?
 What are the capacity requirements?
 Where should facilities be located?
 How should the facility be laid out?
 What do departments need to collaborate
on to ensure quality outputs?
 How should jobs be designed?
 What role should technology play in the
process?
Car manufacturers use quick release fixings so
that they can rapidly change over the different
dies used to press the bodywork parts for
different models, for example. They also use
standardized parts such as bolts wherever
possible, to reduce the number of different
inventory parts that they have to hold, as well as
the number of tool changes required to fit the
bolts.
Transformation Process Design Decision/Decisions
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Rail passengers can buy tickets online, and then
collect their tickets at the station by inserting their
credit cards into a self-service machine. This
reduces the number of ticket sales clerks needed,
as well as cutting out queuing time for the
passengers.
Operations design decisions need to balance
costs and benefits, and are related to volume and
to the relationship between fixed and variable
costs of producing the item in question.
For example, newspaper publishers produce such
large numbers of papers each day that it’s cost
effective for them to invest in their own printing
presses. On the other hand, most book publishers
(apart, perhaps, from the very largest) don’t
produce enough books to keep presses running,
so they simply buy in printing services from
dedicated printers.
Action: Now identify some of the design
decisions that have been made with regard to the
transformation process at your organization. For
instance, how is your facility laid out? How are
computers and information technology involved in
your operations?
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Operating Decisions

Operating decisions are concerned with the day-
to-day running of the organization. The essential
question here is how to balance supply and
demand.
 How should inventory be managed? What
type of inventory system should be used?
 How are materials managed, purchased,
distributed, and inventoried?
 How should staff be scheduled?
 How are supply levels forecasted and
delivered?
 How are suppliers chosen and managed?
 How should work be prioritized?
 What can be done to prevent and recover
from failures or disasters?
Remember too, that an underlying focus of
operations management is performance
improvement. Thinking of ways to make the
operations run smoother, faster, more efficiently,
and more cost effectively are key to creating and
sustaining competitive advantage.
Action: Finally, identify some of the operating
decisions that your organization has made for
each of the transformations it uses for creating
outputs from inputs. For instance, what inventory
or scheduling system is used? How is quality
assured?

Transformation Operating Decision/Decisions

With all the activity that goes on in the operations

department it’s easy to see why operations
management depends heavily on cross-functional
coordination.

In many organization structure diagrams,

operations is shown in the middle of the
organization with the other functional areas
stemming from it. Alternatively, you might see a
Venn diagram with the other functions
overlapping some part of operations as shown in
this diagram.

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What does this mean in reality?
Here’s an example: If the operations department
comes up with a way to speed delivery and lower
costs, then the rest of the organization has to
adapt to the new quality and process
requirements that come with this. Finance needs
to feed new information to operations for analysis.
Human resources helps to ensure that there are
enough workers with the right skills to implement
the operational vision. Marketing and operations
work together to make sure that the market
knows about the improved delivery times. Cross-
functional team work is imperative to operations
success.
Action: Think about the cross functional role of
operations in your organization. How do the
different departments and teams interact with the
operations function at your workplace? What
decisions do you make together and what impact
do operations have on the work you do?

Department/Activity Nature of the Interaction

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4. Operations Managers
Operations managers, or those who are making
operational decisions, are often at the center of
strategic decision-making. Decisions made in this
functional capacity determine not only how goods
and services will be made, but also how
customers will receive them. Creating a great
customer experience is ultimately what will
generate profit, and sustain the organization.
Operations managers plan, direct, or coordinate
the operations of companies or public and private
sector organizations. Their duties include
formulating policies, managing daily operations,
and planning the use of materials and human
resources, but are too diverse and general in
nature to be classified in any one area of
management or administration, such as
personnel, purchasing, or administrative services.
As well as requiring strong technical knowledge of
the issues specific to the industry they’re working
in, effective operations managers need the
following general skills and abilities:
 An excellent understanding of materials
and/or resource planning.
 Excellent decision-making skills, and the
tools associated with this.
 Confidence in making decisions involving
uncertainly and risk.
 Excellent numerical abilities, as there are
many calculations and formulae involved
© Mind Tools Ltd, 2008-2012
in process and system design
optimization.
 Strong interpersonal skills, and the ability
to work effectively with other departments
to coordinate and share information.
 Good leadership, as the role of operations
demands that decisions be carried out
across the organization.
 Good financial acumen, as many
decisions have a cost component, and key
information comes from the finance
department.
 Knowledge of project management skills
like scheduling, analyzing probabilities,
and diagramming.
Operations management is a high profile career,
and many top executives have an operations
background. The fact that operations acts as a
hub for the rest of the functional areas means that
people in this role learn about all aspects of the
business, and develop a keen appreciation for
how they can all come together to achieve
extraordinary performance.
Action: Think about the operations people in your
organization. What skills make them most
effective? What can you learn from these people
and/or develop in yourself to improve your
understanding of the business? Write your
answers in the table on the next page.
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Skills and Qualities of Effective Operations Things I can Learn From These People
Managers

Challenges Facing Operations Managers

Ever since Henry Ford introduced the
revolutionary production line concept to
manufacture the Model T, operations
management has been driven ahead by big new
approaches, which are often highly formalized,
In the sphere of manufacturing operations, Just-
In-Time and quality systems like TQM were hot
topics for many years. Business Process
Reengineering was popular in service industries
in the 1990s, followed by a technology-driven
focus on Supply Chain Management. Many larger
manufacturers implemented enterprise resource
planning software such as SAP in somewhat of a
panic in the run-up to the Millennium when
concerns about the “Y2K bug” were rife.
Since then, Radio Frequency Identification (RFID)
technology has become reliable enough to be
widely adopted for inventory tracking and
management, and Six Sigma has become
widespread as a way of improving quality.
All of these developments are simply new ways to
create value for customers and profit for
organizations in a changing environment.
Some of the key challenges facing most
operations managers at the moment include:
 Building closer relationships with
suppliers. The entire supply chain is an
area of management that requires much
coordination to ensure that an
organization has the materials it needs,
when it needs them. This field is changing
quickly, as organizations adapt to the
rapidly increasing cost of inputs, and
sometimes-intense competition for
resources.

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 Emphasis on operations in service
management. This is no longer an add-on
to the manufacturing function and many
companies are using service as a key
profit center. For example, IBM is no
longer simply a business machine
manufacturer; it is involved with web
design, network installation, e-commerce,
management consultancy, and more.
 Consumer demands for ecologically-
friendly practices, backed by stringent
legislation, as well as the recent massive
increases in fuel and power costs.
Operations managers are continuously
seeking new ways to reduce both the cost
of inputs and the environmental impact of
their organizations, whether that involves
cutting packaging or switching to
sustainable types of cardboard instead of
Styrofoam; reducing their energy and
water usage; or sourcing raw materials
locally to limit their operation’s carbon
footprint.
 Ethical production practices are also
important considerations. Socially aware
consumers are demanding that products
be manufactured fairly, and that human
rights be upheld in product and service
suppliers all over the world. Users of
Operational Changes
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sweatshop labor have been called to task
and even boycotted over these types of
issues. In the UK in particular, food
producers are under new pressure ensure
that poultry and other animals have a high
quality of life, even if this leads to
increased costs.
 New technology advances in
communications and production also
impact operations decisions. Recognizing
and preparing for how new developments
can benefit the way operations work is a
key consideration for operations
managers as they try to predict the future.
Action: Note down some of the ways that the
challenges above have changed the way your
organization does business and operates. What
operational challenges do you foresee for your
organization?
Note:
For a summary of some of the techniques and
approaches that operations managers use
(including Kaizen, Just-In-Time, Total Quality
Management, and Six Sigma), see our menu here.
Operational Challenges
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Operational Changes Operational Challenges

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5. Key Points
It goes without saying that organizations need
sound operations management. Sometimes their
operations will be the source of their competitive
advantage (as it is for IKEA, for example, or
Amazon), and at other times, sound operations
are an essential foundation for a different source
of alternative advantage (The New York Times,
for example, needs efficient production
processes, but it’s the quality and slant of its
journalism that gives it the edge).
With the pressures of a global and highly
competitive economy, organizations need to find
ever more effective and efficient ways to satisfy
increasing demanding consumers. As a functional
area, operations supports corporate strategy and
it works in conjunction with other functions to
design, produce and deliver products and
services.
© Mind Tools Ltd, 2008-2012
Operations involves high-level strategic decisions
like competitive positioning as well as more
tactical and operational decisions like designing
processes, managing inventory, and monitoring
quality. Whatever operations people are involved
in, it has an impact on the whole organization.
The people that work in this area need to
understand the business and the product
intimately. They also need to scan the
environment constantly for new developments
and influences that have the potential to impact
supply and demand. Operations management is
at the heart of an organization – it’s an exciting
and vibrant place to be that is always changing,
always challenging, and certainly never boring.
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