What is Operations Management?

Every business is managed through three major functions: finance, marketing, and operations management. The vice presidents of each of these functions report directly to the president or CEO of the company. Other business functions—such as accounting, purchasing, human resources, and engineering—support these three major functions. Finance is the function responsible for managing cash flow, current assets, and capital investments. Marketing is responsible for sales, generating customer demand, and understanding customer wants and needs. Most of us have some idea of what finance and marketing are about, but what does operations management do?

Operations Management (OM)
Is the business function that plans, organizes, coordinates, and controls the resources needed to produce a company’s goods and services. Operations management is a management function. It involves managing people, equipment, technology, information, and many other resources. Operations management is the central core function of every company. This is true whether the company is large or small, provides a physical good or a service, is for-profit or not-for-profit. Every company has an operations management function. Actually, all the other organizational functions are there primarily to support the operations function. Without operations, there would be no goods or services to sell. Consider a retailer such as The Gap, which sells casual apparel. The marketing function provides promotions for the merchandise, and the finance function provides the needed capital. It is the operations function, however, that plans and coordinates all the resources needed to design, produce, and deliver the merchandise to the various retail locations. Without operations, there would be no goods or services to sell to customers.

What is Process Management?

All operations are composed of processes. A process is an arrangement of resources and activities that transform inputs into outputs that satisfy customer needs (Slack et.al 2015). The difference between operations and process is mainly the scale and complexity of the given tasks. For example, Banking operations can consist of financial management processes and Hotel operations contains guest service processes. Hence one operation function can be made up of several individual processes. Slack et.al (2015) suggest that all parts of the business manage processes so all parts of the business have an operational role and need to understand operational management.

Description: This course aims to provide in-depth knowledge of things which are critical for the Supply Chain Management of any business. Supply Chain management is effectively coordinating the process of production, managing inventories, location and transportation of goods and services to achieve the best sustainable outcome for the customer.

This course features dynamic and engaging video with audio narration, infographics and short quizzes to test your knowledge.

Background: Standard operating procedures (SOP) are a detailed explanation of how a policy is to be implemented. The SOP may appear on the same form as a policy or it may appear in a separate document. The main difference between an SOP and a policy are details. An effective SOP communicates who will perform the task, what materials are necessary, where the task will take place, when the task shall be performed, and how the person will execute the task.

Is SOP necessary?

The details in an SOP standardize the process and provide step-by-step how-to instructions that enable anyone within your operation to perform the task in a consistent manner. The SOP document serves as an instructional resource that allows employees to act without asking for directions, reassurance, or guidance. The step-by-step written procedure can also help hold employees accountable because employee expectations are documented and their actions can be measured against the SOP.

Purpose of SOP:

• Serve as framework for organizational policy – provide direction and structure
• Written documentation of best practice
• Tells what, how, when, why, and who
• Provides foundation for:
• job descriptions,
• employee training,
• corrective action and discipline, and
• performance review

Description: This course aims to provide in-depth knowledge of things which are critical for the Supply Chain Management of any business. Supply Chain management is effectively coordinating the process of production, managing inventories, location and transportation of goods and services to achieve the best sustainable outcome for the customer. 

This course features dynamic and engaging video with audio narration, infographics and short quizzes to test your knowledge.

Background:

Defining Quality
The definition of quality depends on the role of the people defining it. Most consumers have a difficult time defining quality, but they know it when they see it. For example, although you probably have an opinion as to which manufacturer of athletic shoes provides the highest quality, it would probably be difficult for you to define your quality standard in precise terms. Also, your friends may have different opinions regarding which athletic shoes are of highest quality. The difficulty in defining quality exists regardless of product, and this is true for both manufacturing and service organizations. Think about how difficult it may be to define quality for products such as airline services, child day-care facilities, college classes, or even OM textbooks. Further complicating the issue is that the meaning of quality has changed over time.

Today, there is no single universal definition of quality. Some people view quality as “Performance to Standards.” Others view it as “Meeting the customer’s needs” or “Satisfying the customer.” Let’s look at some of the more common definitions of quality.

• Conformance to specifications measures how well the product or service meets the targets and tolerances determined by its designers. For example, the dimensions of a machine part may be specified by its design engineers as 3.05 inches. This would mean that the target dimension is 3 inches but the dimensions can vary between 2.95 and 3.05 inches. Similarly, the wait for hotel room service may be specified as 20 minutes, but there may be an acceptable delay of an additional 10 minutes. Also, consider the amount of light delivered by a 60 watt light bulb. If the bulb delivers 50 watts it does not conform to specifications. As these examples illustrate, conformance to specification is directly measurable, though it may not be directly related to the consumer’s idea of quality.

• Fitness for use focuses on how well the product performs its intended function or use. For example, a Mercedes-Benz and a Jeep Cherokee both meet a fitness for use definition if one considers transportation as the intended function. However, if the definition becomes more specific and assumes that the intended use is for transportation on mountain roads and carrying fishing gear, the Jeep Cherokee has a greater fitness for use. You can also see that fitness for use is a user-based definition in that it is intended to meet the needs of a specific user group.

• Value for price paid is a definition of quality that consumers often use for product or service usefulness. This is the only definition that combines economics with consumer criteria; it assumes that the definition of quality is price sensitive. For example, suppose that you wish to sign up for a personal finance seminar and discover that the same class is being taught at two different colleges at significantly different tuition rates. If you take the less expensive seminar, you will feel that you have received greater value for the price.

• Support services provided are often how the quality of a product or service is judged. Quality does not apply only to the product or service itself; it also applies to the people, processes, and organizational environment associated with it. For example, the quality of a university is judged not only by the quality of staff and course offerings, but also by the efficiency and accuracy of processing paperwork.

• Psychological criteria is a subjective definition that focuses on the judgmental evaluation of what constitutes product or service quality. Different factors contribute to the evaluation, such as the atmosphere of the environment or the perceived prestige of the product. For example, a hospital patient may receive average health care, but a very friendly staff may leave the impression of high quality. Similarly, we commonly associate certain products with excellence because of their reputation; Rolex watches and Mercedes-Benz automobiles are examples.

Description: This course aims to provide in-depth knowledge of things which are critical for the Supply Chain Management of any business. Supply Chain management is effectively coordinating the process of production, managing inventories, location and transportation of goods and services to achieve the best sustainable outcome for the customer.

This course features dynamic and engaging video with audio narration, infographics and short quizzes to test your knowledge.

Background: A supply chain is the network of activities that delivers a finished product or service to the customer. It is the coordination of production, location, inventory management. These include sourcing raw materials and parts, manufacturing and assembling the products, warehousing, order entry and tracking, distribution through the channels, and delivery to the customer.

Supply chain management is strategic in orientation and recognizes that the competitive strength of a firm is not only determined by its products but also by the operations and activities that place the products into customers’ hands and provide supporting services. The responsiveness and efficiency of a company’s supply chain arising from its design and management is integral to the firm’s ability to successfully compete in the global marketplace.

Supply chain management is the vital business function that:

● coordinates the movement of goods through the supply chain, from suppliers to manufacturers to distributors to the final customers
● shares relevant information such as sales forecasts, sales data, and promotional campaigns among members of the chain

Components of a Supply Chain for a Manufacturer

A company’s supply chain structure has three components:
• External Suppliers,
• Internal Functions of The Company, and
• External Distributors.

Here is an example of a simplified supply chain for packaged dairy products:

External suppliers include the dairy farmer, cardboard container manufacturer, label company, plastic container manufacturer, paper mill, chemical processing plant, lumber company, and chemical extraction plant.
Internal functions include the processing of the raw milk into consumer dairy products and packaging and labeling dairy products for distribution to retail grocery outlets.
The external distributors transport finished products from the manufacturer to retail grocers, where the products are sold to the customer.

The supply chain includes every activity from collecting the raw milk, producing the consumer dairy products, packaging the dairy products, distributing the packaged dairy products to retail grocers, to selling the finished dairy products to the customer.

Description: This course aims to provide in-depth knowledge of things which are critical for the Supply Chain Management of any business. Supply Chain management is effectively coordinating the process of production, managing inventories, location and transportation of goods and services to achieve the best sustainable outcome for the customer.

This course features dynamic and engaging video with audio narration, infographics and short quizzes to test your knowledge.

Background: Inventory includes raw materials which are required to produce goods and services that are held by manufacturers, distributors and the retailers in the supply chain. Most manufacturing firms have the following types of inventory:
• Raw material - An example is gold, the raw material that is transformed into jewellery.
• WIP inventory -Work-in-process (WIP) refers to all items in the process throughout the plant. Since products are not manufactured instantaneously, there is always some WIP inventory flowing through the plant.
• After the product is completed, it becomes finished goods—the bicycles, stereos, CDs, and automobiles that the company sells to its customers.
• Distribution inventory consists of finished goods and spare parts at various points in the distribution system—for example, stored in warehouses or in transit between warehouses and consumers.
• Maintenance, repair, and operational (MRO) inventory are supplies that are used in manufacturing but do not become part of the finished product. Examples of MRO are hand tools, lubricants, and cleaning supplies.

How Companies use their Inventory

Companies have different kinds of inventory. They also use inventory for different purposes. The six functions of inventory are summarized in this table.

Inventory Optimization

Inventory control is typically a key aspect of almost every manufacturing and/or distribution operation business. The ultimate success of these businesses is often dependent on their ability to provide customers with the right goods, at the right place, at the right time. The right goods are those that the customer wants; the right place is your “available” inventory, not the supplier’s warehouse, and in today’s economy the right time is immediately.

The role of inventory management is to coordinate the actions of all business segments, particularly sales, marketing and production, so that the appropriate level of stock is maintained to satisfy customers’ demands. Also, to balance supply and demand as closely as possible in order to keep customers satisfied and drive profits.

The aim of inventory management is to reduce inventory holdings to the lowest point without negatively impacting availability or customer service levels. This can be done while still maximizing the business’ ability to exploit economies of scale to positively impact profitability. Inventory optimization takes inventory management to the next level, enabling businesses to further reduce inventory levels while improving customer service levels and maximizing capital investments.

Inventory management is an ongoing process that relies on inputs from forecasts and product pricing, and should be executable within the cost structure of the business under an overall plan. Inventory control involves three inventory forms of the flow cycle:

• Basic Stock - The exact quantity of an item required to satisfy a demand forecast.
• Seasonal Stock - A quantity build up in anticipation of predictable increases in demand that occur at certain times in the year.
• Safety Stock - A quantity in addition to basic inventory that serves as a buffer against uncertainty.

The challenge is to weigh the balance in favor of basic stock so that the business holds as little safety stock as possible and provides ‘just the right amount’ of seasonal stock. However, the predictability of demand has a direct impact on how much safety stock a business must hold. When demand is unpredictable, higher levels of safety stock must be maintained. Therefore, the search for the optimal inventory levels to achieve a lean manufacturing environment becomes a key objective.

Benefits of Inventory Optimization

The primary function of an Inventory Optimization solution is to allow companies to effectively fulfill demand and identify how to gain additional profits from their inventories. Improved efficiencies through effective resource management and optimization lead to an increase in service level, improved performance against customer request dates and improved return on equity. These gains are derived in three ways:
a) System Benefits
b) Value-Added Benefits and
c) Strategic Benefits