Importance Of Operations Management
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Published: Wed, 28 Dec 2016
According to Collins English Dictionary (1986), an operation is defined as “a process, method or series of acts especially of practical nature”.
According to Galloway (1993) “operations management is concerned primarily with manufacturing or the change of state of physical goods”.
However, Galloway (1993) argues that “the operations management is all about effective and efficient management of any operation irrespective of whether a physical good is involved or not”.
According to Kumar & Suresh (2009) “Operation is that part of as organization, which is concerned with the transformation of a range of inputs into the required output (services) having the requisite quality level. Management is the process, which combines and transforms various resources used in the operations subsystem of the organization into value added services in a controlled manner as per the policies of the organization. The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management”.
In modern days operations management is seen in completely different way, it is seen as set of activities which carefully plans, organises, leads and controls the organisation’s operation. This shows the importance of the operations management, the effective handling of the operations can prove very effective and profitable on the other hand failing to handle it in a proper way could spell disaster to the company (Karlsson & Voss, 2009).
Importance of operations management:
The common belief amongst the people was to believe that the operations management was important only in the manufacturing industry. The belief was supported with the fact that the manufacturing industry had to take care of more number of processes and operations starting from obtaining the raw materials till the goods are sold and also in many cases after sales assistance was also was considered hence creating the belief that the operations management is important to manufacturing industry (Chase & Zhang, 1998). In case of the service industry they have various amounts of process involved starting from understanding the customer needs to getting a feedback on the service and hence at some point the service industry tells the manufacturing industry what they want and hence to manage operations within the service industry is as important as managing the operations within the manufacturing industry. Whenever a company is offering a product or a service then that company has to make sure that the customers’ needs and demands are met at all time. This is a very important process and hence the marketing team plays a vital role in understanding what customers’ want and how to fulfil it. The marketing team collects details from the customers’ and uses it as the input for the design of products and services (Gupta & Boyd, 2008).
So any operations management involves similar management tasks irrespective of what industry or business one operates. It involves Planning, Staffing, Controlling, Directing, Motivating and Organising. Irrespective of business, the operations management ranges across the organisation as part of strategic and tactical operations (Voss et al., 2002).
To understand the importance of operations management IKEA is taken as an example.
IKEA is a Swedish company which sells ready to assemble furniture, appliances and home accessories. With net income of 3.202 Euros in the year 2012, IKEA is one of the biggest businesses in the world. IKEA gets the products and furniture designed in Sweden however the manufacturing is done mostly in the developing countries in order to keep the costs down. IKEA has suppliers from almost 50 countries. The biggest of the entire supplier for the IKEA is China (Johansson, & Thelander, 2009).
The case of IKEA is perfect to explain why Operations Management is important to all types of business, at the production or manufacturing section the company aims to reduce the wastages, increase productivity and time and resources management in order to make sure that the production cost is low and at the stores the company aims to make sure that they warehouse is utilised properly, customers are explained the details and finally the product is delivered without issues so that the shifting cost is low. Also the stores have to take care of marketing and sales which involves their own process. So this indicates that there will always be set of operations irrespective of what field a business is in and at the end of the day successful businesses are those which manage their operations effectively and efficiently.
Objectives of Operations Management:
The operations management has two primary objectives that needs to achieve and in many ways it can be said that both these objectives are interrelated. The objectives are customer service and resource utilisation.
The customer service is the main objective any company because at the end of the day irrespective of all the strategy, marketing and operations management if the customer is not happy with the product or the service then the purpose of the entire enterprise is fallen. So the operations management makes sure that all the customers’ needs and demands are met and do that the company also has to make sure that it makes use of the resources effectively. If the resources are not used carefully then there are chances that the production cost increasing and hence the overall profit margin will reduce and the enterprise objective has failed. So both the objectives must be met in a complementary way so that the company benefits out of it.
The objectives of the IKEA are to make sure that the quality is managed at all times and yet making sure that the operations are done effectively to save the resources so that the company can benefit out of it.
All operations managers manage processes:
Business dictionary defines process as “Sequence of interdependent and linked procedures which, at every stage consume one or more resources to convert inputs into outputs”.
According to Kumar & Suresh (2009) “Strategic planning is the process of thinking through the current mission of the organization and the current environmental conditions facing it, then setting forth a guide for tomorrow’s decisions and results. Strategic planning is built on fundamental concepts: that current decision is based on future conditions and results”.
So from this it can be understood that the strategic decision of the company are all considered as the process and because the strategic decisions are all made by the managers it can be said that all operations managers manage processes.
The ten principles of managing by process are:
- Designate a process champion: The manager is the best person because he has the knowledge about all the process and will be capable of handling those processes effectively.
- Know the process: It is important that not just the manager but every employee within the operations knows the details regarding the processes.
- Understand the linkages: Every process will be interconnected and hence it is important to understand the linkages between the processes.
- Work on the trade-offs: If the process is being created from a cross-functional background it is useful to discuss functional versus process trade-offs. This will allow you to make clearer decisions about what is the best balance.
- Teach others about the process: Teach others who may need to supply inputs or receive outputs about the process. Moving to management by business process is a learning opportunity for your organization. Process owners and teams should be expected to have a responsibility for spreading their learning. Some organizations would see this as part of the general communications process which facilitates understanding and allows issues to be raised and answered from any part of the organization.
- Train within the process: Cross-functional customer-facing processes require new roles, tasks, skills and expertise, often organized around teams. There are a number of things to consider. Training and development of new skills for individuals and of the team will bring with it a change in the culture of your organization.
- Measure the process: Measure for control, improvement and benchmarking, using a range of financial and non-financial measures. Measurement is important for managing the interfaces between sub-processes and also between processes at the same level.
- Manage careers: Careers needs management in the new process-oriented, possibly flatter organization. Align expectations and aspirations with a different kind of progression emphasizing cross-skill training and the importance of gaining wider business experience both within the process and in other processes.
- Build specialist expertise: In the context of the new organization, take account of any weakening in this role where the traditional functions in the organization are made weaker. The process teams will probably need a mix of specialist skills as well as more general skills.
- Improve the process: This must be done continuously. The world will not stand still; nor should any members of the team.
The operations manager can make use of the value chain analysis to analyse the process that goes on within the company. It can be said that all the operations that exist within the value chain can be considered as the processes. The value chain is one of the most important tools to understand how all the processes are related to each other and how variations in any process will lead to a change in the overall profit margin.
In the value chain we can see that there are primary activities, support activities and supply chain management and firm infrastructure. Within each of these activities lie the processes which are very essential. These processes are managed by people and the efficiency of these processes decides the overall outcome. So all the processes are being taken care of by the operations managers and hence it is evident that all operations managers manage processes.
At IKEA the inbound logistics is seen at two points one in the manufacturing and other at stores. Outbound logistics of the manufacturing acts as the inbound to the store. Each of these processes is managed by the operations manager. The inbound logistics at the factory is managed by a purchasing manager who has to make sure that the different quality of woods and materials are purchased and also has to make sure that constantly the suppliers are updated regarding the requirements. Receiving the shipment, checking them for quality and quantity and returning anything that does not meet the standards are all part of the purchasing manager’s job. By managing each of these processes, the manager is making sure that the activity achieves the desired levels (Tarnovskaya & Chernatony, 2011).
Similarly the operations manager makes sure that the raw materials are all converted or manufactured into finish goods which are ready to be shipped in. The outbound logistics is handled by another manager who receives the input from the stores and based on their requirements he ships the items to all the stores. Now the shipping must be done in the timely manner or else there are chances that the items will be kept in warehouse for long time or may be delayed and customer may not show any interest in it anymore. So time management is very important at all times (Sower et al., 2007).
So the operations managers faces the challenges of maintaining the time, managing process of acquiring raw materials, managing process of quality control, inventory management, outbound logistics etc.
If the operations manager doesn’t exist then there are chances that the quality control doesn’t exist, time is not managed properly, inventory is not managed etc. this will lead to chaos and at the end of the day the entire brand image will be destroyed and company will have to faces un-repairable damages. The success of the business depends on efficiency of the processes and the efficiency of the processes is determined by the way they are being handled by the operations managers. The operations managers manage all the process and by doing so they make sure that the company is achieving all its strategic aims and objectives. This makes sure that all the stakeholders are happy and look forward to be associated with the company at all times (Armistead & Machin, 2007).
The processes in different operations can have different characteristics:
The biggest challenge that the IKEA could face is the management of resources. The resources are very important because the company has achieved such a huge reputation that the demand for products will always be present. In order to fulfil all these demands, it is very essential that the IKEA has not just enough resources but also must know how to manage these resources.
The processes that happen at the manufacturing units are designed in such a way that the preference is given to make sure that the wastages are reduced and the efficiency is increased. However at the stores the process that involve must make sure that the customer needs are met even if there are chances that the items are returned back to if the customers do not like. In this case the preference indicates that the company is ready to accept any loses and does not worry that much about efficiency rather it looks at how the customers’ needs are met. This clearly indicates that processes in different operations will have different viewpoints and hence will show off different characteristics (Armistead et al., 2005).
According to Johnston (1999) even though the operations processes are very similar to each other, they all transform inputs however they differ in some ways.
- The volume of their output
- The variety of their output
- The variation in the demand for their output
- The degree of visibility which customers have of the production of their output
The IKEA sells a lot of furniture within the Europe and hence there will be a need to make sure that specialised machineries are designed and used to produce this furniture and at the same time the care must be taken to make sure that the wastages are reduced and the efficiency is increased at all times, by doing so it will lead to low unit costs. Similarly consider IKEA in developing markets such as India. Here even though the number of items that IKEA sell may be similar however the rate at which it sells these items will be very slower compared to those in the Europe. Hence in this situation the IKEA doesn’t need to establish specialised machineries by paying high price as they know that the basic machineries will do the job for them. Also number of people employed within India will be less compared to countries in Europe. So even though prices can be compared in different market, the processes are completely different (Jayaraman & Srivastava, 2006).
Variety offered by the IKEA in the developed markets will be more as it is confident that the customers would look for variety and will help to boast the sales. However in the less developed markets, IKEA will look into making sure that the budget is kept at minimum so that the profit margin is at acceptable levels. So the standardisation will not be possible in different markets hence processes that are involved will have to be different.
Variation dimension is all about how the demand varies within two markets, consider that in the UK the demand for a coffee table was around 2000 tables per month and the same coffee table demand rate in India was 500 per month. Now consider that the demand falls by 50% in both the territories. In case of India the amount of wastages would be less even though the percentage is same however in the UK the numbers will be unsustainable and hence when the processes are carried out all the markets cannot be seen in the same way. Statistics are sometime no use, understanding the reality will yield a better result.
Visibility dimension is something that will be difficult to understand. Visibility refers to how much of the operation’s activities the customers will experience or how much is it exposed to the customers (Pagell et al., 2005). In case of IKEA manufacturing, the customer exposure is very less and hence how the processes are handled will be importance only from the company point of view however at the store the customer is observing every move that the company makes and hence it is important the way the processes are done. The customer will have zero tolerance and hence the challenge to manage process becomes that much difficult.
All these aspects explain how processes in different operations exhibit different characteristics. Based on these characteristics, the decisions are made, the ideas are taken from these characteristics to design new ways to manage and perform processes.
All operations managers have similar set of responsibilities:
Operations managers perform operations and look after the processes based on the input from the overall objectives and strategic vision of the organisation. No process or operations will be done without having the complete knowledge regarding the importance of it. There are basically two sets of responsibilities that every operation manager must look into. First, the operations manager has to make sure that the processes and the operations that he is taking care of is performed to a commendable levels and secondly at the end of these processes and activities, it should create a path for the following processes and activities. If any one of the two fails to be performed then it can be said that the operations manager has not fulfilled his responsibility and that could be fatal (Ruffini et al., 2000).
Every operations manager needs to make 100’s of decision every minute and hence they would device a general rule to follow in the changing circumstances. These would further lead to development of the operations strategy which would fall in line and derive the basics from the overall strategy of the organisation. Every operations manager will have the same set of beliefs and at the end of the day they all draw inputs from the corporate strategy to perform their activities and processes. In order to decide how every process and activities need to perform, the planning should be made as how the resources are distributed and managed. By doing so the process because easier and any chances of errors are nullified (Dul et al., 2010).
If it is consider that the operation manager at IKEA suddenly quits the job, in such a scenario a new person who comes to take up that role does not have to decide about how the processes are handled and managed. Manager can simply look into the aims and strategic objectives of the company and how the processes have developed their own strategy from them and based on that he can pick it up from where the other manager had left. This indicates that not just the inter processes are similar every process can follow a similar guideline which is easy to establish because of the common usage by all the processes (Forrester, 2006).
The belief that the people had was the strategic planning by the top management was the only important role, the role of the operations managers were neglected. As the business environment became more and more challenging, the companies started to understand the importance of the operations managers. Operations managers plays a vital role in managing different processes, taking the challenges, making decisions and guiding the other process to perform in the similar way. A operation manager needs to take decisions at a fast rate and hence to devise a strategy as how these decisions are taken helps the performance of the operations managers and in turn it helps the processes to be decided at a faster rate and that would lead to efficiency of process and efficiency in the management of the resources. Resource management is always an important criterion and in many cases the efficiency at which the resources are managed will lead the success of the company. All these activities are very important irrespective of what business one operates or within what industry that business operates in. Operations management is an important aspect of successful business and will continue to be so in the future as well.
For Ikea to be successful it must make sure that it employs proper operations strategies at all stages of the operations process and that is the only way that the company can add value and make the business profitable. It was seen that the company is not prepared for any unexpected changes in the management, if it did happen people who take up the job will have hard time to understand the process and how it needs to be carried out so care must be taken that it is not the case.
When operating on a global scale it is important for the company to come up with solutions to most of the daily challenges if not determining the process to carry out will eventually lead to wastage of resources and wastage of time and may delay the operations process. This is never good as the customers expect a world class service from the Ikea because it has always set a high standard at all times.
Plan of actions:
For the Ikea it is important that it adds value at every stage and hence the company must look to minimise the storage of the products in the warehouse and instead deliver the products directly to the stores all over. The stores are designed in most cases to have some goods and products stored and hence by maximising this usage the warehouse expenses come down and the company will be profitable.
Ikea must make sure that the successor for every manager is predetermined; if it is not the case then the company must at least make an effort to make report of the process transparent and readily available through the information systems management. By doing so any person taking up the position will not have to go through the process of determining the processes that needs to be performed, for that they need to evaluate the overall strategy of the company which may not be a great idea as this would be time consuming and also will waste the company’s resources.
Even for the operations management it is important the company has a precise plan of actions, planning helps to make sure that the exact steps are decided and others can follow the same. The Ikea operates worldwide and hence it cannot waste time in every store trying to determine the possible set of operations, instead company can experiment in one place and based on those results it can modify the operations in other places as well.
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