Operations management focuses on the careful management of the processes to produce and distribute products and services. When looking to create or increase value, a company might look to ways to increase its income, through Finance and Marketing, but might as well look into ways for reducing its costs, through an efficient operations management.
Operations management is therefore a foundation of any business since it forms the heart of any organization as it controls the system of operation.
The first topic that Operations management deals with is forecasting. This is a critical element for the success of any company and the link between the internal operations of a company and the market. Forecasting is the process by which companies ponder about the market and prepare for the future, and the basis for decisions' making in relation with Finance, HR, Marketing, MIS, Operations and product & service design. And as forecasting helps in answering important questions like how much demand will there be for a product or service, it drives the subsequent planning, production and distribution of the products or services of the company.
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Thus, choosing a convenient forecasting technique and horizon, and gathering and analyzing the available historical data to build good forecasts are critical steps in any company success.
The second topic involved in Operations management is the product and service design. The design strategy that a company implements is a key to achieve low costs, a high quality, a short time to market, a high customer satisfaction and a competitive advantage, thus providing products and services which are cheaper, better and faster. Operations management takes into account the capabilities of the organization in designing goods and services that satisfy the customer and sets the design strategy: concurrent design strategy, degree of standardization or customization, delayed differentiation, modular design... Other issues that Operations management deals with in the product and service design are the reliability and the range of operating conditions of the product.
Once the demand is forecasted and the product or service designed operations management deals with the capacity planning. In order to meet the future demands while reducing the costs, the operations manager has to define the needed capacity, how much of it is needed and when is it needed. The operations manager can use the break-even analysis and the decision tree analysis to enable an efficient usage of resources and attain economies of scale.
The process selection and facility layout is also an important topic of operations management. This involves making choices concerning how a company will produce its products or provide services to its customers and has major implications for capacity planning, layout and work methods. Operations Managers can select from four different types of processes: job shop, batch, repetitive and continuous. They also have to define a process layout that allocates floor space to work centers so as to sustain a logical and efficient flow of raw, finished and semi-finished goods, and minimize transportation and inventory costs.
The fifth topic of Operations management is the quality control. It is a process employed to ensure a certain level of quality in a product or service. It involves a set of inspections on the product, service or process that are done in order to provide for the control and verification of certain characteristics of the product or service. The role of an Operations manager in continuously improving the quality is related to the customer, in order to understand what the needed quality is, and also related to the process, in order to deliver that required quality.
Inventory management is an area of Operations management that is an essential element in running certain organizations that have inventories. The Operations manager has to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers in order to achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. An effective inventory management needs therefore a system to keep track of inventory, a reliable forecast of demand, knowledge of lead times, reasonable estimates of holding costs and ordering costs and a classification system. In this regard, the economic-order-quantity (EOQ) decision model that calculates the optimal quantity of inventory to order is largely used by Operations managers.
Always on Time
Marked to Standard
JIT (Just In Time) or lean production is an inventory strategy which aim is to improve a business's return on investment by reducing in-process inventory and associated costs. It is a highly coordinated processing system in which goods move through the system, and services are performed, just as they are needed.
To meet JIT objectives, the process relies on signals or Kanban between different points in the process, where a workstation pulls output from the preceding station as needed. JIT focuses on continuous improvement and can improve an organization's quality and efficiency. To achieve continuous improvement the areas of focus are the flow, the employees' involvement and the quality.
Project management is also an important aspect of Operations, where planning, scheduling and controlling a project to its completion need the manager to set processing procedures that ensure the successful delivery of the project.
Finally, one of the most important areas of Operations management is the supply chain management. In today's global market and networked economy, competition is no more taking place between companies, but rather between supply chains.
Supply chain management is the set of tools and methods used to enhance and automate the supplying by reducing inventory and delivery delays. Supply chain management encompasses all movement and storage of raw materials, work-in-progress and finished goods from the point of origin to the point of consumption and addresses the distribution network configuration, the distribution strategy, the trade-offs in logistical activities and the inventory management.
When a company thinks long-term, it has to think about the product, not the process. The role of operations management is then to link the product category (Functional vs. Innovative) to a supply chain strategy (Efficient vs. Responsive).