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The purpose of this report was to demonstrate a critical understanding and application of Operations Management concepts and theories. The report will address the introduction and definition of Operations Management (OM), describe the nature of operation within an organization. The report will also demonstrate how the operations management function interacts with the different functional areas within an organization. The report will explain about the characteristics of operation processes and the activities of operation management. Moreover, the report will consider the opportunities and the developments in operation management and it will also give understanding on how operations management helps company to be successful and how to be improving the performance in business environment nowadays.
Today the competition in the business world getting higher and more risky, they are competing in very different conditions than they were in a few years ago. To survive and achieve the goal they must focus on many factors such as quality, customer relationship, efficiency or etc. and they must try to figure out the best way to reach the goal on their business too. The new focus has addressed operations management in the spotlight of business because this function can help the companies achieve their success as marketing and finance function do. The operations management is important that concerned with producing and delivering the services and products to customers. Now most companies have come to understand the importance of the operations to organize all organization. This is because they have realized the effective that operations management gives the potential to improve both customer services simultaneously and efficiency. Consider some of most today's successful companies such as Starbucks, Wal-Mart, Toyota and FedEx, these companies have achieved the world-class status because a strong focus on the operations management in organization.
The aim for this report is to demonstrate the key concepts and theories of operations management and also explain on how the operations management function interacts with other functional within an organization. The report is concerned the issue of activities on operations management and the report will analyze the opportunities and the developments in operations management in general too.
Definition of Operations Management
What is the operations management (OM)? Operations management is the activity of managing the resources which produce and deliver the goods and services (Slack etal. , 2010) Operations management is the business function that responsible to planning, organizing, coordinating and controlling the resources needed to produce a company's products and services. The operations function can be connected to other functional operations within organization such as marketing, finance, human resource and etc. so it can be described that all functional areas undertake operations activities because they all produce the services and goods. The operations manager is the person who supervised the production, make decision on operations processes and regarding to connecting into other functional areas. Thus, today every company realized that operations management is important and also agreed that is the main core function to organize their organization.
The Role of operations Management
The role of operations management is to create some kind of value-added in form of goods and services by transforming a company's inputs into output as finished goods and services. The activities in operations can be divided as input, transformation process and output. The company's inputs include human resources such as workers and managers, information, technology IT and facilities and processes such as equipments, buildings or lands and materials. Then the operations system will convert the transformed resources from inputs into outputs that are goods and services which produced by company and after that will get feedback information about the activities in the operation system.
The figure below will shows the transformation process. For instance, at the airline will movement the passengers and their luggage from one place to another. At the factory will transformed resources of materials into raw material products as transforming denim into jeans or transforming cotton and fabric into clothes.
Figure I: The transformation process
Source: Reid and Sanders, 2005.
For operations management to be successful, it should be create or add some value in the transformation process for make the outputs are worth to customers and satisfy more to customer and also help to reduce the cost of activities in the transformation process. This means the company should be concern on value added and operations and build both to be efficient, able to make the products and services are worth more to customers and able to performing the activities well at the lowest cost too.
The figure below will shows how operations management organized in an organization and shows what operations management is and what other function is in an organization. In three different organizations that illustrated that operations management is clearly separated from other functional areas and will subdivided itself on deferent criteria.
Figure II: Organization charts for OM function in three different organizations.
Budget Hotel Chain
The relationship between Operations and Other Functions
The roles of operations management function and the decision was made by operations managers interact with other functional areas in business. This will explain the relationship between operations and other function clearly. As most businesses known, there are three main functional areas in organization: finance, marketing and operations as the main supporter in their business, yet other functions also supporting an organization as well. Although these functions scope in different activities, they must interact achieve the goal of the organization and drive the business moving forward too.
Finance function will responsible to controlling of the funds and judging the need for capital investment such as equipments or relocations, collecting money and covering make decisions on make-or-buy in organization and also plant expansions. Finance function cannot work without understanding operations concepts and needed. On the other hand, operations managers cannot make the financial plans without understanding the key and method of evaluating of financial investment as well. It is essential that both functions must understand each other and work together.
Marketing function will generates the demand for the company's goods and services by understanding customers needed and find out the way to build and develop the new markets. Sale will not be happened if they do not understand what operations can produce or what due date can meet or cannot and what type of customization operations to deliver. Thus, the main needed of marketing and operations work closely together and both of them are important as marketing providing the forecast of demand which operations will produce the goods and services and sending to customers.
Production and operations, the main responsible on operations function is to produce goods and services and deliver to customers on time. As mentioned previously, operations function will connect with any functional areas by the operations roles.
Human resources will responsible on recruitment and labor relation and they must understand job requirement and worker skills when they hire people in any positions. The operations managers need to understand job market trends, labor cost when hiring or lay-off and the cost for training lead to efficiency on employees' management.
Information technology which co-ordinates with the computer-based information needed and enables information flow through the organization and allow operations management to operate effectively. Generally, operations management is heavily dependent on information technology such as the forecast of demands, schedule of worker, level of quality to achieved and supplier deliveries. Usually, this close relationship between operations management and information technology will work together for design information network.
Accounting will consider the current performance measures, inventory management and labor standard in order to develop the cost data for organization. In turn, operations managers should communicate to accounting about billing information and the process improvement. To make decisions about the cost management is highly depend on accounting data that shown the relationship between two of them.
Operations Processes have Different Characteristic
Even all operations processes are similar in the way they all transform inputs, they all do the different things in the process and can divided by different four dimension that call four Vs of operations which is particularly important: volume, variety, variation and visibility.
Volume - the demands of goods or services that operations was produced and it is important implication for the way operations function are organized for organization.
Variety - the different types of goods or services are offer by operations. For example, Taxi Company offers a high-variety services which prepared to pick up customer from one location to another location. The cost of taxi service will higher than other transport such as bus service because taxi offers high variety of routes and times to customers.
Variation - consider on how the level of demand changes and how it effects the volume of outputs that may effects in short term as well as seasonal forms.
Variability - refer to how much of the operation's activities working are exposed to its customers. For instance, in the restaurant French fried will standardized but the grilled steak might be rare, medium or well done.
High volume, low variety, low variation and low customer visibility are usually associated with low cost (Slack, 2005)
The Activities of operations Management
Operations mangers have some responsibility for all activities in organization which contribute to the effective production of products and services. There are some basic management activities to apply all types of operations. (Slack, 2005)
Understanding the operation's strategic performance objective.
Developing and setting an operations strategy
Designing the operation's products, services and processes.
Improving the performance of operations over the time.
Planning and controlling the operations.
Cooperating the social responsibility.
The New Trends in Operations Management
As mentioned previously, most businesses concern that operations management is the main core function in organization and it continuously changing the business environment to meet the new and exciting challenges in new business world today. As increasing the global competition, developing technology into advanced level, improving job opportunities in operations management, to concerning on environment and emphases to link the operations function more closely with customers and suppliers.
Increased Global Competition
Today the business world changing itself is rapidly into new single global economy which increasing competition on business around the world. Cause of more reliable on worldwide communication and transportation networks than several years ago that market was dominated by local or national companies. Now, many companies expand their business to foreign markets which is the opportunities on operations function to take a broader, show how they are develop operation's strategy and more global perspective for companies to remain the competitive. Also operations function must responsible managing an organization to remain and survive on globe's market place and competition.
Technologies changes and Job Opportunities
The advances in technology in this recent year are impact on operation management function. The increased use of information technology, automations and robotics are permitted to improve the quality of goods and services. The advances technology also addressed new requirement on workforce and even on customer, especially on service operation (McGraw H, 2004). The organization should be considered skilled worker, empowered employees replacing unskilled worker in all areas of operations. Thus, this is become a new challenge on operations management to changing job specialization, social-culture and increasing a knowledge and information society to organization.
Better Quality Goods and Services
In the business environment today the higher-quality products are show up on increased global competition and the standard high-quality continuous increasing. This is the new trend on operations management to produce high-quality products but end up with the lower cost.
Many companies today are taking up the challenge to produce the environmentally friendly products with environmentally friendly processes which undertake of operations management. They were concerned about environment issues and the increased of disposal costs that happened much more than before. This is an opportunity on operations function to create an environmentally sensitive production, green manufacturing and recycle materials throughout the new business world.
Operations management is recognized today as a critical functional area which works closely together with every organization. The essential role of operations management which concentrated on the minimizing costs and it has been replaced by value-added to the goods and services that organization provides. Some of major issues facing operations management today are changing business environment include: achieving and sustaining high-quality of products by controlling costs, reducing manufacturing times for new goods and services, working effectively with other functions to interact the goals, developing new technologies into operations processes, remaining the competitive, being friendly with customers and obtaining and keeping the qualities workers and managers. All of these issues are important to push the business to achieve their goal and for successful in operations management is do all of these at the level that is competition in both global and local markets.