Managing Operations

What is Operations Management `{`Theory & Practice`}`?

Operations management is the administration of business practices aimed at ensuring maximum efficiency within a business, which in turn helps to improve profitability.

It involves resources from staff, materials, equipment, and technology, converting these inputs into efficient and effective outputs on both day-to-day and strategic levels within an organization.

Operations management is basically people management. Most business departments focus on very specific goals – marketing means getting more sales for your business, HR keeps your employees happy, and so on.

 

Operations management, on the other hand, involves getting the most out of your company resources. These can involve your employees (doing more work that creates value), technology (maximum efficiency in manufacturing, for example), equipment (help employees do more work), and so on.

As you’ve probably figured, operations management involves dealing with a lot of different areas. Hence, it’s important for your COO (chief operations officer) to have a background in all sorts of disciplines, from manufacturing to people-management.

 

 

In most cases, Operations management involve…

  • Process Design – Figuring out the exact steps needed to be carried out so that the organization meets its business goals. This can mean helping plan out a one-time project or creating procedures for repeatable work. A real-life example of operations in projects would be, for example, creating a timeline for developing some software for the client. For a process example, the COO could create a structured employee onboarding procedure to make the whole onboarding more efficient.

 

  • Standard Management – Helping create and optimize budgets, scheduling equipment maintenance, ensuring that the employees are following standard procedures, etc.

 

  • Process Improvement and Optimization – Most businesses have a “don’t fix what’s not broken” policy towards their processes. More often than not, though, you could potentially get a lot more from your business if you constantly check on your processes. The COO is supposed to make sure that all your processes are as efficient as they can be.

In smaller companies, operations are very simple and straightforward. Everyone takes part in managing the processes, and more or less, things go smoothly.

The same, however, doesn’t apply to companies with 20+ employees. That’s when things start getting complicated. You can’t just rely on your employees to do work right – you need to have standardized procedures to ensure that everything as efficient as possible.

If done right, operations management can lead to…

 

  1. Better Output– The operations manager optimizes and improves processes that have a heavy impact on the product or service. This usually leads to higher output, lower defect rates, lower costs, and so on.
  2. Competitive Advantage– Better output leads to a better product or service. This allows your organization to stand out from the competition, gaining new customers.

There’s no step-by-step guide to operations management. Unlike most fields, it involves knowing a lot of different things, from finance to HR.

Knowing your way around process management, though, will make operations significantly easier.

While there are a lot of different approaches there, the following 4 are the most popular.

 

  1. Business Process Management (BPM)

BPM is something every operations manager should have a good hang of. Chances are, you’ve heard the term before – and no, it’s not just another buzzword.

Business process management is the methodology of constantly analyzing, improving and automating processes. It’s not something you do just once, though – you need to be on a constant lookout for potential improvements.

Putting that into practice, you should have a general idea of what the BPM lifecycle consists of. i.e., the exact steps you need to take to work on any given process.

The steps are…

  • Design – Every company has processes. Not all of them, however, are really outlined. More often than not, they’re implicit. The “design” part means identifying a process and figuring out where it starts, what it consists of, and where it ends. To learn more about business process design, check out our guide.
  • Modeling – Once you’ve identified a process, you need to put it down on paper. Without something to look at, the analysis part can be quite hard. Usually, you’d go for a workflow diagram if the process is simple, or one of the many business process mapping techniques, if it’s not. To learn more about business process modeling, check out our guide.
  • Analysis – Now that you have a workflow diagram ready, you can start analyzing it. Are there any steps within the process that don’t really add value? Are there any ways to remove them? Are there any steps you could just automate using software? To learn more about business process analysis, check out our guide.
  • Monitoring – You can’t improve a process without knowing how well it’s performing as-is. Plus, you should also be able to figure out whether the changes you’re making have a positive impact or not. So, gather the benchmark data for the process as-is and compare it to the data you get post-improvements.
  • Improving or Automating – Use the insights you’ve identified in the “analysis” step to make changes to the process. You can either improve it by working with the process steps or automate certain steps using software or hardware. To learn more about business process improvement or automation, check out our guides.

 

  1. Business Process Reengineering

Sometimes, improving processes isn’t the most efficient thing you can do. Instead, you want to re-engineer it (not just a business buzzword, we promise!). Meaning, instead of improving a process, you re-create it from scratch.

In most cases, this is done with the help of technology. After all, you can’t really change something fundamentally just like that.

To give you a better idea of how this works, we’ll look into an example of how Ford completely re-engineered their accounts payable department.

The major problem was that the department was significantly overstaffed. They employed 500 people, as opposed to 5 in the same department at Mazda (a partner company).

Ford launched a BPR initiative to figure out why they were underperforming. The old process worked as follows…

  • The purchasing department receives a purchase order. The copy is forwarded to the accounts payable
  • Material control receives the goods & send a copy of the delivery document to accounts payable
  • The vendor sends a receipt to accounts payable
  • The accounts payable matches the three separate documents, and only then is the payment issued

Or, as it would look like in a graph…

 

As you’ve probably already guessed, this makes the whole thing extremely time-consuming. Hence, you’d need a lot of employees to keep doing this on the go.

Realizing this, Ford completely re-engineered the process. Instead of doing everything manually, they created an online database which was used to match the different documents.

Accordingly, an operations manager can use business process reengineering to make significant improvements to company processes.

  1. Six Sigma

The two methodologies we’ve mentioned until now dealt with business processes.

Six Sigma, on the other hand, focuses on manufacturing processes. The main idea behind it is minimizing defect rates – for every million opportunities, you shouldn’t have more than 3.4 inefficiencies.

While there are a lot of Six Sigma tools out there, DMAIC is one of the most popular ones. The methodology helps perfect your manufacturing processes & consists of 5 steps…

  1. Define – Outline what the issue with any given manufacturing process is. Decide on the improvement goal & which tools or resources you’re going to use
  2. Measure – Look at the process as-is and measure its performance. Once you know what the metrics are, you’ll have a better idea on how to improve them.
  3. Analysis – Find the root cause of the issue. Why is the process underperforming?
  4. Improvement – Once you’ve identified the problem, try finding potential solutions.
  5. Control – Implement the new process on a small scale and benchmark the new results to the old.

 

  1. Supply Chain Management

Another major aspect of modern operations management is supply chain management.

As organizations have become more complex and much more international in their scope, the strategic process by which materials, goods and information flow between suppliers, businesses and consumers has become an industry in itself.

Keeping the supply chain healthy and moving is in the interests of everyone involved, but there are many factors that can slow things down.

Compared to some of the other aspects of operations management mentioned so far, supply chain management is relatively recent, with the term only originating in 1982 and not becoming commonly used until the 1990s.

Supply chain management oversees each touch point of a company’s product or service, from its creation to the sale, and this makes it an important aspect to manage as getting it right or wrong affects efficiency, costs, and profits.

Using Software to Super-Charge Operations Management

As we’ve already discussed, one of the biggest aspects of operations management is process improvement.

If you’re doing this manually, it can be a bit rough…

  • Your employees won’t always follow the best practice with the process
  • You’ll need to map business processes & store them manually
  • You’ll have to keep continuously track process metrics

Operations management is now a multidisciplinary functional area in a company, along with finance and marketing. It makes sure the materials and labor, or any other input, is used in the most effective and efficient way possible within an organization – thus maximizing the output.

Operations management requires being familiar with a wide range of disciplines. It incorporates general management, factory- and equipment maintenance management by tradition. The operations manager has to know about the common strategic policies, basic material planning, manufacturing and production systems, and their analysis. Production and cost control principles are also of importance. And last, but not least, it has to be someone’s who is able to navigate industrial labor relations.

The skills required to perform such work are as diverse as the function itself. The most important skills are:

  • Organizational abilities. Organizing processes in an organization requires a set of skills from planning and prioritizing through execution to monitoring. These abilities together help the manager achieve productivity and efficiency.
  • Analytic capabilities/understanding of process. The capability to understand processes in your area often includes a broad understanding of other functions, too. An attention to detail is often helpful to go deeper in the analysis.
  • Coordination of processes. Once processes are analyzed and understood, they can be optimized for maximum efficiency. Quick decision-making is a real advantage here, as well as a clear focus problem-solving.
  • People skills. Flaws in the interactions with employees or member of senior management can seriously harm productivity, so an operation manager has to have people skills to properly navigate the fine lines with their colleagues. Furthermore, clear communication of the tasks and goals serves as great motivation and to give a purpose for everyone.
  • Creativity. Again, problem-solving skills are essential for a creative approach if things don’t go in the right direction. When they do, creativity helps find new ways to improve corporate performance.
  • Tech-savviness. In order to understand and design processes in a time when operations are getting increasingly technology-dependent, affinity for technology is a skill that can’t be underestimated. Operations managers have to be familiar with the most common technologies used in their industries and have an even deeper understanding of the specific operation technology at their organizations.

Some of the fundamentals of the everyday work in operations management worth expanding a little more. Below you will find two major approaches that are important to understand the driving forces behind the decisions about planning, designing and organizing processes.

They are both embracing the idea of focusing on the delivery: supporting the organization to deliver better results, by an optimized input of materials, equipment, technology, and human resources.

 

The ten principles of OM by Randall Schaeffer

Randall Schaeffer is an experienced manufacturing and operations management professional, an industrial philosopher, and regular speaker at conferences organized by APICS, the leading US association of supply chain and operations management. He presented his list of 10 principles of operations management at an APICS conference in 2007, saying the violation of these principles had caused the struggle US manufacturing companies were experiencing.

  • Reality. Operations management should focus on the problem, instead of the techniques, because no tool in itself would present a universal solution.
  • Organization. Processes in manufacturing are interconnected. All elements have to be predictable and consistent, in order to achieve a similar outcome in profits.
  • Fundamentals. The Pareto rule is also applicable to operations: 80% of success comes from a strict adherence to precisely maintaining records and disciplines, and only 20% comes from applying new techniques to the processes.
  • Accountability. Setting relevant KPIs to make sure the employees are engaged in your organizational goals & accountable for them.
  • Causality. Problems are symptoms: effects of underlying causes. Unless the causes are attacked, the same problems will appear again.
  • Managed passion. The passion of employees can be a major driver of company growth, and it can be instilled by the managers if not coming naturally.
  • Humility. Instead of a costly trial and error process, managers should acknowledge their limitations, “get help, and move on.”
  • Success. What is considered success will change over time, but always consider the interest of the customer. In order to keep them, all the other principles have to be revised occasionally.
  • Change. There will always be new theories and solutions, so you should not stick to one or the other, but embrace the change, and manage for stability in the long term.

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