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The Beginner’s Guide to Effective Operations Management and Cost Savings

Businesses cannot function without the right operations management. Good management of daily business operations is a critical component of reaching success. Failure to comply with the tenets of good management can have detrimental consequences such as low employee morale, decreased productivity, failure to pay supply chains, or decline in profitability. These are scenarios that you do not want to happen to your business ventures. Thus, operations management plays a crucial role in business survival.

What Does Operations Management Mean?

The term operations management refers to the administration of the best business practices in order to achieve the maximum level of being effective and efficient when it comes to the disbursement of resources within a company. This includes the proper handling of materials, machinery, technology, and laborers in order to make high-quality goods and services that will be beneficial for the company. All of these components must be managed well, from the strategic planning stage, implementation phase, supervision of the production, and final evaluation of outcomes for future innovations, in order for the company to remain profitable and competitive in the industry. Operations managers have the big responsibility of dealing with strategizing, forecasting, and overseeing day-to-day processes. The field of operations management is cross-functional as it ties with many other branches like marketing, sales, human resources, and finance, and these have a huge bearing on business outcomes.

The History of Operations Management

The field of operations management actually has historical origins. It is said that the Sumerians from 5000 BC (before Christ) started this concept with the tracking of their product inventory lists, daily transactions, and taxes. Later on, the Roman civilization used the earliest principles and methods of operations management in order to plan and build their many projects like the pyramids and the Coliseum.

There are many other highlights in history that have a great impact on what operations management has become today. During the Industrial Revolution in the 1760s to the 1800s, the foundations of the division of labor and the concept of interchangeable parts for maximum production efficiency came about. El Whitney, the inventor of the cotton gin, utilized these concepts to mass-produce 10,000 muskets.

In 1883, the idea of the stopwatch method came about thanks to Frederick Winslow Taylor, who had the idea of timing the tasks for complex projects. This became roots for the study and understanding of both efficiency and productivity. In the same token, Henry Ford, in 1913, paved the way for the very first moving assembly line the cut the production time for making cars. Post-World War 2, the Japanese developed a system that eliminates waste and increased product quality. There are many examples in history that stress the importance of operations management and highlight its significance on the success of a business.

The Importance of Operations Management

It is not an exaggeration to state the everything about business hinges on operations management. It has the capacity to plan, direct, and drive the manufacturing of goods and services. To compete in an ever-changing market, operations managers have to be efficient and productive to maximize profits, which is the primary element that determines a business’ survival. Operations management can influence customer service, product and service quality, proper functional methodologies, competitiveness in the market, technological advancements, and profitability. Failure to manage company operations will lead to detrimental results that can make a business fold.

Functions and Roles in Operations Management

A diverse set of functions and roles occur in the field of operations management. Most importantly, these functions and roles vary depending on the industry and the size of the business. Although some of the basic principles like striving for efficiency and productivity remain the same, there are differences in the details and execution. To illustrate, operations managers handling food and beverage have different roles from those dealing with car manufacturing. On top of that, certain procedures will vary if the business is a small start-up or a huge conglomerate.

There are many roles and functions such as managing projects, planning information systems, designing and developing products or services, tracking inventory through a supply chain, optimizing quality control, overseeing delivery to customers, maintaining facilities, forecasting for improvements, and more. Operations managers have the burden of carrying out these duties, so they need to be organized, analytical, resourceful, and skilled in dealing with people. Now that technological advancements are rapidly changing the business landscape; managers have to adapt so they can make effective decisions.

Operations Management Strategies

Since operations managers are deeply involved in many roles and functions, they have developed several vital strategies and tactics to ensure the smooth execution of their obligations and responsibilities. Here are several main strategic and tactical methods that these operations managers rely on:

Leveraging Data: Savvy operations managers depend on quality, accurate, and reliable data for their planning, strategic marketing, and decision making. Two common types of data analytics used are metrics on efficiency and effectiveness.

Controlling Data Challenges: At times, data can be compromised, making it difficult to compare. The task of securing data also rest on managers. Thankfully, newer systems and software make it so much easier to help managers go through the vast amounts of data that is generated daily in this techie world.

Analysis of Inventory: To effectively oversee and manage inventory in the supply chain, the Pareto Method of analysis is utilized. This is often referred to as ABC analysis because it divides the inventory into three categories. A has the most the value and tightest controls, B has mid-level valued, and moderate controls and C has the least values and least need for control.

Designing Processes: Operations managers work hard in making the best research, the right forecast, and the proper development of a sound process. This whole method takes a lot of energy and expertise from a skilled operations manager, but the work infused and time consumed ensure lasting results.

Forecasting and Goal Setting: These are vital tools that propel a business forward. Setting goals give the company and its employee’s direction and motivation. Forecasting helps with the setting of expectations. Often, these require looking at historical data to help with the analysis of the forever changing conditions. These tell managers if they need to adapt and change to remain competitive in the industry.

Collaboration Amongst the Various Departments: Collaboration among the different departments is necessary so that the finance, sales, marketing, and human resources teams can all work together in harmony for the betterment of the company. Effective collaboration is made possible through good communication and the swift exchange of ideas from people who know how to cooperate.

Corporate Social Responsibility: Being responsible for the environment as well as the communities that are directly affected by the business are key concerns that companies must take care of. This is especially true for the branch of manufacturing, which has legal repercussions.

Management of People: People or the employees and laborers will always be critical to the equation despite the many advancements in technology and machinery. Managing employees is critical to business success because they are the backbone of many companies. Without these people, many of the daily operations will cease, and companies cannot produce quality goods and services.

Levels of Operations Management

There are 3 levels of management that an operations manager is concerned about. The manager can utilize them in the pursuit of company goals, and these are strategic, tactical, and operational plans. These three levels work with each other in the achievement of goals. Strategic plans are necessary to make the right tactical moves, which are crucial for hitting targets. These affect the daily operational level, which is responsible for scheduling, monitoring, controlling, and adjusting all the elements involved in the production of goods and services. On top of these, the ranking of management working in operations has three levels: from low level, mid-level, and high-level operations managers.

Principles of Operations Management

The 10 principles of operations management presented in the 2007 conference of the APICS (American Production and Inventory Control Society) were drafted by Randall Schaefer, in collaboration with Steven Melynk, Ph.d. and professor of Operations Management at Michigan stated University. These 10 principles are what most operations managers use to achieve their business goals.

Reality: Different theories and techniques will not solve all your business problems. There is no universal solution to address the problems of your business.

Organization: All managers must be able to organize all aspects of production into one coherent whole to help with focus, so everything will be effective and efficient.

Fundamentals: Operations managers must know how to adhere to all the basic fundamentals because this is the basis of all successful production. Maintaining accurate inventory records, BOMs, and other general tasks are necessary for reaching the desired business outcomes.

Accountability: Everyone in the organization must be held accountable for everything that they do. When people know they are expected and accountable for their behavior, they try much harder.

Variance: Variance is part of every stage of business, so managers have to anticipate possible issues at every turn. This could involve improving workflow and ensuring total quality control to cut waste and increase profitability.

Causality: Since nothing is perfect in this world, problems will arise even with the best company efforts. Managers need to get to the root cause of the issues so that things will not escalate. This includes seeking client feedback and engaging in improvement efforts.

Managed Passion: It is vital to inspire people to go to work every day with vigor in their hearts. Passionate employees perform their jobs better, which has the capacity to drive your company forward. This means investing in human resources, so they continue to stay motivated.

Humility: Nobody wants to be around a domineering know-it-all, so it is important to acknowledge that operations managers and the staff don’t know everything. This way, seminars, and plans can be conducted so that everyone can learn and move in a unified way to achieve company goals.

Success: Managers need to be able to clearly define what they consider successful, so everyone in the company will have parameters to work within the process of hitting targets.

Change: Nothing is constant in this world, so everyone must learn to adapt to the changes of a forever growing market. This includes knowing the company’s customers, target clients, and what they want. It also involves knowing the competition and maintaining the best practices and technologies to always be one step ahead.

The Biggest Operations Management Challenges

Everyday operations managers from around the world face continual challenges on a daily basis. These can be divided into five categories:

  1. The first is the issue of globalization because the world has become a global village with countries affecting and influencing trade.
  2. The second is the challenge of sustainability, whether products and services can withstand the test of time.
  3. The third is issues of ethical conduct because some are tempted to cut costs for the sake of profit.
  4. The fourth is ineffective communication which causes confusion.
  5. And finally, the challenges of a faulty system design is critical as it influences overall company performance.

Tips for Good Operations Management

The number one tip for good operations management is that managers don’t just manage, but they must lead. Leaders inspire their staff to perform well by showing them how things are done. Leading by example is one of the best ways to get things done right. Effective managers know how to listen properly, so they can address issues and make significant changes for the betterment of the business. Good operations managers know that they cannot do it alone, so they appreciate the staff who are working alongside them to reach the company goals.