Understanding Operations Management: Principles and Practices

Posted on Mar 11, 2025 in Labor Sciences and Human Resources

Operations Management: An Introduction

What is Operations Management?

Operations Management (OM) involves designing, operating, and controlling a productive system that transforms inputs (physical resources and human talent) into outputs (goods and services). It’s a core area of any organization, focused on developing and managing value-adding processes using various tools, techniques, and methods.

Key concerns include quality, cost, service, and speed. Examples of companies that rely heavily on operations management include AirBnB, Uber, and Amazon.

Operations management encompasses various fields such as economics, engineering, purchasing, accounting, logistics, HR, and information management.

Conversion Process

Operations management varies across companies. For example, a car manufacturer’s operations differ significantly from those of an app developer. However, the main goal remains the same: converting inputs into desired outputs (code into apps versus parts into cars).

Activities of OM

Indirect Responsibilities:

Inform other functions of the opportunities and constraints of operations.
Encourage other functions to suggest how operations can improve its service to the rest of the organization.

Direct Responsibilities:

Developing an operations strategy for the organization.
Designing the operation’s products, services, and processes.
Planning and controlling the operation (e.g., JIT, TQM).

Manufacturing vs. Service

Manufacturing (Goods-oriented: More tangible) vs. Service (Act-oriented).

The outputs of goods and services are distinguishable by:

Tangibility: Goods are usually tangible, and services are intangible.
Storability: Tangible goods are storable.
Transportability: Goods are transportable, services are not.
Simultaneity: Services are produced and consumed at the same time.
Customer contact: Low contact (goods), high contact (services).
Quality: Goods are judged only on output, but services can be judged on how the operation is performed.

Challenges in Managing Services

Managing services is challenging because:

Service jobs are often less structured than manufacturing jobs.
Customer contact is higher.
Worker skill levels vary.
Employee turnover is higher.
Input variability is higher.
Service performance can be affected by worker’s personal factors.

Strategic Issues of OM

Determining the size of manufacturing plants.
Management of inventory levels through the supply chain.
Raw materials acquisition.
Quality control.
Materials handling.
Maintenance policies.

An operations management professional understands local and global trends, customer demand, and the use of labor in a timely, cost-effective manner to deliver customer expectations, including finding vendors.

Role of Operations Manager

What resources and in what amounts are needed?
When are they needed/ordered?
Where will the work be done?
How will the process conversion be designed?
Who will do the work?

Primary Performance Objectives of Operations

Do things right: Quality advantage (e.g., Apple).
Do things fast: Speed advantage (e.g., Inditex).
Do things on time: Dependability advantage (e.g., Amazon).
Change what you do: Flexibility advantage (e.g., Netflix).
Do things cheaply: Cost advantage (e.g., Primark).

Current Challenges in Operations Management

It isn’t easy to be an Operations Manager nowadays due to:

Global marketplace: One economy, one marketplace.
Flexibility: Capability to adapt (e.g., Kodak, Blockbuster failed to adapt).
Total Quality Management: Continuous attention to manufacturing details.
Technology/Ecommerce.
CSR: Worker investment + Environmental issues.
Management of Supply Chain: (e.g., Inditex, Amazon).

Supply Chain

A sequence of activities and organizations involved in producing and delivering a good or service.

Suppliers’ Suppliers -> Direct Suppliers -> Producer -> Distributor -> Final Consumer

Logistics is a subset of Supply Chain Management (SCM).

Factors Influencing Companies to Enter Foreign Markets

Increased sales due to market potential.
Geographic diversification.
Low-cost production.
Competition in the domestic market.
Sources of raw materials and component parts.

International Market Entry Strategies

Exporting

Minimizes risk of investment in another country.
Can gain experience and test a market before expanding production.
Disadvantages: Little control over export intermediaries + costs due to tariffs.

Licensing

Licensee carries out domestic logistics, therefore has little impact on logistics for the licensing product.
Licenser is paid a royalty but has little control.

Differences:

Franchising: Permits another party to use its brand name or business model for a fee.
Licensing: Sells another party the rights to use its intellectual property or manufacture the licensor’s products in exchange for royalty.

Joint Venture

Benefit from local partner’s knowledge.
Shared costs/risks with partner.
In many countries, it is the only possible way to do business.

Direct Ownership (Global Manufacturing)

Highest rewards and control.
Firm is totally responsible for marketing, distributing, and producing the product.
Can be achieved via acquisition of an existing plant or expansion.
Eliminates costs incurred in shipping, customs duties, exchange rate changes, etc.

Acquisition and Mergers

Related to direct ownership, providing full control but at high costs.

Acquisition: A company becomes the owner of another company in the market it wishes to enter.
Merger: Two or three companies come together, with control held by the company with the most capital or importance.

The Global General Environment

Countries still differ across political, legal, economic, and cultural dimensions.

Logistics and Operations Managers must deal with these dimensions when selecting strategy/entry mode/relationships with suppliers, clients, and competitors.

Political and Legal Forces

Representative democracies vs. totalitarian regimes.

Managers must be concerned about the political makeup of a foreign country because stable democratic countries with political freedom tend to have economic freedom and a well-defined legal system.

Economic Forces

Managers must understand how different economic systems work.

Free market economy vs. Command economy vs. Mixed economy.

Global organizations generally prefer a free-market system because:

Economy is in private hands, with fewer restrictions to invest.
Free-market economies tend to be more economically developed, with higher per capita incomes and more spending power.

Sociocultural Forces

Management practices effective in one country might fail in another due to cultural differences.

Hiring local employees vs. expatriate managers involves trade-offs.

Hofstede’s cultural dimensions help analyze sociocultural aspects:

Power distance index: How power is distributed in a society.
Individualism vs. collectivism: Individualistic societies prioritize individual needs.
Masculinity vs. femininity: Masculine societies are more competitive.
Uncertainty avoidance index: The degree to which a society needs control and information.
Long-term vs. short-term orientation: Long-term oriented societies plan for the future.
Indulgence vs. restraint: Indulgent societies have softer social rules.

Global Logistics

As an OM, strategies we can control include:

How to export.
What inventory strategy to use.
Whether to centralize or decentralize logistics.

Uncontrollable elements of global logistics:

Political and legal systems of foreign markets.
Economic conditions.
Degree of competition in the market.
Level of distribution technology available or accessible.
Geographic structure of the foreign market.

Logistical Implications of Internationalization

Internationalizing logistics networks has consequences for:

Inventory: Centralizing inventories can hold advantages in terms of inventory-holding costs and levels.
Handling: Logistics service practices and regulations differ across countries.
Transport: Localisation vs. International centralisation.

Time to Market

Product obsolescence: Extended lead times increase the risk of products becoming obsolete.
Inventory-holding costs: Lead time increases the holding cost of inventory.

Global Consolidation

Global consolidation occurs as managers seek to make the best use of their assets and secure the lowest-cost resources.

Familiar features include:

Sourcing commodity items from low-wage economies.
Concentration at specific sites.
Bulk transportation.

Challenges of International Logistics

Key issues include risks in terms of time and inventories:

Extended lead time of supply.
Extended and unreliable transit times.
Multiple freight modes and cost options.
Price and currency fluctuations.
Location analysis.

CSR in the Supply Chain

CSR in the SC deals with the social and environmental consequences of Supply Chain operations.

Companies are incorporating CSR standards in their supply chain by:

Increasing prices/premium (FAIR TRADE).
Creating 0 waste.
Selling products that sustain the environment.
Being supplied by renewable energy.

Product Design

Product design plays a strategic role in achieving organizational goals and is a major factor in customer satisfaction, product quality, and production costs.

What is Product Design?

The detailed specification of a manufactured item’s parts and their relationship to the whole.

Product design is the process of imagining and creating objects meant for mass production.

General Principles of Design

Design is important: Involves significant capital costs and sets the limits of the operation’s capability.
Design means satisfying customer needs: Should start and end with the customer.
Good design provides a competitive edge.
The design activity is a transformation process.

Factors Influencing Design

Mainly 5 factors influencing market opportunities for product designing:

Economic change: Markets require purchasing power.
Sociological and demographic change: Marketers are interested in population size, growth rate, age distribution, etc.
Technological change: The most dramatic force shaping people’s lives.
Political change: Marketing decisions are strongly affected by political environments.
Other changes: Market practice, professional standards, suppliers, and distributors.

Increase cost unnecessarily; insufficient quality leads to complaints and decrease demand.
Reliability: The product should function normally when used and last the expected duration.
Environmental impact: The product should not pose a hazard to the recipient.
Productivity: The product should be predictable with ease and speed.
Timing: The product should be available when expected.
Accessibility: The recipient should be able to obtain the product without difficulty.

Recognition of Need/Concept Generation

The designing process begins with recognition of need.

Definition of Problem

Must include all the specifications for the product to be designed.

Analysis and Evaluation

Analyze to determine whether the performance complies with the specification.

Evaluation is the final proof of a successful design.

Strategies for New Product Development

Market-driven: Customers’ needs are the primary basis for new product introduction.
Technology-driven: Vigorous use of technology and simplicity of operations changes.
Inter-functional view: Coordinated effort between functions.

Process Design

What is Process Design?

Process design is necessary to build new products.

Process design means the complete description of specific steps in the production process and linkage among the steps that will enable the production system to produce products of the desired quality, in the required quantity.

Interrelation Product Design – Process Design

Product design and process design are interrelated and should not be done independently.

Bringing them together has many benefits including better designs and faster time-to-market.

Small changes in the design of products and services can have profound implications for the way the operation eventually has to produce them.

The design of a process can constrain the freedom of product and service designers to operate as they would wish.

Process Design Principles

Work is performed where it makes the most sense.
Provide a single point of contact for customers and suppliers whenever possible.
Consider every handoff as an opportunity for error. Have as few people as possible involved in the performance of a process.
Redesign the process first, then automate it.
Capture information once at the source and share it widely.
Ensure 100% quality at the beginning of the process.
Push decision-making down to the lowest levels that make sense.
Use simulation, practice, or role play to test new process designs risk free.
If your process deals with complexity, then consider using teams.
The people who work in the process should be very involved in the analysis, design, and implementation of improvements.
Create a process consultant for cross-functional processes.

Ethics and Environmentally Friendly Processes

Operations managers can be environmentally sensitive and still achieve a differentiation strategy and even a low-cost strategy.

Four Process Strategies

Process Focus: Low volume, high variety (projects, job shops).
Mass Customization: High volume, high variety (difficult to achieve, but huge rewards).
Repetitive: Changes in modules (autos, motorcycles, home appliances).
Product Focus: High volume, changes in attributes (commercial baked goods, steel, glass, beer).

Service Process Design

Mass Service: Low degree of customization, high degree of labor.
Professional Service: High customization, high labor.
Service Factory: Low customization, low labor.
Service Shop: High customization, low labor.

Risk Response Planning

Prevention: Stop the risk occurring or negate its impact.
Reduction: Reduce likelihood of risk occurring or minimize its likely impact to acceptable levels.
Transference: Transfer the impact of risk to a third party.
Contingency: Actions planned and organized to occur if/when the risks occur.
Acceptance: Where the risk impact is judged to be of no significance.

Management/Leadership Style

Some common management/leadership styles are:

Autocratic: Manager makes decisions with little subordinate involvement.
Laissez faire: Manager does not interfere with subordinates.
Democratic: Manager allows subordinates to discuss issues and reach decisions.
Discussing: Two-way communication and discussion.
Directing: Managers tell people what tasks will be performed and when and how they should be done.
Delegating: Manager delegates to get consensus.
Coaching: Manager issues instructions.
Facilitating: Manager coordinates inputs before making a decision.
Participatory / Supportive / Task oriented / Team-based.