Operations management is a complex process that refers to all activities in regard to the products or services that a company provides. Every organization undergoes a large variety of operations, including forecasting, capacity planning, scheduling, quality control, service design, etc. (Stevenson, 2005). From these considerations, operations management is crucial to the development of the company and the continuous production of goods and services. A comprehensive understanding of operations management might significantly improve the productivity of the organization and reach the highest level of efficiency (Stevenson, 2005). The current paper examines the primary function of operations management in business organizations, describes the potential competitive advantages, and analyzes the various elements of operations management.
Operations Management Overview
As mentioned briefly before, operations management concerns all the activities in regard to goods and services produced by the company. Operations management is frequently understood as a complex system of interrelated activities with the purpose of maximizing the efficiency and productivity of the organization (Porter, 2009). In other words, the organization cannot reach its full potential without a comprehensive operations management plan.
The general responsibilities of operations management include planning, controlling, organizing, staffing, and directing (Stevenson, 2005). Furthermore, all the activities are classified into input, transformation processes, and output functions (Porter, 2009). Inputs refer to the initial resources, such as labor and capital; outputs are the eventual goods or services; transformation processes concern the activities that change the inputs to outputs (Stevenson, 2005). Ultimately, there is a large number of operations that define the development and productivity of the organization.
Strategies and Productivity
Depending on the chosen strategy, operational activities might significantly differ in various organizations and pursue diverse agendas. For instance, certain operation tactics in such areas as quality, product design, or inventory may affect the overall costs, liabilities, and productivity (Stevenson, 2005). In other words, the companies must continuously improve their business strategies to stay competitive in the evolving market.
Productivity is one of the central terminologies for every organization, which determines the efficiency and competitive advantages (Stevenson, 2005). Some of the well-known methods to improve productivity are continuous innovation, objective establishment, and reward systems (Stevenson, 2005). Ultimately, the competitiveness, strategies, and productivity of the company significantly depend on all operations of the organization. Therefore, it is essential to provide a thorough description of all primary elements of operations management to comprehensively understand the system.
Forecasting is a significant operation that predicts the future value of goods or services provided by the company. This activity is highly significant for the majority of business groups and allows them to make thoughtful and informed decisions concerning supply, cost estimates, and potential workloads (Stevenson, 2005). The two most significant factors of forecasting are the expected level of demand and accuracy (Stevenson, 2005). The former is the primary metric of forecasting and depends on trends and seasonal variation (Stevenson, 2005). Accuracy refers to the degree of forecast error, and it is essential to provide up-to-date information to maximize precision (Stevenson, 2005).
Besides the accuracy, a good forecast should be timely, reliable, cost-effective, and easy to understand (Stevenson, 2005). At present, there is a large number of prominent models that are used to predict the value of a product in the future. Most of them can be classified into qualitative or quantitative forecasting models, depending on the approach (Stevenson, 2005). Some of the forecasting models are judgmental, time-series, and focus frameworks (Stevenson, 2005). Ultimately, forecasting is a crucial operation that allows maximizing the potential productivity and minimizing the risks.
Capacity planning is another significant metric that should be taken into account in the initial phases of organization development. In general, this operation refers to the upper limit of any operating unit (Stevenson, 2005). For instance, capacity planning may concern labor capacity, production capacity, or sales force capacity (Stevenson, 2005). The ultimate aim of this system is to avoid overcapacity and undercapacity, which would inevitably result in losses of profits or customers (Stevenson, 2005). For this purpose, the operations management personnel need to utilize the forecasting models to predict the expected level of demand and provide the corresponding capacity planning metrics. However, it is also possible to implement various capacity strategies, such as leading, following, tracking strategies, or capacity cushion, to make the operations more flexible (Stevenson, 2005).
In such cases, capacity planning depends less on forecasting accuracy but still carries out its mission. It is also possible to utilize additional expansion strategies, such as expand-early and wait-and-see capacity planning, depending on the goals of the organization (Stevenson, 2005). Overall, capacity planning is necessary for the organization’s development.
Product and Service Design
Product and service design is an initial operation that defines the business functions and production of the organization. This activity generally includes idea generation, product screening (market, economic, and technical analysis), preliminary design, and final design of the goods or services (Porter, 2009). All the steps of the operation ensure the validity, relevance, and demand of the designed products in the market. From these considerations, it is essential to allocate sufficient time and finances for product and service design. Furthermore, it is important to maintain the balance between the customer’s needs and design for manufacture (DFM) (Porter, 2009). DFM ensures that the designed goods and services might be produced with the least possible expenses and efforts while preserving the highest quality (Porter, 2009). Therefore, it is the responsibility of operations management to thoroughly analyze the market, the capabilities of the company, and the finances and develop an appropriate product design.
Facility Location and Layout
The choice of the organization’s location and layout is highly important to maximize its business potential. The three most significant location factors are proximity to customers, proximity to suppliers, and proximity to labor (Porter, 2009). These characteristics minimize transportation expenses and increase the delivery speed (Porter, 2009). Facility layout primarily concerns the equipment and storage space of the organization (Porter, 2009). Depending on the objectives and chosen strategies, the operations management executives generally choose process, product, or hybrid layout (Porter, 2009).
The process layout categorizes people and equipment according to the primary function, and the product layout implies the location of equipment based on the line of production (Porter, 2009). A hybrid layout attempts to merge the two approaches by utilizing the time-efficiency of the product layout and flexibility of the process layout (Porter, 2009). Therefore, most organizations choose one of three described layouts for effective manufacturing. Nevertheless, despite the selected framework, the management of the organization needs to thoroughly analyze its objectives and business functions to choose the appropriate location and layout.
Design of Work Systems
This particular operation generally refers to the implementation of innovative work system designs in order to maximize the productivity of the organization. Some of the prominent strategies include job enlargement and job enrichment, which add an important variety of tasks and duties (Porter, 2009). For instance, the rotation of roles is a frequent type of job enlargement that is supposed to stimulate the workers for better results (Porter, 2009).
Nevertheless, these strategies are commonly used in highly structured jobs with little creativity involved; if the occupation requires a flexible approach, neither job enlargement nor job enrichment is needed (Porter, 2009). However, it is possible to enhance the work system designs in most cases by utilizing other methods. For instance, work sampling is an algorithm that allows revealing the percentage of tedious tasks among the duties of the workers (Porter, 2009). The learning curve is another method that allows predicting the experience growth of the employees to assign more difficult and rewarding tasks (Porter, 2009). Overall, work system designs should be implemented according to the expertise of the staff members.
In general, quality refers to the capability of certain goods or services to meet the expectations of the client base. The level of quality has a direct dependence on the satisfaction of the customers, and, therefore, quality is one of the focus points of every organization (Stevenson, 2005). There is a large number of variables that determine the quality of goods and services. For instance, the product quality dimensions are performance, aesthetics, reliability, durability, conformance, serviceability, etc. (Stevenson, 2005). Consequently, service quality dimensions are convenience, reliability, responsiveness, time, assurance, and others (Stevenson, 2005).
Since quality is a part of many key areas of goods and services, every employee has a certain degree of responsibility to make the ultimate product as high-quality as possible. In turn, a good quality provides a large number of benefits for the organization, such as enhanced reputation, increased market share, customer loyalty, and higher profits (Stevenson, 2005). Ultimately, maintaining a high quality of goods and services is essential for any type of company.
For this purpose, many organizations adopt the philosophy of total quality management (TQM). TQM is a theory of continuous quality improvement that consists of three primary statements: customers’ needs must be met, company culture should not be neglected, quality is the responsibility of all employees (Porter, 2009). There is also a large number of additional TQM elements, such as team approach, a comprehensive understanding of tools, supplier quality, etc. (Stevenson, 2005).
In theory, TQM is a philosophical model of continuous improvement with no apparent drawbacks; however, certain challenges may obstruct the implementation of TQM. For instance, a lack of strategic planning, customer focus, and leadership might prevent the company from TQM (Stevenson, 2005). Therefore, the management needs to take definitive measures to improve the company culture and acquaint the employees with the principles of TQM.
Lastly, there is a large number of tools and methods to achieve the desired levels of product and service quality. The most basic tools include flowcharts, check sheets, histograms, Pareto charts, scatter diagrams, and control charts (Stevenson, 2005). Despite the apparent simplicity of these instruments, they might significantly facilitate quality management. Some other methods to ensure the highest quality of the products are quality circles, brainstorming sessions, benchmarking process, and the selection of appropriate operation strategies (Stevenson, 2005). These tactics are useful not only to ensure the quality of the goods but also to generate new ideas of how to improve production. Overall, quality is essential for every company, and significant effort should be made to guarantee that the customer gets the best product possible.
Nevertheless, despite the utmost significance of quality management, there is always a chance for defective work and a margin of error. In such cases, quality control is essential to prevent incomplete products from being sold to customers. In general, quality control is a process that assesses the product and implements the necessary modifications if needed (Stevenson, 2005). The two primary approaches of quality control are inspection and detection (Stevenson, 2005). The former covers the review of the input materials and the complete product, while detection emphasizes the whole production process (Stevenson, 2005). At present, there is also a large variety of computational algorithms to calculate the margin of error in manufacturing based on the chosen sampling (Stevenson, 2005). Ultimately, quality control is a necessary process to ensure that all the production of the organization meets the contemporary standards of the industry.
Supply Chain Management
A supply chain is a broad term that covers a large number of activities and facilities that are involved in the production and delivery of goods and services. This operation includes the sequence starting from buying the raw materials from the suppliers to presenting the ultimate product to the customer (Stevenson, 2005). In other words, such operations as forecasting, purchasing, and quality control are elements of a supply chain (Stevenson, 2005).
Similar to operations management, the primary objective of supply chains is to match the supply to demand and, therefore, maximize the productivity and efficiency of the organization. At present, some companies choose global supply chains due to cheaper materials and labor costs in certain countries and regions (Stevenson, 2005). However, such organizations might frequently encounter challenges, such as language differences, political instability, and transportation delays, due to the global nature of the activity (Stevenson, 2005). Ultimately, supply chains are highly significant to the success of the organization, and the management needs to assess all pros and cons before selecting the strategy.
In most organizations, inventory refers to materials, items, and tools which are necessary for the consequent activities. In this sense, inventory management is one of the most significant initial operations that prepare the assets to be sold or used (Stevenson, 2005). To maximize the efficiency of inventory management, it is necessary to establish a tracking system of items and maintain a proper balance between the amount of equipment and the objectives of the organization (Stevenson, 2005). Similar to most operations, an exceeding number of tools might initiate profit loss, while the insufficient amount of equipment might result in customer dissatisfaction (Stevenson, 2005).
For this purpose, the accountable personnel need to maintain a correct ratio of inventory of all times to minimize the potential expenses. Furthermore, the management needs to take into account the inventory expenses, such as purchase, holding, ordering, setup, and shortage costs, to choose an appropriate strategy (Stevenson, 2005). Lastly, it is possible to minimize the costs of inventory management by reducing the margin of error in other operations, such as forecasting or supply chains (Stevenson, 2005). If all the variables are taken into account, the correct course of inventory management might significantly improve the productivity and profits of the company.
Aggregate planning or sales operations planning is a form of capacity planning that typically extends on the period from 2 to 18 months. This strategy is highly effective for organizations with seasonal demand variations (Stevenson, 2005). Similar to other capacity planning programs, the primary objective of aggregate planning is to optimize the supply-demand ratio and satisfy the needs of the customers (Stevenson, 2005). While the period of aggregate planning typically ranges from 2 to 18 months, most companies choose 3, 6, 9, or 12-month forecasts depending on the seasonal variation in demand (Stevenson, 2005).
There are several additional factors that might improve the accuracy of aggregate planning. Namely, the strategies of hiring temporary workers, the introduction of overtime schedules, and production of the goods and services with known demand (Stevenson, 2005). Following the primary principles of aggregate planning, the whole operations management system will be more flexible and prepared for unexpected demand and supply variations.
Material Requirements Planning and Enterprise Resource Planning
Material requirements planning (MRP) and enterprise resource planning (ERP) are computer-based models that are utilized to balance the material supplies to demand over a certain period of time. MRP is one of the earliest algorithms that paved the way for future generations, such as MRPII and ERP (Kenton, 2021). MRP utilizes the master schedule requirements for the end productions and classifies all the intermediate processes into time frames (Stevenson, 2005).
Therefore, MRP ensures that the organization has the necessary materials at all times and optimizes inventory management (Kenton, 2021). There are four primary conditions that should be met for successful MRP – demand evaluation, inventory assessment, production scheduling, and proper observation (Kenton, 2021). As a result, MRP might significantly improve the productivity of the organization by optimizing the production process.
Consequently, ERP is a more innovative algorithm that elaborates on the concept of MRP. ERP is a software model that comprises all the aspects of an organization, such as inventory, marketing, sales, HR, and others, and allows for better communication among the business areas (Stevenson, 2005).
In this sense, ERP follows the principles of MRP but is a much broader system that covers additional operations. The primary advantages of ERP include better supply chain management, improved customer-supplier relationships, and allows continuous improvement (Stevenson, 2005). Nevertheless, there are certain disadvantages as well: ERP is associated with high costs of installing and maintaining, the necessity of updates, and additional training (Stevenson, 2005). However, if the organization implements the changes step-by-step, it is possible to utilize MRP and ERP systems to their full potential.
Just-in-time (JIT) systems and lean operations are process strategies that maximize the productivity of the organization and increase the flexibility of inventory management. The underlying principle of JIT is that the company receives the necessary supplies immediately before the production process (Banton, 2021). This approach allows increasing the efficiency of the manufacturing system, reduce waste, and minimize inventory costs (Banton, 2021). Furthermore, JIT systems are associated with improved schedule flexibility due to the specificities of the process design (Stevenson, 2005).
However, there is a number of restricting factors that the organization needs to take into account. Namely, JIT production highly depends on supplier management, the absence of machine and equipment breakdowns, and high-quality production (Banton, 2021). Additionally, there are certain risks associated with supply chain management. For instance, the pioneers of the approach, Toyota Motor Corporation, have lost approximately 160 billion yen due to the fire break out in the supplier location (Banton, 2021). Therefore, JIT systems and lean operations might be highly efficient; however, the management needs to assess the risks before implementing the framework.
Lastly, some of the mentioned operations, such as aggregate planning or ERP, are frequently considered as part of master scheduling. Master scheduling ensures that there is sufficient time and material to meet the established levels of demand (Stevenson, 2005). The interrelated operations generally concern marketing, and capacity, production, and distribution planning (Stevenson, 2005). In other words, master scheduling is a complex system of operations management that transforms the initial inventory and customer orders into projected inventory and a schedule of activities. If everything is implemented correctly, the operation allows for better work efficiency and a correct balance of production capacity and demand.
Summing up, the current paper has examined the primary function of operations management and thoroughly described each sub-activity of the system. Some of the most significant processes of operations management include forecasting, capacity planning, product design, facility location, quality control, supply chain management, MRP, ERP, lean systems, and others. The profound understanding of each operations management element significantly improves the knowledge of the system as a whole. Therefore, it is essential to elaborate on any potential misconceptions about all the activities before implementing operations management framework in the organization.
Banton, C. (2021). Just in time (JIT). Web.
Kenton, W. (2021). Material requirements planning (MRP). Web.
Porter, A. (2009). Operations management. Ventus Publishing.
Stevenson, W. J. (2005). Operations management (8th edition). McGraw-Hill.