Lesson 5 – Introduction to Operations Management

Introduction to Operations Management

Operations management usually starts out as one of the “hats” that a business owner wears. As your business grows, you can consider bringing in help to pick up certain elements of the operation.

Defining Operations Management

Operations management is about how you do what you do every day to make sure that the business is running efficiently. The nature of your company will decide some of these things, naturally, but the actual functions don’t differ at all. An operations manager may look after other elements of the business as well as operations, depending on the size and complexity of the operation.

Operational functions include:

• Designing
• Planning
• Organizing
• Directing
• Controlling

This means that we:

• Gather resources (ideas, people, space, and money)
• Design products and/or services and decide how to deliver them
• Sell, distribute, and service those products and/or services
• Learn and improve the operation based on feedback

Operations is called a transformational process, because we take an undeveloped product (or service), make it into something that we can sell, and then sell it. While this transformation takes place, we apply our operations strategy to it.

If we drew the process, it might look something like this:

Types of Operations

You’ll need to carefully determine the type of operation you run so that you can remain flexible for changing markets and still meet licensing and regulatory requirements. In Canada, for example, anyone can set up a sole proprietorship and work from home. However, that same person might have to get a business license from their town or city to be allowed to have customers visit. The tax department has rules about how income is treated and what items you can write off against that income. In addition, while some businesses have to abide by regional rules (a company that manufactures car parts, for example), transportation businesses like airlines and trucking companies have to abide by federal regulations. As your company scope grows and you wish to do business across regions or in other countries, you have to follow those rules, too.

When we talk about operations management, we generally categorize the business in the following ways (with plenty of overlap just to keep things interesting!):

• Manufacturing
• Transportation
• Supplies
• Service

Manufacturing

This is about things that we physically make, such as picnic tables, computer components, rakes, and tractors. It also includes the way that we run factories, manage inventory, and perform related activities.

Transportation

This is how we get our materials to our customers. It can include a fleet of delivery vans, large tractor-trailer units, taxis, and aircraft.

Supplies

These are products that someone purchases from the company. Retail stores, grocery stores, and equipment for dentists are all supplies where the ownership starts out with your company and then changes over to a purchaser.

Service

Service can refer to customer service that the company provides. For example, a server in a restaurant provides a service, as does the chef who prepares the meal. Service can also be provided by someone in a call center who answers the phone when customers call with questions. Perhaps we need to rent a car for two weeks, in which case we are using a rental service. Part of the service application can also include the way in which the company collects feedback (customer surveys, for example) or the way they process purchases (in person with cash or a credit card, on a smartphone, or online).

Overlaps

Naturally, there are companies who provide products or services that come from more than one area. This adds complexity to the operations management function, but is of the business world. For example, a company like Ikea Furniture has operations around the world. They manufacture and distribute furniture and accessories to their stores, and then sell, deliver, and in some instances assemble or install those purchases. They are involved in business as a manufacturer, a transportation provider, supplier, and service.

Buffers

You will also see businesses who build buffers into their operations system. For example, a company that makes computers needs a steady supply of equipment and components in order to produce a complete unit. If a particular component is unavailable, the company cannot meet their manufacturing demands, and their customers will look elsewhere for their computers. As a result, the company may stockpile critical components in order to meet their targets. They also may arrange for backup suppliers or, to minimize the risk of a supply shortage, they’ll also use several different suppliers.