Operations Management - Principles and Theories

Imagine a world in which your business maximises all its resources and minimises its costs to produce the optimal output. That sounds like a dream, but it also sounds like what you can achieve with operations management.

All businesses face constraints and challenges when working towards meeting their customer’s needs. However, there are methods by which you can still produce desired results and reach your business goals.

Let’s take a look at what operations management means, the skills you need, some useful management theories and how automation tools can support your endeavours.

Table of Contents

What is Operations Management?

Once called production management, the practice of operations management originated in manufacturing. It is a management area that deals with implementing the most optimal business practices to achieve the highest levels of efficiency. It is all about how to convert raw materials and labour into goods and services to maximise profits.

Operations management professionals balance costs and revenue with a focus on maximising net operating profit. To do so, operations management is a multidisciplinary discipline that works across departments and relies on the involvement of marketing and finance teams, too.

Those who work in operations management should not only understand the inner workings of a business’ processes, but they should also be constantly aware of the shifting demands in the economy and marketplace.

Understanding Operations Management: What it Involves

Operations management involves all the steps and departments it takes to move materials into a product or service that is then delivered to a customer. This means that operations management considers materials, technology behaviours and equipment. In essence, operation managers deal with logistics and supply chain management.

Since the field requires knowledge about so many aspects of the business, market and analytics, it necessitates special skills.

Skills Needed for Successful Operations Management

• Understand the processes: Firstly, an operations manager must be attuned to how business processes operate within an organisation. This is how they can find gaps or inefficiencies and provide process improvement tactics to reduce waste.
  

• Understand local and global trends and resources: An operations manager has to understand what is going on in the economy to make informed decisions about vendors and supply chain management. He or she is also acutely in tune with the changing needs of customers and what resources are currently available to deliver output.
  

• Prompt delivery of goods: Heading up logistics, an operations manager seeks to minimise the number of steps from product to delivery of goods. This helps to ensure customer satisfaction and keeps costs lower.
  

• Develop new processes: Based on the efficiency of current processes, an operations manager can leverage analytics to see where improvements may be made. They are pivotal players in developing new processes to be more efficient. Data automation tools can connect all legacy and data systems to drive real-time analytics and trends to help with this. It can also map out processes to find weaknesses to reduce critical man dependency and improve compliance.
  

• An MBA: Often, those in the field of operations management have graduated with their MBA. This grants them with the skills and knowledge to understand industry trends and stay up-to-date on policies and regulations.
  

• Organisational abilities: Undoubtedly, operations management requires utmost organisational skills. Since there are so many moving parts and people involved in the business’ operations, it’s up to the operations manager to ensure that things move fluidly.
  

• Analytical abilities: With the help of data analytics and tools, operations managers can keep track of KPIs, costs and time of daily operations. In this way, they can analyse inefficiencies and address them.
  

• People skills: Operations management works alongside all departments within an organisation. The management professionals can help to create long-term bonds with vendors and work within a business to keep people motivated and aligned with business goals. This requires excellent communication and people skills to understand challenges and help resolve them as they arise.

• Creativity: In operations management, and business overall, there are usually many ways to approach a situation. The creativity that operations management teams can bring to the table could reshape an industry entirely and be a significant part of its success.
  

• Tech-savvy: These days, you’ll be hard-pressed to find any business that doesn’t rely on technology in one way or another. When it comes to operations management, technology is at the top of the list for tools needed. From data automation to logistics technology, operations management requires tech-savvy leaders.
  

10 Principles of Operations Management

According to operations professional Randall Schaeffer, these are the ten main principles of operations management:

Reality: Operation Managers need to stay focused on the issue at hand because tools, trends and techniques work in a broad sense, but there’s never a universal solution since Operations Management is so business-specific.

Organisation: Processes are interconnected in business in the same way as human biological systems work together to keep a person alive. This means that they require an organisation to keep movement flowing.

Fundamentals: The Pareto Rule of Efficiency (80/20 rule) works in operations management as 80% relies on maintaining processes as-is, and 20% is granted to new techniques, tools and processes.

Accountability: A primary way to ensure that things run smoothly is for operations managers to communicate processes, assign responsibility and measure metrics so that people do the work they are supposed to do.

Variance: Support slight changes in processes if and when they occur because this type of creative thinking may lend itself to better results.

Causality: Find the source and root of issues rather than ignoring them and solving the effects. Everything is caused by something, and until the root of the problem is addressed, it will continue to occur.

Managed Passion: Company growth and success lies in the joy of its employees. Managers play a pivotal role in boosting company morale and support employees’ attitudes.

Humility: Errors are costly, and as such, an operations manager needs to know when to ask for help.

Success: Markers of success are ever-changing, but one constant measurement of success is customer satisfaction. Maintain this as a business priority, and it will help other goals fall in line.

Change: Change is inevitable, and thanks to innovative technology, it tends to be for the better. Be open to change and communicate the reasons it’s necessary to earn buy-in from critical stakeholders.

Why Is Operations Management Necessary?

For small businesses and big businesses, operations management is essential. Operations management helps allow for:

• Increased profit
• Increased output
• Competitive advantage
• Enhanced customer service
• Technological advances
• Better quality products or services

Useful Operations Management Theories

There are various process management theories and operations management philosophies that can help to better manage a business’ doings. Let’s take a look at what these include:

• Business Process Management (BPM): This is the action of continually reviewing, analysing, optimising, automating and improving processes. It involves following the steps of designing a process, modelling a process on paper so everyone can understand and visualise the steps, analysing its productivity, monitoring for successes or errors and providing ideas for improvement or implementing automation to maximise efficiency.
  

• Business Process Reengineering (BPR): BPR is a fundamental shift in how a business currently operates. It leverages technology to redesign functions and create organisational change entirely.
  

• Lean & Agile Manufacturing: This is a modern approach to manufacturing and production that has led to decreased costs and the ability to meet consumer’s shifting demands promptly. It relies on efficient purchasing to reduce costs and the use of technology to manage delivery systems adequately. The agility also comes from the use of technology and data analytics to stay up-to-date on current functioning so that marketing, sales, design and production teams can all access the same data systems to do their job in the best way.
  

• Six Sigma: Six Sigma is a methodology and tool to reduce the error rate in the manufacturing process. It involves the tasks to define, measure, analyse, improve and control a process.
  

• Reconfigurable Manufacturing System: Due to a sudden market or system change, a reconfigurable manufacturing system is one that is designed to adapt to a shift in supply or demand quickly.. Both hardware and software are implemented in the initial design to handle swift adjustments when necessary.
  

• Employee Involvement: Designing a company culture that allows employees to feel heard and have a say in decisions means that their involvement matters. It can create a more collaborative, passionate and productive workforce.
  

• Sustainable Operations Management: This type of operations management is concerned with the sustainability of supply chains. With increased globalisation and climate change, there’s an enhanced need for sustainable business practices. Many businesses make this a primary element of their value proposition which helps to increase their bottom line (and triple bottom line).
  

• Behavioural Operations Management: Behavioral operations management brings sociology, psychology, economics and social sciences together to see how managers make their decisions. It looks at how human systems operate alongside operational systems and identifies where deviations in rational behaviour can create inefficiencies.
  

• Supply Chain Management: Supply chain management concerns overseeing the flow of goods and services, from the supply of raw materials to storage, inventory and outputs. It’s involved in business processes that move from the point of origin to the end of consumption. The goal is to minimise costs and waste and maximise outputs and profits.
  

Operation Management Strategies and Requirements

Here are some of the best strategies for operations management teams to succeed:

• Leveraging data: The importance of data cannot be understated. For quality planning and measurement, operations management teams use data to make better-informed decisions.
  

• Inventory management: Inventory management requires that resources are being used as needed, and waste is avoided. This results in decreased costs and increased efficiency.
  

• Process design: Operations managers research and development processes to be effective. They also monitor operations to ensure that goals are being met and if not, they conduct analysis on how to make a process work better.
  

• Collaboration: Finance, marketing, sales, HR teams all work together for success. With centralised data systems, this is easily manageable and doable.
  

• Forecasting: Setting goals helps keep people motivated and processes moving in the right direction. To be able to see if things are headed in the right direction, businesses can leverage forecasting tools that use past data to predict the future.
  

How Software Can Help

Software becomes an integral element for operations management. Choosing the right tools to help manage your operations can contribute to:

• Standardised processes
• Storage of historical processes
• The ability to map processes and share them across your organisation
• An easy way to track metrics
• Improved employee engagement and ownership
  

Data automation tools can provide your team with automation solutions that help to maximise outputs and timeliness of processes. For example, say you have one person in charge of approving invoices for vendors. If that person is out sick or on vacation, this critical person dependency may postpone payment. In turn, your supply chain has been affected, and customers may start to experience delays. Instead, automation tools can run the repetitive process for you and do so with minimised error. Reducing bottlenecks is just one way that an automation tool can help to increase a business’ operational effectiveness.‍

Operations Management is Key for Business Success

Operations management is a multidisciplinary aspect of business that overlaps with all department’s functioning and the management of business processes. This means that it can help to contribute to increased bottom lines, better production practices, optimised logistics and more.

With data automation and software tools, operations management teams can work with marketing, finance, HR, etc. to access essential and real-time data to better guide decision-making to maximise profits.