Operations Management – Definition, Elements and Objectives

An operation may be defined as the process of changing inputs into outputs thereby adding value to some entity. Right quality, right quantity, right time and right price are the four basic requirements of the customers and as such they determine the extent of customer satisfaction.   And if these can be provided at a minimum cost, then the value of goods produced or services rendered increases.

Operations management is concerned with managing the resources that directly produce the organisation service and products. The resources are generally consist of people, material, technology and information but may go wider than this. These resources are brought together by a series of processes so that they are utilized to deliver the primary service or product of the organization. Thus operation management is concerned with managing inputs (resources) through transformation processes to deliver outputs (service or products). The objectives of production management are “to produce goods and services of the right quality, in the right quantities, according to the time schedule and a minimum cost”.

Objectives of production management may be amplified as under:

  • Producing the right kind of goods and services that satisfy customers’ needs (effectiveness objective).
  • Maximizing output of goods and services with minimum resource inputs (efficiency objective).
  • Ensuring that goods and services produced conform to pre-set quality specifications (quality objective).
  • Minimizing throughput-time – the time that elapses in the conversion process- by reducing delays, waiting time and idle time (lead time objective).
  • Maximizing utilization of manpower, machines, etc. (Capacity utilization objective).
  • Minimizing cost of producing goods or rendering a service (Cost objective).

Operations Management - Definition, Objectives and Functions

The role of operations management is to create some kind of value-added in form of goods and services by transforming a company’s inputs into output as finished goods and services. The activities in operations can be divided as input, transformation process and output. The company’s inputs include human resources such as workers and managers, information, technology IT and facilities and processes such as equipment’s, buildings or lands and materials. Then the operations system will convert the transformed resources from inputs into outputs that are goods and services which produced by company and after that will get feedback information about the activities in the operation system.

Key Elements of Operations Management

Operations management is the business function that responsible to planning, organizing, coordinating and controlling the resources needed to produce a company’s products and services. The operations function can be connected to other functional operations within organization such as marketing, finance, human resource and etc. so it can be described that all functional areas undertake operations activities because they all produce the services and goods. The operations manager is the person who supervised the production, make decision on operations processes and regarding to connecting into other functional areas. Thus, today every company realized that operations management is important and also agreed that is the main core function to organize their organization. the key elements of Operations Management are;

  • Product selection and design: The right kind of products and good designs of the products are crucial for the success of an organization.   A wrong selection of the product and/or poor design of the products can render the company’s operation ineffective and non-competitive.   Products/services, therefore, must be chosen after detailed evaluation of the product/services alternatives in conformity with the organization’s objectives.   Techniques like value engineering may be employed in creating alternate designs, which are free from unnecessary features and meet the intended functions at the lowest cost.
  • Process selection and planning: Selection of the optimal “conversion system” is as important as choice of products/services and their design.   Process selection decisions include decisions concerning choice of technology, equipment, machines, material handling systems, mechanization and automation.   Process planning involves detailing of processes if resource conversion required and their sequence.
  • Facilities (Plant) location: Plant location decisions are strategic decisions and once plant is set up at a location, it is comparatively immobile and can be shifted later only at a considerable cost and interruption of production. Although problem of location choice does not fall within preview the production function and it occurs infrequently, yet it is of crucial importance because of its major effect on the performance of every department including production. Therefore, it is important to choose the right location, which will minimize total “delivered customer” cost (Production and distribution cost). Locational decisions involve evaluation of locational alternatives against multiplicity of relevant factors considering their relative importance to the organization and selecting those, which are operationally advantageous to the organization.
  • Facilities (Plant) layout and materials handling: Plant layout is concerned with relative location of one department (Work center) with another in order to facilitate material flow and processing of a product in the most efficient manner through the shortest possible time.   A good layout reduces material handling cost, eliminates delays and congestion, improves co-ordination, provide good housekeeping etc. while a poor layout results in congestion, waste, frustration, inefficiency and loss of profit.
  • Capacity Planning: Capacity planning concerns determination and acquisition of productive resource to ensure that their availability matches the demand. Capacity decisions have a direct influence on performance of production system in respect of both resource productivity and customer service (i.e. delivery performance).   Excess capacity results in low resource productivity while inadequate capacity leads to poor customer service.   Capacity planning decisions can be short-term decisions. Long-term capacity planning decisions concern expansion/contraction of major facilities required in the conversion process, economics of multiple shift operation, development of vendors for major components etc. Short-term capacity planning decisions concern issues like overtime working, sub-contracting, shift adjustments etc. Break-even analysis is a valuable tool for capacity planning.
  • Production Planning and Control (PPC): Production planning is the system for specifying the production procedure to obtain the desired output in a given time at optimum cost in conformance with specified standard of quality, and control is essential to ensure that manufacturing takes place in the manner stated in the plan.
  • Inventory control: Inventory control deals with determination of optimal inventory levels of raw materials, components, parts, tools; finished goods, spares and supplies to ensure their availability with minimum capital lock up.   Material requirement planning (MRP) and just in time (JIT) are the latest techniques that can help the firm to reduce inventory.
  • Quality assurance and control: Quality is an important aspect of production system and it must ensure that services and products produced by the company conform to the declared quality standards at the minimum cost. A total quality assurance system includes such aspects as setting standards of quality, inspection of purchased and sub-contracted parts, control of quality during manufacture and inspection of finished product including performance testing etc.
  • Work-study and job design: Work-study, also called time and motion study, is concerned with improvement of productivity in the existing jobs and the maximization of productivity in the design of new jobs.   Two principal component of work-study are: Method study and Work measurement.
  • Maintenance and replacement: Maintenance and replacement involve selection of optimal maintenance (preventive and/or breakdown) policy to ensure higher equipment availability at minimum maintenance and repair cost. Preventive maintenance, which includes preventive inspection, planned lubrication, periodic cleaning and upkeep, planned replacement of parts, condition monitoring of the equipment and machines, etc.   is most appropriate for critical machines.
  • Cost reduction and cost control: Effective production management must ensure minimum cost of production and in this context cost reduction and cost control acquires significant importance.   There are large number of tools and techniques available that can help to make a heavy dent on the production cost.

Relationship between Operations and Other Functions

The roles of operations management function and the decision was made by operations managers interact with other functional areas in business. This will explain the relationship between operations and other function clearly. As most businesses known, there are three main functional areas in organization: finance, marketing and operations as the main supporter in their business, yet other functions also supporting an organization as well. Although these functions scope in different activities, they must interact achieve the goal of the organization and drive the business moving forward too.

Finance function will responsible to controlling of the funds and judging the need for capital investment such as equipment’s or relocation’s, collecting money and covering make decisions on make-or-buy in organization and also plant expansions. Finance function cannot work without understanding operations concepts and needed. On the other hand, operations managers cannot make the financial plans without understanding the key and method of evaluating of financial investment as well. It is essential that both functions must understand each other and work together.

Marketing function will generates the demand for the company’s goods and services by understanding customers needed and find out the way to build and develop the new markets. Sale will not be happened if they do not understand what operations can produce or what due date can meet or cannot and what type of customization operations to deliver. Thus, the main needed of marketing and operations work closely together and both of them are important as marketing providing the forecast of demand which operations will produce the goods and services and sending to customers.

Production and operations, the main responsible on operations function is to produce goods and services and deliver to customers on time. As mentioned previously, operations function will connect with any functional areas by the operations roles.

Human resources will responsible on recruitment and labor relation and they must understand job requirement and worker skills when they hire people in any positions. The operations managers need to understand job market trends, labor cost when hiring or lay-off and the cost for training lead to efficiency on employees’ management.

Information technology which co-ordinates with the computer-based information needed and enables information flow through the organization and allow operations management to operate effectively. Generally, operations management is heavily dependent on information technology such as the forecast of demands, schedule of worker, level of quality to achieved and supplier deliveries. Usually, this close relationship between operations management and information technology will work together for design information network.

Accounting will consider the current performance measures, inventory management and labor standard in order to develop the cost data for organization. In turn, operations managers should communicate to accounting about billing information and the process improvement. To make decisions about the cost management is highly depend on accounting data that shown the relationship between two of them.

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