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Operations Management

Updated on March 20, 2024
Article byAswathi Jayachandran
Edited byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

Operations Management Meaning

Operations management is a business area that implements practices ensuring the conversion of inputs into goods and services with maximum efficiency. The goal is to increase an organization’s income by improving its operations and maximizing the use of existing resources. It also includes the provision and delivery of excellent customer service.

Management of the operations department is essential to achieve optimal utilization of resources. It ensures that goods or services of appropriate specification and cost are produced within the stipulated time. As a result, an organization will achieve good rates of profit and adequate levels of customer satisfaction when all these coincide.

Key Takeaways

  • Operations management deals with the management of processes and operations in an organization. Its primary aim is to improve its profit through optimal utilization of resources and customer service.
  • It involves active coordination from various other departments such as production, sales, accounting, and customer service.
  • It is a key component of balancing the cost incurred by the organization and the achievement of operating profit.
  • Operations management responsibilities include giving attention to production and process design, layout design, control of inventory and raw materials, distribution, proper sales and marketing, delivery of customer service, etc.

Operations Management Explained

Goals of Operations Management

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Operations management in business involves converting input into efficient outputs to achieve desired results. In other words, it aims to improve profits by achieving customer satisfaction. This is done by fulfilling customer requirements and realizing the organization’s management objectives. Operations management is, therefore, a vast field and can involve product and process designs, plant layouts, material management, maintenance, quality control, production plan, and control, etc.

The operating system is the central point of any business operations management. It is the design to work out resource utilization processes and operations. It converts the available inputs such as capital, labor, raw materialsRaw MaterialsRaw materials refer to unfinished substances or unrefined natural resources used to manufacture finished goods.read more, and information to create desired outputs effectively. The creation of goods or services involves many transformational processes such as storage, transportation, cutting, etc. 

As the name suggests, a typical operations manager is responsible for managing the overall operations process. Accordingly, these managers shall oversee activities related to designing products and processes, planning on achieving targets, controlling resources and activities, and productivity improvement. They also have to indirectly interact with managers of other functional areas of the organization such as production, marketing, finance, accountingAccountingAccounting is the process of processing and recording financial information on behalf of a business, and it serves as the foundation for all subsequent financial statements.read more, human resources, etc. Therefore, the role of an operations manager in itself gives us the importance of operations management.

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Roles & Responsibilities of Operations Management

Functions of Operations Management

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The various functions of operations management are listed below:

#1 – Forecasting

Forecasting is an attempt at predicting the future with the help of systematic analysis and scientific methods. It is an essential part of operations management as it assesses the controllable and uncontrollable factors and makes predictions for the organization. It may also involve provisions or suggestions for dealing with those predicted scenarios. 

#2 – Capacity Planning

Capacity measures the rate of the production capability of a facility. One of the most important operations management responsibilities is finding out the kind and quantity of capacity needed and the time by which it needs to be produced. It involves assessing the facility’s current capacity, forecasting future needs, identifying and analyzing possible resources to fulfill those needs, evaluating alternative resources, and selecting the best among them.

#3 – Location Facility

It is important to determine a location facility of the plant that can ensure maximum operating efficiency. For example, a coal plant is best located near a water source with the availability of coal near; it provides efficiency, cost controlCost ControlCost control is a tool used by an organization in regulating and controlling the functioning of a manufacturing concern by limiting the costs within a planned level. It begins with preparing a budget, evaluating the actual performance, and implementing the necessary actions required to rectify any discrepancies.read more, and profitProfitProfit refers to the earnings that an individual or business takes home after all the costs are paid. In economics, the term is associated with monetary gains. read more. But the selection of facilities is based on the easy and regular supply of labor, resources, and raw materials. Factors like nearness to the market, power availability, transportation facilities, climate suitability, and government rules are also considered. An ideal location contributes to an organization’s smooth working, the opposite of which will hinder its growth.

#4 – Layout

A good plant layout plans for placement of machines, pieces of equipment, utilities, service areas, storage areas, and arrangement of other facilities. In addition, it ensures a safe workspace, ease of maintenance, fulfillment of requirements, and long-run efficiency in its operations with minimal investment.

#5 – Integration of Activities

Successful execution of an organization’s operations includes cordial and efficient workflow between various departments such as sales, production, and accounting. The Operations management system ensures the allocation of financial resources for purchases from the accounting department, receiving products from the production department, making the product reach the sales department, and effective delivery of goods or services from the customer service department. In addition, it ensures there is uninterrupted functioning of the organization through back and forth communications, continuous coordination, and feedback.

Examples

These examples give a basic understanding of the functions of operations management.

Example #1

Sam is an operations manager of a mobile phone manufacturing company called “ABC ltd.” The company wants to sell a batch of new phones. Therefore, the responsibilities Sam needs to fulfill are:

Example #2 

One of the biggest companies in the U.S, Amazon, is a good example of successful operations management. It is an online retailer with its headquarters in the U.S. which started as an online bookstore and later evolved into an e-commerce retailer and an online marketplace.

To stand out, it had to begin with building a strong brand image. Hence, it created a robust supply chainSupply ChainA supply chain refers to a process beginning with the procurement of raw materials and the production of finished goods and ending with their distribution and sale.read more. As a result, it made its services highly efficient, faster, and capable of catering to many customers. This led to the introduction of the Amazon prime service that allowed customers to get their products delivered to them within a short time. Apparently, the refreshing idea of faster deliveries from an e-commerce company attracted a lot of new customers.

The company developed a supply chain that had end-to-end visibility equipped with advanced technologies to allow the company takes control of all aspects of it. The company also automated its warehouse management and established multiple delivery stations to ensure faster delivery. Presently, with its enormous success and popularity, Amazon is one of the prime examples that show how effective operations management can benefit an organization.

Frequently Asked Questions 

What does operations management do?

The key functions of operations management are the design of product and process designs, creating plant layouts, executing material handling methods, material management, maintenance, quality control, and production planning control.

Why is operations management important?

It is important as operations management aims to reduce wastage of resources, increase profit, and ensure customer satisfaction through maximum efficiency.

Is operations management a good career?

Forming new companies or expanding existing ones will require consistent operations management and hence is a lucrative career option. The average operations management salary stands at $115,250 as of 2021. Any candidate with analytical, organizational, and problem-solving skills can opt for this career.

What is an operation management strategy?

Operations management anticipates the capacity requirements by way of forecasting. Then, it plans for capacity, facility, resource aggregation, resource management, and other necessary operation management functions to layout a system that the organization can use for achieving these targets.

This has been a guide to Operations Management & its meaning. Here we discuss the roles & responsibilities of operations management and examples. You can learn more about accounting from the articles below –

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