Introduction to operations management: All you need to know

Operations is one of the three functions of management, which is responsible for producing goods or services.

  • Operations Management refers to the management of processes that create goods and provide services i.e. converting the inputs to goods and services.
  • Goods are physical items such as automobiles, computers, shampoo, etc.
  • Services are the activities that provide a combination of psychological, time, and location value to the customers. Examples of services include air travel.

Supply and demand

The main goal of every business organization is to provide goods and services, which involves supply and demand. When supply is greater than demand, the situation creates lost opportunities for the business. If supply is less than demand, it implies less customer satisfaction or lack of proper mechanisms to effectively compete with other businesses.

There are three basic functional areas of any business organization

  • Finance – This involves obtaining resources at affordable prices for the business operations, budgeting and allocating those resources throughout the organization
  • Marketing – This is involved in assessing customer needs, selling, and promoting the goods and services produced.
  • Operations – This involves providing goods and services as offered by the organization.

Supply chain

The supply chain is defined as the sequence of processes in an organization, that is carried out to convert a raw material or input to output or good and services. In other words, it encompasses all activities from production to delivering the good or service to the customer.

Supply chain sequences

  • Sequence begins with provision of materials by the supplier.
  • Facilities in supply chain include and not limited to processing centers, distribution centers and outlets.
  • Functions and activities in the supply chain include and not limited to inventory management, quality assurance, information management, and scheduling among others.

NB: As the product moves from one part of the supply chain to another, it’s value increases.

Supply chains are both external and internal to the organization.

  • Internal supply chain – Parts of the operations with parts and materials, performing work on the products, and passing the product to the next step.
  • External supply chain part – This includes the raw material provision, parts, equipment and delivery of goods or output to the customer.

Inputs used in production process includes capital, labor, and information.

Transformation processes – Convert raw material to product and to ensure that the intended quality and objective are achieved, the organization takes measurements at various stages of the production (feedback).

Control is an important aspect of any supply chain as it entails comparing the product with established standards to determine whether there is a need for corrective action.

The goods-service combination is a continuum – this can range from primarily goods with little service or primarily service with few goods.

Value added

Value added in supply chain refers to the difference between the inputs and the value or price of the final goods. If this value is large, then the supply chain is said to be effective. The greater the degree of customer involvement, the more challenging it becomes to manage and design the operation. Another factor that plays a role in value-added is technology as it can impact costs, flexibility, and customer satisfaction.

  • In profit organizations, the value of outputs is measured using the prices the customer is willing to pay for such goods in the market.
  • In non-profit organizations, the value of outputs is measured by the value to society.

Goods are tangible output, while services are intangible outputs.

Differences between manufacturing and services

  1. Degree of customer contact – Many services involve a high degree of customer contact except services such as mail service etc. When there is a high degree of contact, the interaction between the server and customer becomes a moment of truth that is judged by the consumer every other time the same service is provided.
  2. Uniformity of input – Services is subject to changes in input. Manufacturing operations have high control of variability of inputs which results in more-uniform job requirements.
  3. Labor content of jobs – manufacturing jobs has less labor content compared to service jobs, except those that are automated.
  4. Uniformity of output – services have greater variability of output while manufacturing operations have greater control on output variability
  5. Measurement of productivity – It is difficult to measure productivity in services jobs, for instance, one service provider may have a volume of input than another.
  6. Production and delivery – Unlike manufacturing, services deliver and consume at the same time.
  7. Quality assurance – There is high input variability in services, while it is easier to control quality as production occurs away from the customer which allows correcting errors and mistakes in production.
  8. Amount of inventory – Services often involves less inventory and cannot be stored, while manufacturing involves large inventory levels.
  9. Evaluation of work – Service jobs are poorly paid and have large wage variation while manufacturing jobs are well paid.
  10. Ability to patent design – Some services cannot be patented while products can easily be patented.

Why managing services is challenging

  • Service jobs are less structured compared to manufacturing jobs
  • Service jobs involve more customer contact than manufacturing jobs
  • Employee turnover Is usually high in service jobs
  • Input variability is usually high in service jobs than manufacturing jobs


Process is defined as one or more actions that transform inputs into outputs.

Three categories of business processes are upper-management processes, operational processes, and supporting processes.

  • Upper-management process governs the operation e.g. organizational strategy
  • Operational processes make the value stream e.g. the purchasing or sales.
  • Supporting processes are the core processes such as accounting and human resources.

Process or operations variation can be caused by so many factors such a variety of goods being offered, structural variation in demand for goods, a random variation which is present in almost every process, an assignable variation which is by defective inputs.

Effects of variation include high cost, delays and shortages, poor quality and inefficient work systems.

  • Capacity planning helps to maintain cash flow and make reasonable profit.
  • Scheduling helps in routine maintenance
  • Assuring quality emphasizes on safety and efficiency.
  • Facilities and layout – This is essential in achieving the effective use of equipment and workers.

Role of the operations manager

The primary function of operations manager is to ensure that effective decisions are made

System Design Decisions – This refers to the decisions that relate to system capacity, location of facilities, and placement of equipment, service planning as well as acquiring the equipment.

System Operation Decisions – These refer to operational and tactical decisions. They include scheduling, project management, quality assurance, and managing personnel.

Operations management and finance personnel exchange information through budgeting, economic analysis and provision of funds.

Operations management personnel must make decisions that affect the organization in various ways. The decisions are what resources are needed when each resource is needed, where the work will be done, how the work will be done, and who will do the work.

Operations models

Operations models may be physical such as trucks and trains, schematic such as graphs and pictures, or mathematics such as numbers and formulas.

Benefits of models include

  • Ease of use and less costly
  • They help indicate areas where additional information is needed
  • They enable easier understanding the problem
  • Managers can use these models to analyze what-if questions
  • They can be used to evaluate and provide standard formats of analyzing problem

Limitations of models

  • They emphasize more quantitative information rather than the most important qualitative information
  • They may be misinterpreted if not used properly
  • They do not guarantee good decisions

The five principles of ethical thinking

  • Utilitarian principle – The good must outweigh the harm
  • The rights principle – Actions should respect moral rights
  • The fairness principle – Same standards should be applied
  • The common good principle – actions should contribute to the common good of society
  • The virtue principle – Actions should be consistent with ideal virtues such as honesty and integrity.

The elements of the supply chain include Customers, forecasting, design, capacity planning, inventory, processing, purchasing, suppliers, location, and logistics.

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