Introduction
Operations Management (OM) is a broad area involved with the comprehensive research, planning and execution of all activities in an organization that lead to a creation of value for its stakeholders. One of its foremost goals is increasing the efficiency of operations through the reduction of waste, and delivering precisely the value that a customer has paid for. An important part of functional operation management is resource planning and resource scheduling activities that ensure a continuous production of services and/or goods, eliminate excess inventory, and deliver the required value at precisely the location the customer wants at the time the customer wants. These planning activities are designed to manage operations (resource units that are consumed during a process), processes (activities that transform inputs to outputs for delivering to internal and external customers) as well as supply chains (a series of linked processes spanning the entire organization and often many geographic locations) (Krajewski, Ritzman and Malhotra 4). An operations manager is required to plan for and execute a variety of activities, such as: facility location and layout planning; goods and services design; process and capacity planning; supply chain management and inventory control; quality management; maintenance activity scheduling; etc. (Heizer, Render, and Rajashekhar 7). Because of the significance of these activities, OM is considered a vital part of organizational strategy and an essential tool that helps the organization gain competitive advantage in the market.
Development of OM
OM has a long and venerable history, dating back to the eighteenth century, when concepts of labor specialization and standardization of parts were first proposed. One of the most important and widely employed tools in OM was developed in the early twentieth century – the Gantt Chart, which first allowed the planning of a project from start to finish by dividing it into smaller tasks and scheduling them based on individual completion times. Concurrently the moving assembly line and co-ordinated activities were developed by Henry Ford, while Frank and Lillian Gilbreth developed the concept of improving efficiency through advanced time and motion studies. Modern OM practices, as well the underlying branch of mathematics known as Operations Research, truly developed, however, from World War II through researches into military troop movement and logistics planning. The techniques of PERT and CPM were developed during the 1950s – the former by the US Navy while planning for the Polaris missile development program, in which shortest possible completion time was the critical criterion; and the latter by researchers at Remington Rand and Du Pont (Render, Stair, and Hanna 461). In the post-World War II era, significant contributions were made by W. E. Deming, who introduced quality control techniques and other key management principles while working with top management in Japan and elsewhere. Another development was the introduction of the Toyota Production System, which eventually led to management practices such as Just-In-Time (JIT), Total Quality Management (TQM), Lean Manufacturing and Six Sigma (Womack and Jones 15).
Elements of OM
Most OM functions in an organization are characterized by the input-transformation-output paradigm, which itself might be physical, locational, informational or exchange mediated. Inputs consist of raw materials, labor, energy and knowledge; outputs consist of goods, services and information. An efficient transformation is one which either lowers existing costs of production, or creates a superior product at existing costs. As already outlined, OM encompasses a broad area of strategic decision making and the transportation processes, beginning with facility location planning, job floor designing and scheduling, going on to maintenance planning, waste reduction, inventory control, quality control and overall supply chain management. Because of this, OM is considered to be the core activity or department in large organizations, around which other activities such as Finance, Marketing and Human Resources are planned. Further, external stakeholders such as suppliers, service providers and customers are also overseen by the operations departments of organizations (Russell and Taylor 4).
Figure 1 below shows this central role of OM in an organization:
Figure 1: Central role of operations management in an organization. Source: Russell and Taylor, p. 4
The different elements of OM are briefly discussed below.
Facility Planning and Layout Analysis: This involves taking a set of strategic decisions about the optimum distribution of one or more facilities, given a set of customers at multiple locations that need to be serviced. Recently this problem has achieved particular importance due to the development of large, distributed supply chains that must remain flexible and react quickly to changing customer demands, while at the same time maintaining low fixed facility costs. Different types of facility planning analysis require to be performed, such as: restricted number of facilities; opening cost associated with one or more facilities; facilities with or without capacity constraints; and facilities with a variety of optimized objective functions. Some of the factors that influence the location of facilities are: location of supply centers; potential market demand; projected facility cost in terms of labor and raw material costs; transportation costs from various facilities; response time from the facility; inventory maintenance cost; tax structure and regulatory laws of the state or country in which the facilities are to be located; etc. An associated area of study is office, warehouse or shop-floor layout designing. Building layout can be either fixed-position, which is applicable for more bulky operations such as ship-building; or process-oriented, which is applicable for more flexible job shop operations; or product-oriented, which is applicable for a production line such as a chemical plant. In the first layout, operators move to the production area and the product itself remains fixed; in the second layout, the product moves to successive machine centers as required in a flexible manner; in the third layout machines are arranged linearly and the product moves from one to the other in a conveyor-belt fashion (Chase, Jacobs, and Aquilano 227).
Product and Process Selection: Design and selection of the right product mix, in terms of goods and services, is essential for competing in the marketplace. The design stage usually consists of four steps held together by a feedback loop: idea development; evaluation and screening; prototype testing and refinement; and final design stage. The source of new ideas is usually customers themselves or competitors; appropriate designs are then selected based on the resource constraints facing the organization. An important tool at this stage is break-even analysis, which allows the organization to estimate the number of units it needs to sell in order to just recover its production costs. Product designing also needs to take into account the product lifecycle, and the stage at which the product is introduced to the market can have important ramifications for the number of units sold (Reid and Sanders 57). Product design is intricately linked with process selection – one of the key functions of OM. Processes are of two types – intermittent and repetitive – and the selection of the right process for the right product stage is extremely important. This selection leads to a host of other decisions that affect the technology employed, machines and material handling systems adopted, degree of automation implemented etc. (Reid and Sanders 65). Figure 2 below shows the importance of process selection and its impact on the organization:
Figure 2: Different types of processes in an organization. Source: Reid and Sanders 68.
Capacity planning and resource scheduling: This is perhaps the heart of OM, and has been studied extensively in the past 50 years. Capacity planning involves finding solutions to parameters such as the nature of the required capacity, its magnitude and the time when it will be required. Capacity planning is one of the most strategic decisions that are taken in any organization, and can have far reaching consequences in terms of additional investment as well as lost sales opportunities. Capacity is usually defined in terms of design capacity (the highest design capacity of the manufacturing plant) and effective capacity (operating capacity that allows for factors such as maintenance, scheduled breaks for personnel, load balancing etc.) (Stevenson 179). A variety of factors affect the latter, such as uniformity of the manufactured product, quality requirements of the employed process, management policies on the shop-floor, operational factors such as inventory stocking levels, purchase points, delivery times, etc.
Resources utilized by an organization can be of the following types: people (or human resource, one of the most difficult to schedule); facilities (locational and other physical resources required to execute the project); equipment (tools required to execute the project); money; and materials (Wysocki 154). Since resources are scarce by very definition, a wide variety of mathematical principles, formulae and algorithms have evolved for their optimal allocation – thus giving rise to the subjects of project management and scheduling. Some of these techniques include the Program Evaluation Review Technique/Critical Path Method (PERT/CPM); Critical Chain Project Management (CCPM), Material Requirements Planning (MRP); Manufacturing Resource Planning (MRPII), Enterprise Resource Planning (ERP); etc.
Production Planning and Control (PPC): This is concerned with the daily operations of an organization which ensures the availability of planned resources. The chief function of PPC is reconciliation between supply and demand under various operation constraints. The planning part is concerned with demand forecast, either statistically or through consensus; while the control part uses elements of feedback to monitor actual conditions and take corrective actions whenever necessary. PPC works under three time horizons – short term, medium term and long term. In the short term, forecast is often granular or even based on actual demand; control is emphasized more, and interventions are made on an ad hoc basis. In the medium term, demand forecasting is more standardized, often making use of statistical models. In the long-term, consensus planning and hierarchical forecasting are used more often, and control elements are required to a much lesser extent (Slack, Chambers and Johnston 291). PPC is usually achieved through the activities of loading, sequencing, scheduling and monitoring.
Inventory Control: Stock control and inventory management concerns itself with determining and maintaining optimal levels of raw materials, intermediate components, spares parts and finished goods using tools such as Pareto analysis, Linear Programing and Dynamic Programing. Control is achieved by co-coordinating purchases from vendors, production of goods, and distribution to customers. Since the maintaining of inventory has a cost element associated with it, this part of OM plays a key role in cost cutting. Modern techniques such as MRP and JIT aim at zero inventory levels by eliminating uncertainty and requiring supply of smaller, more frequent batches of raw materials. Instead of being pushed by the supplier, inventory is pulled by customer demand and this demand propagates backward through the manufacturing process, ensuring an optimal inventory level at each stage (Wild 53).
Quality Control: Quality Management is the key to achieve customer satisfaction, and aims at creating the exact value ordered by the customer for every product manufactured or every service delivered. One of the key figures in developing quality management systems (QMS) has been Deming, who popularized the techniques of statistical quality control (SQC). Modern OM techniques such as QMS and Total Quality Management (TQM) have also evolved from Deming’s 14 Points; these aim at involving the entire organization and motivate every employee at all levels to achieve their goal of “zero defects” (Russell and Taylor 67).
Maintenance Scheduling: Maintenance is essential for ensuring smooth operation of any production line, and is an important element in cost control for operations managers. Maintenance costs can be as high as 60% of production costs for certain types of heavy industries, including iron-and-steel and automobiles; at the same time, as much as 30% of all maintenance costs are wasted because of unplanned or improper maintenance activities. In order to improve maintenance efficiency, different types of schedules are used such as run-to-failure, preventive, predictive and others (Mobley 2). Moreover, corresponding to lean manufacturing practices, lean maintenance practices have also been developed. These ideas developed because of the realization that maintenance activities need to be integrated with the overall production strategy in order to achieve the organization’s internal objectives and attain maximum efficiency. As a result of the critical role played by maintenance activities, development of integrated maintenance models and functions has become an important element of OM.
Supply Chain Management: The study of logistics and supply chain management (LSCM) is a subject by itself. It has become especially important in today’s globalized environment, where organizations source their raw materials from many different parts of the globe and sell through a multitude of channels. Sophisticated data mining algorithms and artificial neuron networks are used to predict optimal movement and storage of goods across warehouses, stocking depots and retail store shelves; the movements are tracked through embedded devices such as barcodes, smart tags and radio frequency identification devices (RFIDs). Integrated SCM systems are implemented on highly sophisticated and powerful Enterprise Resource Planning (ERP) software, and these take care of material sourcing, manufacturing and assembly, warehousing, order tracking and shipping. Using these ERP systems, organizations can protect themselves against the bullwhip effect, which is the propagation of wrong information along the supply chain (Reid and Sanders 103). It may perhaps be safely observed that international organizations derive a large part of their competitiveness through their tightly integrated and globally managed supply chains.
Conclusion
OM practices have assumed great significance in today’s globalized and intensely competitive markets. By integrating various departments and functional aspects, operations managers help add value to all aspects of the organization’s activities and gain competitive advantage. Taking advantage of powerful computerized tools and research into latest mathematical models, OM has become an integral part of the success of an organization. Organizations that effectively implement OM serve their customers more quickly and efficiently at lower cost, while at the same time maintaining quality of their products and services. This enables to achieve success in the long run.
Works Cited
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Wild, Tony. Best Practice in Inventory Management. New Jersey: John Wiley & Sons, 1997. Print.
Womack, James P. and Daniel T. Jones. Lean thinking - banish waste and create wealth in your organization. New York: Free Press, 2003. Print.
Wysocki, Robert K. Effective Project Management: Traditional, Agile, Extreme, 5th Ed. Indianapolis: Wiley Publishing, Inc., 2009.
