Operations Management: Processes & Best Practices

Operations management influences every part of how you run a company. That includes how you produce a product or service, how you track and improve your efficiency and how you contribute to the bottom line. Simply put, operations management drives efficient workforces, processes and supply chains.

This guide explores the types of operations management and how they bring value to a business. Explore the ins and outs of operations management strategy and learn the best practices to achieve success.

Inside this article:

What Is Operations Management?

Operations management is the practice of handling day-to-day business functions in a manner that is efficient and that maximizes profitability. This discipline focuses on formulating strategies and taking actions to optimize production and supply chain performance.

Key Takeaways

• Operations management focuses on multiple aspects of an organization’s day-to-day operations, not just resolving the inevitable one-off problems that arise.
• Without operations management, critical business functions like R&D, client service delivery, information technology and inventory control are prone to mismanagement and underfunding.
• Behind most successful supply chains is solid operations management because it provides managers the means to direct resources toward desired results.

What Is the Purpose of Operations Management?

The purpose of operations management is to promote and support efficient business processes. The practice focuses on the staff, processes and physical resources required to operate a business.

Operations management also refers to how an organization coordinates and oversees the flow of information among its departments; how successful it is at complying with business and regulatory requirements; how well it ensures customer satisfaction; and how efficiently it manages daily operations, not just resolving problems that occasionally arise.

Goals of Operation Management

The goals of operations management are about maximizing the organization’s efforts, mainly around producing goods and/or services and managing the supply chain and infrastructure. The focus is on controlling costs, maximizing profitability and properly allocating resources.

Operations managers seek to reduce operating costs by coordinating business tasks, ensuring qualified people are in the right positions and continuously monitoring performance metrics.

Importance of Operations Management

An effective operations management practice makes a business more competitive and prevents it from wasting time and money on activities that don’t forward the company’s strategic vision. An effective operations manager ensures the organization meets business goals.

Operations management is necessary for companies to stay competitive in any industry, but healthcare, technology and manufacturing firms often have a particular focus. Without efficient operations management, critical business functions like research, client service delivery, IT and inventory control may fall prey to mismanagement.

Types of Operations Management

The three main types of operations management focus on the objective, the task or the individual employee. Which you use depends on your company’s needs and goals, and a manager might use different types based on the situation.

• Objectives management:

  Setting priorities, making operational decisions based on business goals and aligning operations to support overall company objectives.

• Task management:

  Managing daily operations based on work in progress and linear workflows to assign tasks before moving to the next phase.

• Individual supervision:

  Using real-time information from managers and employees on the ground performing the work to optimize operations.

Some facets of operations management may require additional functions. For example, tasks may consist of planning and researching; creating operational budgets; and managing physical inventory, supply chains and vendors.

In addition to the types of business functions, there are three categories of modern operations management environments:

• Centralized:

  Shops with centralized operations management typically use one central control system to manage essential supply chain functions and oversee multiple employees who work in one location.

• Decentralized:

  Decentralized operations management uses multiple systems, including advanced infrastructure and technology like web applications and cloud databases, to coordinate work across global supply chains and multiple locations.

• Hybrid:

  A hybrid operations management environment leverages the advantages of centralized and decentralized operations. For example, you might have a centralized production center with unified manufacturing and warehousing capabilities and equipped with an automated infrastructure connected to cloud-based networks for real-time monitoring.

Operations Management Eco-System

This image shows the relationship of the various elements of operations management, from control and inputs to resources and strategy.

Strategic vs. Tactical Operations Management Decisions

Strategic operations management focuses on long-term success, while tactical operations decisions are about reacting and adjusting in the short term. Use a combination of these approaches for the best results.

Strategic operations decisions involve estimates, predictions, goals and comparative analyses. This approach concentrates on the future to meet long-term objectives and ensure lasting success. One key aspect is using operational data to analyze results and adjust long-term strategic plans where necessary.

Tactical operations decisions, on the other hand, involve how the company responds to changing operational conditions. For example, an organization might need to adjust production schedules or workforce planning as the marketplace fluctuates.

Business Management vs. Operations Management

Companies may combine the practices of business and operations management, but there is a difference. Business management focuses on long-term planning, while operations management concentrates on daily activities.

Operations management

Is a broad term used to describe the process of overseeing the day-to-day activities at a business. These functions could include scheduling staff, making payroll, receiving and processing payments, organizing equipment and supplies and more.

Business management

Focuses on planning and strategizing for future results. Business management requires extensive general knowledge and incorporates external factors, while operations management requires a high level of operational expertise.

Examples of general business management goals might include maximizing revenue, minimizing costs and maintaining customer satisfaction. Operations management goals include:

• Maximizing resources for research and development
• Environmental protection
• Maintaining quality control in manufacturing
• Meeting financial obligations
• Maintaining industry-specific legal and compliance requirements

What’s the Difference Between Business Management and Operations Management?

Project Management vs. Operations ManagementWhich One Does Your Small Business Need?

Project Management
Operations Management

Project management is the process of planning, executing, monitoring, controlling, and delivering a specific goal with a definite time, scope, and budget.
Operations management is the process of administering, managing, and altering business practices to boost productivity and maximize profit.

Features:
Features:

Task management
Create tasks and subtasks, attach relevant documents, and add assignees and deadlines.

Workflow management
Create and automate business operation workflows. Add tasks within these workflows.

Real-time communication
Communicate via text chat, video call, and audio call with individuals and groups of individuals.

Quality management
Integrate compliance forms in workflows. Automate quality management processes, follow-ups, and reminders.

Collaboration
Collaborate on documents, discussion threads, and private projects channels in real time.

Inventory management
Add and manage product information. Track inventory costs, product surplus, duplication, or orders.

Reporting
Get customized reports about team performance, project performance, budget, and expenses.

Asset tracking
Track assets using barcode or RFID tags. Ensure that assets have valid service agreements, licenses, and contracts.

Project planning
Create, edit, and share visual project plans using Gantt charts. Define the scope and resource requirements.

Business performance management
Track and monitor overall business performance. Review and revise the business strategy to boost profit.

Business functions:
Manage project scope, time and budget. Boost team productivity.

Business functions:
Ensure smooth functioning of business operations. Maintain resource efficiency.

Summary
Summary

Investing in project management software helps businesses plan and monitor project better. The software ensures that resource are optimized.

Investing in operations management software helps businesses plan, control, and monitor resources for the smooth functioning of all business operations.

This graphic compares and contrasts the business management and operations management, and also gives a summary of each.

Operations and Supply Chain Management

Operations management is vital for any company that relies on logistics management and the supply chain. The practice protects supply chain operations, boosts productivity and reduces costs.

Operations management is critical in companies that have complex supply chains because it provides a framework for process-specific technology, tools and activities to support a steady flow of materials and finished goods and gives managers the means to efficiently direct resources toward reaching goals. Operations managers rely on strong logistics management and supply chain management.

A mature operations management practice helps create processes and systems to manage and measure supply chain activities. For example, when customers cancel orders or return goods to the warehouse, the operations management team is responsible for having procedures in place to reduce administrative overhead, adjust production levels and/or maximize the resale value of the items.

Effective operations management touches all aspects of essential work, including supply chain, and ensures the company is meeting key performance indicators (KPIs). Managers use operations management KPIs to make informed decisions and coordinate efforts across the supply chain and organization as a whole.

What Are the Main Functions of Operations Management?

The main functions of operations management are developing effective processes, ensuring production is efficient and determining the most cost-effective way to achieve goals. Operations managers help organize resources using sound HR concepts, the right technology and up-to-date best practices.

Functions often are cross-departmental and include:

• Budgeting
• Planning
• Process analysis
• Financial oversight
• Risk management
• Data privacy and security
• Quality assurance
• Preparing and disseminating reports
• Scheduling staff
• Providing technical support
• Managing equipment and supplies
• Controlling inventory
• Overseeing external vendors

Operations Management Process

The operations management process is about making a company’s daily actions as sharp and effective as possible. The process involves smart use of resources and data to reach goals while keeping costs down.

Operations management also refers to the processes, tools and resources necessary to support an organization’s full workflow. It requires communication with clients, stakeholders and business units.

Three categories of operations management processes, based on desired business outcome, include:

• Implementation:

  Designing and engineering infrastructure and systems so your business operations function efficiently.

• Optimization:

  Ensuring that your staff and infrastructure serve the business’s goals as effectively and efficiently as possible.

• Improvement:

  Introducing operational methods that previously did not apply — for example, remote work — and maximizing the efficiency and effectiveness of existing processes.

The ideal operations management process for a given company varies by industry, company size and other factors. Generally, it captures the process of managing the daily flow of tasks and information to ensure consistent and effective performance across projects. This process can include variables such as finance, human resources, information technology, facilities management, inventory management and more.

Role of Operations Management

The role of operations management boils down to driving optimal results while reducing costs. An effective operations manager allocates a company’s resources to achieve goals and meet standards.

Most companies have an operations department for this reason, although the specific role may vary from company to company and industry to industry. The responsibilities of an operations manager include the overall direction of company operations, financial planning and resource allocation for specific projects and service offerings.

In general, ops managers direct their companies’ day-to-day business activities. They ensure that the workforce conducts daily operations following company policies and standards and relevant laws and regulations. Their key responsibilities include overseeing daily business activities, studying processes and preparing operational and financial reports.

In addition, these managers measure the impact of business operations by collecting, processing and communicating operational KPIs.

Effective operations management requires a holistic view of the business, including resource allocation, documentation review, quality control, coordination of efforts, sharing information across departments and initiating appropriate actions when needed. Typically, operations managers have a cross-departmental view, carry out duties assigned by leaders, ensure the efficient use of resources and help plan and prepare to achieve future goals. Day-to-day operational management tasks include record-keeping and operational reporting.

Depending on company size and scope, ops managers may take on business development or marketing roles. For example, ops management teams may include financial analysts, sales leaders, software developers and IT support. The practice typically includes cross-functional coordination among department heads and units.

Operations Management Example

To understand operations management, consider these examples. The first is a manager who oversees a company’s production, workflow, inventory, equipment and people. Another one in is a manager overseeing a service, such as IT.

The field has evolved to include service-related tasks involved in making efficient, value-driven operational decisions. For example, IT operations management includes maintaining the hardware and software to enable IT strategy, planning, decision-making, research and technical support.

Operations workflows in IT ops management include the techniques that support the organization’s efficient and safe use of technology resources and deal with the design, implementation, administration, monitoring and performance of security measures in information systems. Those tasks protect the integrity, confidentiality and availability of data. This role requires a comprehensive knowledge of IT security policies and operational awareness combined with proactive thinking and problem-solving skills.

Best Practices for Operations Management

Operations management best practices start with modern methods that allow employees to do their jobs efficiently and deliver a desirable product or service to customers. However, best practices may vary by company and need to evolve in tandem with changing priorities.

While there is no single path to efficient operations, organizations and individuals have found effective ways to improve modern operations management. These include:

• Use technology to gain efficiency.

  As workforce automation eliminates more and more routine business processes, modern operations managers optimize operational capabilities using data-led design and engineering.

• Turn to data for decision-making.

  Modern ops management strategies focus on making sound business decisions based on data-driven analysis rather than relying solely on past results, employee and customer behavior and personal biases.

• Use operations management for business processes.

  Use operations management methods for business process redesign (BPR) and business process automation (BPA) projects.

BPR for ops management refers to overhauling your critical business processes using information and data gleaned from operations management performance metrics. BPR can improve return on investment, reduce operational costs, increase production capacity and enhance service capabilities.

BPA for ops management refers to using technology to assist with or replace manual tasks and processes. BPA can increase efficiency, save time and money, reduce errors and increase transparency. Automating ops management is most effective when replacing tasks that involve inefficient use of time and resources.

Challenges in Operations Management

Operation management challenges include decision-making, resource allocation and time management; the goal is to ensure objectives are met on time and within budget.

Common operation management challenges include:

• Business dynamics:

  Operations managers juggle multiple business functions and make decisions that touch other departments in areas such as product development, customer support and finance.

• Global ops:

  Global supply chains challenge operations management to stay current with global market trends and find operational efficiencies across international operating environments.

• Advanced technology:

  Advances in technology continue to increase the technical complexity of this discipline. Today, ops managers require significant technical proficiency and information management expertise.

• Time management:

  Operations management problems arise from many places, but the most frequent challenge is inefficient time allocation caused by factors such as labor shortages.

• Sustainability:

  Evolving regulations and resource shortages challenge operations managers to find sustainable business practice efficiencies that account for future operating environments.

Operations management is partly responsible for shaping the organizational policies and practices essential for safe, efficient and secure departmental functions. It involves planning, controlling, supervising and controlling the work of assigned employees necessary to accomplish set goals and objectives.

An operations manager has two primary purposes: Manage operational resources and meet the organization’s goals and objectives. Understanding common operations issues allow ops managers to prevent or eliminate operational inefficiencies that affect an organization’s ability to perform its core functions efficiently.

Human Behavior and Operations Management

The field of behavioral operations management examines the decision-making role. This is key because human beings don’t always base their decisions on logic and factual information.

Many organizations are undergoing a transformation — from being purpose-built for one market to being massively complex with dozens of functions. As a result, operations management techniques must become more agile and cross-functional. Unfortunately, small to midsize businesses may lack cross-functional leadership and accountability in operations management. When leadership is lacking, inefficiencies and behavioral issues can grow and spread throughout an organization.

Research in this field from the Journal of Operations Management focuses on understanding human behavior to improve operations management and realize its benefits. For example, risk aversion is a behavioral issue that research shows can hinder ops management. This issue manifests in many forms and can also harm performance.

An Example of How Technology Fuels Operations Management

The family-owned, online furniture company casalife needed an integrated business solution to become more efficient to stay competitive with larger online retailers. The small retailer couldn’t afford the high up-front IT investment and maintenance costs associated with typical on-premises solutions.

With NetSuite’s SuiteCommerce solution, casalife was able to meet the demands of its ecommerce operations and become more agile and able to take on growth opportunities. The result was an estimated savings of $120,000 a year in personnel and other costs using NetSuite for purchasing, operations management and CRM compared to the competing solution.

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