What is Operations Management
The general management of the business entity’s major operational activities is called operations management. It usually deals with goods manufacturing or implementation of services. However the range of problems and issues that operations management carries out greatly depends on the type of organization and its authority distribution.
Objectives of Operation Management
The two main objectives of operations management are to increase operational efficiency and to reduce operational costs (Cohen, M. A. and H. L. Lee. 1985). Although trans-national companies generate revenue in billions of pounds, they still need to cut down their operational costs, to reduce the overall cost of production and distribution (Cohen, M. A. and H. L. Lee. 1988). This enables the company to offer the products marginally cheaper than those of their competitors. However, the increased competition is not the only factor that forces these companies to consider cost reduction measures.
These companies often undertake mega projects, such as deep-sea oil exploration or setting up of oilrigs that require major investment. If the men and material do not reach the project site on time, the project could be delayed, resulting in cost overruns of millions of pounds per day. By employing the OM, these companies ensure that they do not have to face such operational problems, during the course of the project.
Application of Operation Management Theories
Operations management concepts and theories are derived from the general management theories, like planning, coordinating, organising and controlling. The general management theories are employed to improve the efficiency of the personnel and that of the organization. On the other hand, OM theories are applied to make available all the necessary inputs required to complete a project, within the specified time and budget (Cohen, M. A. and H. L. Lee. 1989). To understand the difference better, let us take the example of Shell Group.
The core business of the Shell Group is generated from oil exploration. There are many other companies registered with the same name in different countries. The company follows a unique business strategy, referred to as ‘vertical integration’. According to this strategy, the output of a particular Shell company becomes the input for another one. Businesses of the Shell group can be categorized into three core areas namely, oil exploration and drilling, refining and marketing and distribution. All the three core businesses are interlinked and the company cannot afford to overlook the demands of any particular business. The problems faced by one core area are most likely to affect the other businesses as well. For example, if there is a drop in crude oil production at one of the rigs, it will certainly affect production at the refineries that source crude oil from the rig. Similarly, if there is a problem at the refinery, the rigs will have to monitor their crude oil production accordingly, which could amount to a loss of millions of pounds. This is where operations management steps in and helps to prevent and overcome such problems. The OM enables better coordination between core businesses, by employing scientific methods and techniques to predict future requirement, both qualitative and quantitative (Cooper, M. C., and L. M. Ellram. 1993). OM enables the company to successfully meet targeted deadlines of their mega projects, like deep sea drilling, installation of oilrigs and setting up mega refineries.
OM in the real sense involves the timely delivery of inputs required for a project and careful planning. In OM, planning involves the setting of goals and objectives, analyzing available alternatives, selecting the best available alternative, selecting an appropriate execution plan and developing contingency plans (Vollman, T. E., W. L. Berry, and D. C. Whybark. 1992). Another important aspect of OM is coordination. It strives to achieve better coordination between the various entities related to the project. These include the suppliers, project managers, site engineers, technicians and others (Schwarz, L. B. 1981). Projects undertaken by trans-national companies, such as the Shell Corporation, are often quite complex. The company needs to develop synergies between all the related entities.
OM requires all the related entities to share critical information with each other, on a regular basis. This enables the development of new contingency plans, in case there are any proposed changes to the original plan of action. The basic management concept of organizing is used extensively in OM. It involves the procurement of all the necessary inputs, at the right place and at the right time. In organizing, the focus is on following a pre-determined plan. This may require the project mangers to confirm to some basic requirements of the quality and quantity of inputs required for the project (Houlihan, J. B. 1985). Organizing also involves the application of contingency plans that may be required due to the development of unforeseen problems, common to all mega projects. Unforeseen problems in the case of oil companies are usually the result of bad weather conditions, drilling complications and on-deck accidents. Contingency plans may not deliver the same results as planned earlier, but they do help in reducing incurred additional costs, due to project delay.
In many mega projects, OM involves the setting up of effective control measures in the initial stages. This helps to assess the performance of the installed systems and components. The main aim is to ensure that the project has been executed as planned and has the capacity to deliver the predicted results. Apart from the major problems, mega projects also have to deal with various minor issues that surface on a daily basis. It is not possible to predict such problems and the company has to depend on the skills and experience of the operations manager. He is held responsible for the successful completion of the project. In the case of minor problems, operations managers often rely on their innovative skills, intelligence and common sense.
Operations management has acquired great significance in the recent years due to an increase in the number of trans-national companies, whose operations are spread across the continents. It helps in developing the synergies between the various operations that are separated by time and space. OM has made it possible for trans-national companies, like Shell Corporation, to source crude oil from an oilrig in Europe and deliver the oil to a refinery located in Asia Pacific. OM is not limited to Oil Companies only. OM has enabled many companies to set up production and manufacturing at cost effective locations and source the required inputs from locations where procurement costs are low.
The companies do not have to face a raw material shortage, as OM helps in defining an appropriate logistics plan to ensure a consistent supply of raw material. The key elements of the plans include inventory management, using scientific techniques, warehousing, transportation and distribution (Lee, H. L., and C. Billington. 1993). Operations management involves the use of scientific methods and systems, like the Last in First out or LIFO, First in First out or FIFO, Just in Time and Re-order quantity or ROQ (Masters, J. M. 1993). These techniques help in saving time, money and reducing possible spoilage. OM also stresses on the development of an efficient transportation system. This enables the transfer of raw materials to production sites on time. OM employs warehousing automation systems and software that enable the easy movement of goods, in and out of the warehouse (Deuermeyer, B. and L. B. Schwarz. 1981).
The main purpose of all these initiatives is to facilitate the transfer of goods, from the point of procurement to the point of production, at the least possible cost. Although operations management depends a lot on the human factor, it does not aim at improving the efficiency of personnel associated with a project. The core objective of OM is to ensure the availability of all the necessary inputs. The cost of procuring goods and services is also considered under OM, but this is usually taken care of by the cost management team or strategy employed by the company.
OM is no longer limited to corporate organizations and is increasingly being employed by other organizations as well. One such organization is the postal department, who is using it to offer better services to customers. The US army has also started employing OM to ensure easy and quick movement of men and material. OM is employed for effective distribution of relief material to victims of natural calamities, like floods and earthquakes. The increased use of OM is a proof of the effectiveness of OM concepts and theories in reducing operational costs and increasing the efficiency of business processes.
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