What is Operations Management [Theory & Practice]

Operations management is the administration of business practices aimed at ensuring maximum efficiency within a business, which in turn helps to improve profitability.

It involves resources from staff, materials, equipment, and technology, converting these inputs into efficient and effective outputs on both day-to-day and strategic levels within an organization.

If you think that sounds super theoretical, we agree – it does. As with most business buzzwords, it can be a bit hard to understand in terms of REAL practice. And that’s what we’re going to simplify – how to use operations management to improve your business.

In this guide, you’re going to learn…

  • What is operations management, exactly?
  • What does an operations manager do?
  • Why Operations management is important
  • How to put operations management into practice with 4 of the most popular methodologies

What is Operations Management – A Simple Introduction

Operations management is basically people management. Most business departments focus on very specific goals – marketing means getting more sales for your business, HR keeps your employees happy, and so on.

Operations management, on the other hand, involves getting the most out of your company resources. These can involve your employees (doing more work that creates value), technology (maximum efficiency in manufacturing, for example), equipment (help employees do more work), and so on.

As you’ve probably figured, operations management involves dealing with a lot of different areas. Hence, it’s important for your COO (chief operations officer) to have a background in all sorts of disciplines, from manufacturing to people-management.

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What Does an Operations Manager do

Depending on the organization, an operations manager can be responsible for a lot of different things.

Unlike other executive positions, operations management is cross-department. A CMO specifically works with the marketing department, CFO with finance, and so on. A COO, on the other hand, might need to work with just about every department (if there’s need for it).

In most cases, their work involves…

  • Process Design – Figuring out the exact steps needed to be carried out so that the organization meets its business goals. This can mean helping plan out a one-time project or creating procedures for repeatable work. A real-life example of operations in projects would be, for example, creating a timeline for developing some software for the client. For a process example, the COO could create a structured employee onboarding procedure to make the whole onboarding more efficient.
  • Standard Management – Helping create and optimize budgets, scheduling equipment maintenance, ensuring that the employees are following standard procedures, etc.
  • Process Improvement and Optimization – Most businesses have a “don’t fix what’s not broken” policy towards their processes. More often than not, though, you could potentially get a lot more from your business if you constantly check on your processes. The COO is supposed to make sure that all your processes are as efficient as they can be.

Why Operations Management is Important

In smaller companies, operations are very simple and straightforward. Everyone takes part in managing the processes, and more or less, things go smoothly.

The same, however, doesn’t apply to companies with 20+ employees. That’s when things start getting complicated. You can’t just rely on your employees to do work right – you need to have standardized procedures to ensure that everything as efficient as possible.

If done right, operations management can lead to…

Better Output – The operations manager optimizes and improves processes that have a heavy impact on the product or service. This usually leads to higher output, lower defect rates, lower costs, and so on.

Competitive Advantage – Better output leads to a better product or service. This allows your organization to stand out from the competition, gaining new customers.

Higher Profits – As a combination of the first two, you end up improving the company bottom line and making more profits.

How to Manage Your Operations [4 Popular Theories]

Sadly, there’s no step-by-step guide to operations management. Unlike most fields, it involves knowing a lot of different things, from finance to HR.

Knowing your way around process management, though, will make operations significantly easier.

While there are a lot of different approaches there, the following 4 are the most popular.

Business Process Management (BPM)

BPM is something every operations manager should have a good hang of. Chances are, you’ve heard the term before – and no, it’s not just another buzzword.

Business process management is the methodology of constantly analyzing, improving and automating processes. It’s not something you do just once, though – you need to be on a constant lookout for potential improvements.

Putting that into practice, you should have a general idea of what the BPM lifecycle consists of. i.e, the exact steps you need to take to work on any given process.

The steps are…

  • Design – Every company has processes. Not all of them, however, are really outlined. More often than not, they’re implicit. The “design” part means identifying a process and figuring out where it starts, what it consists of, and where it ends. To learn more about business process design, check out our guide.
  • Modeling – Once you’ve identified a process, you need to put it down on paper. Without something to look at, the analysis part can be quite hard. Usually, you’d go for a workflow diagram if the process is simple, or one of the many business process mapping techniques, if it’s not. To learn more about business process modeling, check out our guide.
  • Analysis – Now that you have a workflow diagram ready, you can start analyzing it. Are there any steps within the process that don’t really add value? Are there any ways to remove them? Are there any steps you could just automate using software? To learn more about business process analysis, check out our guide.
  • Monitoring – You can’t improve a process without knowing how well it’s performing as-is. Plus, you should also be able to figure out whether the changes you’re making have a positive impact or not. So, gather the benchmark data for the process as-is and compare it to the data you get post-improvements.
  • Improving or Automating – Use the insights you’ve identified in the “analysis” step to make changes to the process. You can either improve it by working with the process steps or automate certain steps using software or hardware. To learn more about business process improvement or automation, check out our guides.

Business Process Reengineering

Sometimes, improving processes isn’t the most efficient thing you can do. Instead, you want to re-engineer it (not just a business buzzword, we promise!). Meaning, instead of improving a process, you re-create it from scratch.

In most cases, this is done with the help of technology. After all, you can’t really change something fundamentally just like that.

To give you a better idea of how this works, we’ll look into an example of how Ford completely re-engineered their accounts payable department.

The major problem was that the department was significantly overstaffed. They employed 500 people, as opposed to 5 in the same department at Mazda (a partner company).

Ford launched a BPR initiative to figure out why they were underperforming. The old process worked as follows…

  • The purchasing department receives a purchase order. The copy is forwarded to the accounts payable
  • Material control receives the goods & send a copy of the delivery document to accounts payable
  • The vendor sends a receipt to accounts payable
  • The accounts payable matches the three separate documents, and only then is the payment issued

Or, as it would look like in a graph…

ford process graph

As you’ve probably already guessed, this makes the whole thing extremely time-consuming. Hence, you’d need a lot of employees to keep doing this on the go.

Realizing this, Ford completely re-engineered the process. Instead of doing everything manually, they created an online database which was used to match the different documents.

accounts payable new graph

Accordingly, an operations manager can use business process reengineering to make significant improvements to company processes.

Six Sigma

The two methodologies we’ve mentioned until now dealt with business processes.

Six Sigma, on the other hand, focuses on manufacturing processes. The main idea behind it is minimizing defect rates – for every million opportunities, you shouldn’t have more than 3.4 inefficiencies.

While there are a lot of Six Sigma tools out there, DMAIC is one of the most popular ones. The methodology helps perfect your manufacturing processes & consists of 5 steps…

  1. Define – Outline what the issue with any given manufacturing process is. Decide on the improvement goal & which tools or resources you’re going to use
  2. Measure – Look at the process as-is and measure its performance. Once you know what the metrics are, you’ll have a better idea on how to improve them.
  3. Analysis – Find the root cause of the issue. Why is the process underperforming?
  4. Improvement – Once you’ve identified the problem, try finding potential solutions.
  5. Control – Implement the new process on a small scale and benchmark the new results to the old.

Supply Chain Management

Another major aspect of modern operations management is supply chain management.

As organizations have become more complex and much more international in their scope, the strategic process by which materials, goods and information flow between suppliers, businesses and consumers has become an industry in itself.

Keeping the supply chain healthy and moving is in the interests of everyone involved, but there are many factors that can slow things down.

Compared to some of the other aspects of operations management mentioned so far, supply chain management is relatively recent, with the term only originating in 1982 and not becoming commonly used until the 1990s.

Supply chain management oversees each touch point of a company’s product or service, from its creation to the sale, and this makes it an important aspect to manage as getting it right or wrong affects efficiency, costs, and profits.

Using Software to Super-Charge Operations Management

As we’ve already discussed, one of the biggest aspects of operations management is process improvement.

If you’re doing this manually, it can be a bit rough…

  • Your employees won’t always follow the best practice with the process
  • You’ll need to map business processes & store them manually
  • You’ll have to keep continuously track process metrics

Let’s finish up here by talking about how people actually run operations. It used to be via BPM software. “Old BPM” software is tired and broken. It never worked for business users. Here’s why:

  • Users are now deciding to buy software themselves. Old BPM was bought by your IT department, who didn’t generally care about user experience – as long as it was made by a large/boring company.
  • Cloud tools are now free to try by anyone, anytime. With Old BPM you had to call sales and wait for 50 questions just to look at it and finally decide it sucks.
  • People want to share workflows with clients. With Old BPM you were stuck with trying to automate internal processes only. Your clients would be very scared and run a mile from it.
  • People expect to integrate cloud tools without IT. With Old BPM you had get engineers to write code to make a simple integration. That’s now become a drag-and-drop service.
  • People expect to work on phones. This means giant, clunky flowcharts in Old BPM are dead – because they don’t fit on your phone’s screen – and only define “the perfect process”.
  • People are tired of flowcharts. Old BPM was all about the high priest telling you how a process can/will be done, and you would obey. Now – modern workers and teams are paid to collaborate.
  • People expect all the benefits of the cloud. Old BPM was never cloud-born and was never designed for the cloud. And that creates a massive bunch of missed opportunities.
  • Companies of all sizes need process management – and never had it. Since Old BPM was so expensive and complicated, only large companies could afford it. The rest of us were left out.
  • People are excited about AI – but confused about where to begin. With Old BPM you have zero chance of using AI without an army of engineers. With cloud-born systems like Tallyfy – it’s childs’ play to use any AI you like to run amazing automations for photos, voice, video and more.

To make your life as an operations manager easier – try using Workflow Management Software.

Tallyfy is a central hub for all of your company processes – you can see how well each process is going, whether there are any delays, and so on. This makes process management and improvement significantly easier.

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