“Operational management refers to the administration of business practices to create the highest level of efficiency possible within an organization. Operational management converts materials and labor into goods and services efficiently to maximize the profit of an organization.”
Operations encompasses the recurring core business functions which can be defined in business processes. For example: purchasing, manufacturing, Supply chain Management (SCM) or Sales.
The key objectives of operations are to:
- Generate recurring income
- Increase the value of the business
- Secure the income and value of the business
Operations is a key element in the industry where marketable goods are “produced” or where “value” is created or added to them. For services this part is different – as there is no tangible end product (e.g. repair of goods, insurance, and virtual “products” such as web content). Operational management is the organization of it and its execution. It encompasses the planning and control of production, its periphery and is typically organized in processes. A typical operations organization for a manufacturing company would consist of:
- Production: the creation or “manufacturing” of a product.
- Industrial engineering: optimizing manufacturing processes and the environment by means of engineering.
- Production planning: preparing production with a mid-to-short-term plan, secure resources for the decrease/increase of capacities, needed workforce, invest in production space.
- Production control (and supply chain management): to execute and control the manufacturing flow; manage the required resources (such as materials and capacity), schedule customer orders and manage allocation and shortages.
- Warehouse (material and finished goods), tool shop and tooling store: manage incoming raw materials at incoming, receive cleared finished goods from production, monitor stock levels and expiry dates, prepare and organize shipments; the tool shop has to ensure required readiness of product specific tools and manage the restoration of wear and tear as well as replenishments.
- Production finance controlling; keeping the accounts, monitoring and managing working capital and creating production or related reports.
Functions such as product development, quality assurance and, for complex products, supply chain management are usually linked with operations but independent.
Continuous Improvement Process (CPI): Operations is also responsible for the continuous improvement of its processes to maximize output in quality and numbers and at the same time reduce costs and consumption of resources. It is also used to compare your own capabilities with even competition or best-in-class to keep your competitiveness at the highest possible level.
There are a number of concepts that have emerged in the past decade and some that have gained a broad popularity. Some of these concepts are :
- KAIZEN:“Change for the better” - a philosophy that emerged in Japan’s automotive industry (Toyota). It is a method to continuously improve oneself and the related working environment.
- 6 SIGMA: it is a statistical term that has originally emerged from quality management (standard deviation) for high volume production processes. As a philosophy it targets the removal of errors and reducing the variability of processes to a minimum. 6 sigma basically describes a level of about 3 occurrences per 1 million cases (3ppm).
- Benchmarking: originally a “reference point”; continuous comparative evaluation of a process with an external partner who has the same process in order to improve your own.