So what’s Operations Management (and why is it important)?

Operations are all around us, everything we consume, by way of product or service, is the result of Operations; without them nothing would get done. The aim of Operations Management is to ensure that what is done, is done to the greatest benefits of the operation’s stakeholders.

So Operations Management (OM for short), at its most basic, considers how organizations configure and control both resources and processes to deliver value to the network of stakeholders. We recognise that few operations exist in isolation and so some resources and processes that are important to us are not in our control, they exist in the wider network (supply chain) and these can only be co-ordinated, so we extend our concept of Operations Management to be the configuration, control and co-ordination of resources and processes to deliver value to the stakeholder network. Why is this important?

In order to illustrate one facet of why it is important, let’s considering examples such as some recent product recalls (Toyota, horse meat etc.) and disasters (the collapse of Rana Plaza). In cases such as these the whole Operation was configured in such a way that the focal (or OEM) organisation had lost control of key parts of their Operation, thus posing risk – reputational or otherwise – to themselves and other stakeholders. So OM is partly about managing risk, but why else is it important?

I would argue that in addition to risk, good OM drives efficiency and effectiveness, profit (surplus in the public sector) and liquidity – but probably not all at the same time. Much of the focus of OM is about how we do more with less – how we become efficient. Efficiency and profit link back to Porter’s view of Strategy being about Cost Leadership and Differentiation (greater service levels lead to greater profit). So, good – or bad – OM impacts a firm strategically but we still need to discuss how OM can impact liquidity. If a firm can minimise it’s cash-to-cash cycle then it is more liquid. Less reputable organizations might do this by asking for money from customers more quickly (reducing debtor days) and paying suppliers over a greater time period (increasing creditor days). In the words of a colleague, this is “bully boy accountancy”, and can upset customers and lead to an unsustainable supply base as you would be impacting suppliers cash flow. Is it not better to get Operations to free up cash by minimising the need for inventory and reducing the amount of work-in-process? I think so.

So, without OM we wouldn’t produce stuff – products or services – and that ‘stuff’ would be less efficiently produced and so less competitive in the market.

Operations are clearly important. There is still so much more to OM. There is innovation, performance management, agility, supply chain and so on. These will be the subject of future blog posts. Watch this space.