The Backbone of Business

1. Maximizing Efficiency

Operations management is the oversight and control of all the processes that transform inputs (labor and raw material) into outputs (goods and services) that customers pay for. The goal of operations management is to maximize efficiency while producing goods and services that effectively fulfill customer needs.

Operations management acts as the backbone of businesses, ensuring efficient and effective production, delivery, and service provision. By continually optimizing processes, it can promote cost reduction, quality control, and timely fulfillment, ultimately contributing significantly to an organization's competitive edge and profitability.

Countless operating decisions must be made that have both long- and short-term impacts on the organization’s ability to produce goods and services that provide added value to customers. If the organization has made mostly good operating decisions in designing and executing its transformation system to meet the needs of customers, its prospects for long-term survival are greatly enhanced.

IN CONTEXT: FURNITURE

For a furniture manufacturer, some of the operations management decisions include the following:

• Designing furniture that is consistent with current styles
• Purchasing wood and fabric
• Hiring and training workers
• Location and layout of the furniture factory
• Purchasing cutting tools and other fabrication equipment
• Checking finished products to ensure quality
• Managing inventory
• Delivering furniture to customers and sellers
• Continuous improvement of both product and processes

If the organization makes good operations decisions, it will be able to produce affordable, functional, and attractive furniture that customers will purchase at a price that will earn profits for the company.

As you might guess, operations management is a vast topic. However, OM can be bundled into a few distinct categories, each of which will be covered in later units. It should be noted that entire courses are devoted to each of these topics individually.

did you know

The history of operations management can be traced back to the industrial revolution, when production began to shift from small, local companies and artisans to large-scale production firms. One of the most significant contributions to operations management came in the early 20th century, when Henry Ford pioneered the assembly line manufacturing process. Ford used time studies to determine the best arrangement of machinery to minimize worker movement and speed up production. This process drastically improved productivity and made automobiles affordable to the masses. Understanding the motivations behind innovations of the past can help us identify factors that may motivate individuals in the future of operations management.

term to know

Operations Management

The oversight and control of all the processes that transform inputs (labor and raw material) into the outputs (goods and services) that customers pay for.

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2. Operations Tactics and Operations Strategy

We described operations management as a series of decisions made in turning raw materials and labor into goods and services. These decisions could be called tactics, or actions taken to achieve an end. That end is called a strategy, a broader plan of action to accomplish large-scale goals.

Operations is one of the three strategic functions of any organization. The other two areas of strategic importance to the organization are marketing and finance. The operations strategy should support the overall organizational mission and align with the other functional teams to do so. Operations are a vital part of accomplishing the organization’s mission and ensuring its long-term survival.

IN CONTEXT: JETBLUE

JetBlue airlines is an airline that has an organization strategy of providing high-value air transportation service to travelers. JetBlue’s marketing message is that they provide fun, comfortable, and safe air service to popular destinations at a price that middle-income passengers can afford.

Given JetBlue’s organization strategy, the airline features an operations strategy that focuses on low costs, competent and service-oriented employees, and reliable aircraft. JetBlue’s main transportation hub is New York City, a city of 19 million people, which helps ensure that JetBlue’s planes fly at full capacity. In the area of equipment decisions, JetBlue operates only one type of aircraft, the Airbus 320, which has high passenger carrying capacity (to maximize revenue), provides good fuel economy, and requires only two pilots (versus three) to operate. Having one type of aircraft reduces training costs for pilots and mechanics, reduces investments in parts inventories, and enables JetBlue to negotiate greater discounts on high-volume purchases from Airbus.

Strategic decisions in operations are those that have long-term consequences and often involve a great deal of expense and resource commitments. Key decisions include:

• How much long-term capacity the organization has to meet customer demand
• How labor and equipment are organized
• The technologies that the organization will use
• Where facilities will be located
• How much inventory to keep on hand, and the conditions for its storage
• How quality will be measured and maintained

Operations management utilizes long-term strategic decisions to achieve sustainable competitive advantage. These strategic decisions involve significant resource allocation and require substantial financial commitment. Examples include facility layout optimization for improved workflow or major technology upgrades to enhance production efficiency. The long-term impact on cost structure, production capacity, and product quality justifies the significant upfront investment and resource dedication. These strategic decisions establish a robust operational foundation for achieving long-term organizational goals.

In contrast, tactical decisions have short- to medium-term impact on the organization, usually involve less commitment of resources, and can be changed more easily than strategic decisions. Tactical decisions include:

• Workforce scheduling
• Establishing quality assurance procedures
• Contracting with vendors
• Managing inventory

Operations management utilizes tactics at various levels to achieve strategic objectives with clear, prompt results. Preventative maintenance, the most fundamental tactic, minimizes disruptions through proactive upkeep. As we progress through the tactical spectrum, decisions gain complexity and increase the level of impact. Inventory management, for instance, balances stock levels with production needs. At the highest level, tactical decisions involve resource allocation and scheduling, significantly impacting efficiency and short-term goals. These tactics are adaptable due to their shorter timeframes and resource commitments compared to strategic decisions. Both strategic and tactical operations decisions determine how well the organization can accomplish its goals. They also provide opportunities for the organization to achieve unique competitive advantages that attract and keep customers.

IN CONTEXT: BIG LOTS!

Big Lots! is a retailer based in Columbus, Ohio, with a focus on discount products ranging from household goods to food and even furniture. Big Lots!, who found itself on the Retail Drive’s bankruptcy list, has a strategy of “extreme value sourcing to provide unmatched prices to customers.” As part of this strategy, a tactical plan was to acquire the entire inventory of toy company Hearthsong, which consists of over 500 different products. This purchase allows them to resell those products to customers at very deep discounts, thereby meeting their overall strategic plan (Walk-Morris, 2024).

terms to know

Tactic

An action taken to achieve an end.

Strategy

A broader plan of action to achieve large-scale goals.

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3. Goods and Services

Throughout this tutorial, you have seen the term “goods and services.” What’s the difference? Simply put, goods are the products you pay for, and services are the tasks you pay people to do. Many transactions involve both, such as buying a cup of coffee—you are paying for the coffee (a good), but a bigger chunk of the cost is to pay the person who makes it for you (a service). When you buy a pound of coffee at the supermarket, you are primarily paying for a good (the coffee), but a portion of the price is paying the stockers and clerks (services). In general, however, all stores and restaurants are considered part of the service industry, and the term “goods” refers to manufacturers. Service and manufacturing operations share many similarities. However, there are some important differences. This section provides an overview of those differences.

did you know

The U.S. rose to world power in the 19th and 20th centuries as a manufacturer of goods. In 1950, the biggest industry (by far) was the automobile industry, and other top companies made household appliances. However, over the past few decades, the manufacturing sector has declined substantially. Today, only about 12% of U.S. workers are employed in manufacturing. Most now hold jobs in the service sector, including healthcare, which accounts for 77% of U.S. gross domestic product (U.S. Bureau of Labor Statistics, 2023).

Though the primary function of both manufacturers and service providers is to satisfy customer needs, there are several important differences between the two types of operations. Let’s focus on three of them:

1. Intangibility: Manufacturers produce tangible products—things that can be touched or handled, such as automobiles and appliances. Service companies provide intangible products, or things you cannot touch, such as banking, entertainment, or education. They may also produce tangible but temporary things that are transient, like food in a restaurant, or a haircut.
2. Customization: Manufactured goods are generally standardized; one 12-ounce bottle of Pepsi is the same as any other 12-ounce bottle of Pepsi. Services, by contrast, are often customized to satisfy the specific needs of a customer. When you go to the barber or the hairdresser, you ask for a haircut that looks good on you because of the shape of your face and the texture of your hair.
3. Customer contact: You could spend your entire working life assembling cars in Detroit and never meet a customer who bought a car that you had helped to make. But if you worked as a server, you’d interact with customers every day. In fact, their satisfaction with your product would be directly determined in part by the service that you provided. Unlike manufactured goods, many services are bought and consumed at the same time. Services are still the transformation of resources into value for the customer. Restaurants design new meals and train workers to prepare and bring you the meal.

IN CONTEXT: DOORDASH

DoorDash is a perfect example of how a service industry transforms resources to create value. While many would prefer to go out to eat, restaurant food delivery services are a $150 billion market, and have tripled since 2017 (Ahuja, et al., 2021). DoorDash works with restaurants to provide a platform for customers to order online and have their food delivered and gives restaurants access to logistics and a network of drivers.

This business model creates value for the customer and for the restaurants. Restaurants can obtain new customers that otherwise may not have dined at their location, and through the app, drivers can earn extra income by picking up orders at the restaurant and delivering them. Of course, customers are happy to have food and other items delivered to their door.

DoorDash’s service is intangible; it is also customizable in that the customers can choose where they want to order from. The drivers also have contact with the restaurant when they pick up the order, and the customer when they drop the order off.

While all businesses essentially follow many of the same operations processes we will discuss throughout the class, understanding the distinction is crucial for understanding how they differ for businesses that manufacture goods and businesses that deliver services.

terms to know

Goods

The products you pay for.

Services

The tasks you pay people to do.

Tangible/Intangible

Whether or not something a customer pays for can be touched and handled.

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4. Careers in Operations Management

There are many careers in operations management in both the public sector, within federal or local government, and the private sector, within individual companies or nonprofit organizations. In fact, the need for operations managers is expected to grow by 4.2% through 2032 (U.S. News, n.d.). When you consider the vast definitions of operations management, nearly every industry needs operations professionals, including retail, banking, healthcare, manufacturing, tourism, restaurants, and most other fields. Operations management is crucial for organizational success, ensuring efficient transformation of inputs into outputs while overseeing the production and delivery of goods and services. Each employee contributes as the business optimizes processes, fostering cost reduction, improving quality and timely delivery, ultimately enhancing customer satisfaction and securing a competitive edge.

Within the broad category of operations management, there are many different specialties.

• A production manager or production supervisor coordinates activities that involve manufacturing. This role may also be responsible for ensuring quality in the manufacturing processes.
• A materials manager oversees planning, procurement, and distribution of materials, such as the raw materials to produce a product.
• Schedulers are individuals that organize workflow by making appointments, such as scheduling personal care attendant visits to patients’ homes.
• An operations manager could work in a restaurant and oversee day-to-day operations, including management of the restaurant staff, management of raw material inventory (food), and customer service.

Many roles in operations are highly specialized for their industry and even for the specific company. As you can see, the field of operations management is varied, with many potential opportunities and distinct career paths.

Examples of job titles in operations management might include:

Entry Level	Middle Management	Top Management
Operations Analyst	Scheduler	Chief Operating Officer (COO)
Process Analyst	Operations Supervisor	Director of Operations
Operations Coordinator	Project Manager	Vice President of Operations
Warehouse Assistant	Production Planner	Senior Operations Manager
Supply Chain Analyst	Materials Manager
Inventory Coordinator	Quality Control Specialist
Inventory Specialist	Operations Manager
Facilities Assistant	Program Manager
Office Assistant	Supply Chain Manager
Safety Coordinator	Inventory Manager
Quality Inspector	Facilities Manager
Quality Assurance Coordinator	Office Manager
Logistics Planner	Health and Safety Manager
	Quality Assurance Manager
	Logistics Specialist

Some sample career paths are depicted below. As you can see, there many areas one can specialize in within operations management, such as supply chain management, quality assurance, facilities, and many more.

think about it

What area in operations management is most interesting to you? Do you have experience that gives you a head start on any of these career paths?

REFERENCES

Ahuja, K., Chandra, V., Lord, V., and Peens, C. (2021, September 22). Ordering in: The rapid evolution of food delivery. McKinsey. www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/ordering-in-the-rapid-evolution-of-food-delivery

U.S. Bureau of Labor Statistics (2023, October 6). A Look at Manufacturing Jobs on National Manufacturing Day. www.bls.gov/opub/ted/2023/a-look-at-manufacturing-jobs-on-national-manufacturing-day.htm

U.S. News & World Report (n.d.). Operations Manager Overview. U.S. News & World Report. money.usnews.com/careers/best-jobs/business-operations-manager

Walk-Morris, A. (2024, February 27). Big Lots acquires entire inventory of toy company Hearthsong. Supply Chain Dive. www.supplychaindive.com/news/big-lots-acquires-hearthsong-toys-inventory/708520/