All organizational functions are operations, and, at the same time, any management activity includes operations management. In this article, we will consider the common points of the concept of operational management.
Operational management as a component of the organization’s management
Operational management is the control of production processes, which are aimed at transforming resources into goods and services. The transformation process requires organization. Related to production, operational management is often called production operations management. Without an efficient and well-organized operational function, no organization can retain market leadership because it loses in delivery speed, price, or quality, and most likely in all three indicators.
The concept of “operation” involves the production of personal or industrial goods, contract work, and services. Therefore, the term “operation” is much broader than the term “production”, because the first of them means not only the production of goods but also the provision of services. Based on this, operations as activities should be understood as production, supply, transportation, service. The basis of operational management is the operating system.
The operating system is a complete system of production activities of any organization (object), which is a set of three interdependent subsystems:
- planning and control subsystem;
- processing (converts the input value to the output);
- supply subsystem (performs the necessary functions of providing the processing subsystem).
How does it work?
Operations management is closely linked to quality, productivity, and information technology. Much depends on the company’s operational management system, as inputs are transformed into goods and services. Properly designed and managed operating systems and procedures largely determine product quality and performance levels. For example, Benetton is maximizing productivity from its distributed hubs through an extremely efficient and productive operating process. Conversely, ill-conceived operating systems are one of the main causes of low quality and low performance. They increase inefficiency and can increase costs and reduce profitability in various ways.
Typically, operations managers have to deal with important and complex issues in three areas.
- Resources: Managers must decide where and how to buy the resources needed by the firm to produce products. The key solutions here are supply chain management and vertical integration.
- Location: Managers must decide where to build office buildings, sales offices, and factories, what should be their planning, etc.
- Logistics: Managers must choose transportation methods and inventory management methods.
Strategic context of international operations management
The central role of operations management is to build the capacity to increase the value of the firm. In other words, operational management is an activity that creates added value, and its activities are aimed at creating new or increasing the existing value of input resources so that it directly affects the results of the firm.
International operational management must be built in full accordance with the company’s business strategy. Indeed, the business strategy set by top corporate and regional managers affects all aspects of planning and implementing operational management activities, such as supply chain management strategies, location decisions, premises planning, and logistics. If the company pursues a strategy of differentiation, the function of operational management should ensure the creation of goods or services that are different from the goods or services of competitors.
Conversely, if a firm pursues a cost leadership strategy, the operational management function must ensure that the costs of producing goods and services are reduced to an absolute minimum so that the firm can lower prices while making a reasonable profit. In this case, the central role is played by costs and prices, and quality may be less critical.