Regardless of the size or type of business
you have, there are processes and operations issues that could probably
be dealt with better than they currently are. So, does that mean you
need an operations manager? (Or, that you need to wear another hat
yourself?) Probably. What does an operations manager, or a C.O.O. do?
They find the inefficiencies or problems in your work flow, production
processes, quality, supply chain, inventory, manufacturing, and
everything else that effects the bottom line and ultimately the success
of your company. Then they re-engineer those processes to be more
efficient and profitable for the company.
The primary goal of the operations manager is the same
customer-centric goal we've preached about in many other HowStuffWorks
articles -- creating happy and loyal customers. If you aren't creating
happy customers then why are you in business? By effectively analyzing
and managing your business's operations, you can create the right
products with the right features at the right cost.
Managing operations involves all of the processes in a
business, including the supply chain, product quality, manufacturing,
sales and marketing, safety and health, and environmental concerns.
Operations managers use tools like performance measurement, flowcharts,
best practices information, and benchmarking to determine where the
problems are and the best methods to correct them.
The role of the operations manager varies in every industry,
but even if you're a doughnut shop owner on Main Street you probably
could benefit from a good hard look at your operations. In this article
we'll explain how managing the operations of a business works and
explore some of the tools, techniques and current thought that will
help you streamline your business and bring more dough into your shop!
What does 'Operations' cover?
As we mentioned in the introduction, the role of
"operations" varies in every business. Basically, operations looks at
every process in the business, breaks it down, analyzes it, and makes
it (and its final product) better. The universal goal is customer
satisfaction, which is achieved through improving quality, efficiency
and ultimately reducing costs for everyone. Add to this, research into
innovative new products and you can come up with the perfect product
with the perfect manufacturing process and the perfect marketing plan.
Your customers are perfectly happy and your business takes off like a
rocket! OK, that is a little oversimplified, but you get the idea.
History of Operations Research
The first applications of operations research and
analysis began in 1937, when the British Royal Air Force needed to
extend the range of their radar equipment to locate enemy aircraft.
They began their efforts by analyzing the equipment, but eventually
examined behaviors of the operating personnel and found many
possibilities for improving the techniques and abilities of the
operators. They also discovered shortcomings in their network.
By 1942, it had became common in the British military
to deploy teams of mathematicians, physicists, and officers to test
equipment and study the effectiveness of weapons and radar under actual
Operations research activities were brought to the U.S.
in 1942 to the Naval Ordinance Laboratory. Eventually all Air Force
commands were ordered to include operations research groups in their
staffs. By the end of World War II military operations research was
In 1948, Massachusetts Institute of Technology offered
studies in Operations Research, but it was not until 1950 that industry
in the U.S. began to use the techniques.
Here are some of the processes that are linked to production and ultimately the Operations Manager.
By improving the processes within a business, whether it be
administrative, marketing, research and development, or anything else,
a company can theoretically produce a better product, making higher
profits, and create a happy and loyal customer-base. But how do you
determine where the problems are?
- New product research and development -- Operations managers
are involved in decisions about the logistics of producing the new
product, the costs, the skills necessary, the equipment, and the staff
training to make it happen.
- Manufacturing and production -- It is here that
operations managers will often have the most impact (depending on the
type of business). Manufacturing and production processes need constant
review and continuous improvement.
- Supply Chain -- Purchasing prices and levels, as
well as, storage of raw materials, inventory, and other product
components is part of the job of the operations manager. From an
operations standpoint, these are all processes that must be reviewed
frequently and improved.
- Quality Management -- Tying back once again to
customer satisfaction is the level of quality that must be maintained
in both the product produced and the environment in which it is
produced. (i.e. Happy workers produce better products.) Operations
plays a big part in analyzing and improving quality in every facet of
- Sales and Marketing -- Market research and feedback
from customers is critical to creating successful marketing programs,
as well as for development of new products. By working with marketing,
operations can help the company better fulfill customer needs.
- Finance -- Budget information is important for
every department of the company. The operations manager may need to be
able to provide costs for each phase of the operation in order to
prepare proper budgets and forecast accurate profit/loss information.
Replacement and repair of capital equipment is also an issue here.
- Human Resources -- Identifying the optimum number
of employees for each department, as well as the overall organization
of staff and reporting structures can also be part of the operations
- Facility Management -- Environmental regulations,
waste removal (or elimination of waste from processes), site locations,
and employee safety and health are all issues the operations manager
may be involved in.
Let's look at some of the techniques for analyzing processes within a business.
managers use mathematical and scientific data to improve and
re-engineer the processes in business. They arrive at this data by
analyzing the processes of all areas of the business. This process flow
analysis can help you identify your company's current business
situation, as well as independent departments within your business.
With process analyses you can:
- Identify improvements in your product production processes that
will turn into cost savings, allowing you to pass-on savings to your
customers and gain a stronger foothold in the market
- Streamline your company's infrastructure
- Streamline your inventory and supply chain issues
- Identify improvements in your administrative, accounting,
purchasing, and other departments to eliminate those that don't add
value to the company
To do this, the process being studied is broken down into task-based
chunks. These chunks are then analyzed to identify problems, or
inefficiencies in the system.
Process flowcharts illustrate the process
process flowchart graphically represents the individual "chunks" of the
complete process from start to finish. For example, a customer order
could be followed from the time of the order, to the order entry, to
order processing, to fulfillment, and to shipping. If there are
different methods for placing an order, such as by phone, order form,
or web, then those processes can also be charted to determine which is
the most efficient. The individual steps of the process are usually
indicated as closed boxes with arrows pointing in the direction of the
next step. Additional symbols are used to denote the beginning, ending,
inputs, outputs, and other steps of the process. There are also
software programs available to help you develop flowcharts. We'll talk
about that a little later in this article.
Plot processes to determine value added
plotting the process you can assign a value level to each step in the
process so you can determine which actions add value to the overall
process and which don't. With this knowledge, you can reorganize the
process by eliminating those actions that don't add value. If you can't
totally eliminate a step you may be able to simplify it. This type of
analysis should work for any process in your company and can help you
add value to your entire business.
The plot process uses symbols much like the flowchart to denote what is happening at a particular stage of the game. Plot Process symbols include:
||A main step in the process.
||Movement of people or materials from one place to another.
||Any regular delay in the process, or temporary storage.
||A regular controlled storage phase, as in completed inventoried products.
||Routine inspections for quality or quantity.
||Approval or disapproval of inspection.
Value is added only by an operation or a decision.
To determine how many steps your process has that do not add value,
list the steps involved in your process and insert a column for each
action symbol. For each step indicate what type of action it involves
(e.g. operation, move, delay, etc.). Total each column and add the
operation and decision columns to get the total value adding steps,
then total the other columns to get the total non-value adding steps.
This will give you a starting point for identifying ways to improve your process.
Modeling and simulations allow for "what-if" scenarios
flowcharts and plot processes you create can also be referred to as
models. While these models work well for answering "what" questions,
they do little for the more detailed questions like "how," "when," and
"where." The complexity of the processes a typical business uses makes
it very difficult to rely solely on flowcharts to determine the effects
of changes. This is where simulation models will shine. Simulations
allow you to vary the models to help you see more clearly the effects
of changes in your process. By creating simulations of a process, you
can identify shortcuts and streamline the process to save time and
Simulations also allow you to experiment with "what-if" scenarios. You can determine things like:
This type of simulation involves some creative thinking and
also input from those involved. Don't overlook asking the people who
perform these tasks what their ideas are for making the process more
efficient. They probably have the most knowledge of all about what they
do and probably have quite a few ideas on improving the system.
- The impact that absent workers can have on a process
- The extra cost of eliminating a position that may appear to be unnecessary at first glance
- The savings in time and money you might see by simply
rearranging the work area to allow for closer storage of parts and
- The savings in time and money you might see by having
technical staff generate their own reports rather than having
administrative clerks do it.
Critical path analysis
analysis is usually used to determine the minimum length of time in
which a project can be completed. While not always as useful for
ongoing processes, it is extremely useful for product development and
other project-based work.
Critical path analyses require that you first determine all of
the steps necessary to complete the project. You then prioritize them
based on the steps that are dependant on other steps being completed first, as well as those that can run parallel to other activities. In other words, those steps that following steps are dependent upon must be completed first and so on.
You begin the chart by listing the time frame across the top. Place a
circle on the graph below that represents a task and then draw a time
line to the following task. The length of the line, or the space
between the two tasks, represents the length of time the task will
take. The line is attached to the following task and so on. The line is
the "critical path." Parallel tasks, or those that are not dependent on
other tasks being done first, can be drawn in below and run
concurrently with the dependent tasks.
There are actually two formats in which this chart can be drawn. One is the Gantt chart, and the other is the PERT chart. For examples and a more thorough explanation of how this charting and analysis works, go to Mind Tools.
For customer- and
service-related situations, queuing is analyzed to determine things
like how many gas pumps a gas station will need for a particular area,
how many checkout counters a department store should have, or even how
many parking spaces a restaurant needs. It also comes into play in
maintenance and service situations where items have to wait (in line)
for repair. Basically, in any situation where people or things have to
wait in line there is a loss of value.
Decreasing the amount of time spent waiting increases the
quality of the service. This also increases the cost of offering the
service. The goal of the Queuing Theory is to find that happy medium
where the waiting customer experiences the least "loss of value" and
you still maintain manageable costs for the improved service.
Computing queue systems involves many formulas and algorithms, and luckily there is software with which to compute them.
Now you should have at least a feeble grasp on how analyzing
your processes works, so let's move on to what you can do once you get
there. Actually, we're talking about improving quality and building
quality into the process itself.
The Quality Movement
you've been on a slots binge in a dark casino in Vegas for the last
five years, you probably have at least heard of TQM (Total Quality
Management), or the term "continuous improvement." These terms refers
to the movement by operations managers everywhere to improve their
bottom line, the success of their companies, and customer satisfaction
by improving the quality of the processes that are involved in
producing the product or service. Often, this push is instigated by
pressure from competition. In order to get the competitive edge, you
have to improve quality, price, as well as the delivery of your
product. This requires the analysis of your processes that we talked
about earlier, and the initiation of quality standards and improvements
to those processes.
Continuously improving quality is also known by the Japanese
word "Kaizen." The key to Kaizen is eliminating waste from the business
and production process. This is a way of improving production and
reducing costs without much of a monetary investment.
Applying this concept to new processes takes a lot of attention
and work. By definition, continuous means that the improvement activity
is designed to be ongoing. Historically, skilled craftsmen practiced
this concept, without giving it name, simply because they had to
compete with other craftsmen and that's what it took to make a living.
They had to constantly hone their skill to be faster, better, and more
cost-effective. Making this idea a part of your everyday business
processes will require planning, thought, and training. It will also
require constant review and re-analysis. In effect, you will be on a
constant mission to find better methods of doing what you do.
Involve Your Employees
the task of improving your processes requires involvement from your
employees. This is a very simple way to dig up some potentially great
ideas. Think about it this way. You do your job every day. Every day
you probably think, "hey, if I didn't have to wait for this, I could get that
done a lot faster." Your employees probably have many thoughts just
like that. Get their opinions and use them. Not only will you benefit
by getting some great ideas, you'll also benefit because simply
involving your employees creates a better working environment, more job
satisfaction for them, and more support for the quality improvement
goal. There is a definite correlation between employee involvement and
employee satisfaction. There is the same correlation between employee
satisfaction and productivity improvements.
Keys to Making It Work
for quality improvements, particularly continuous improvements, to take
place, your business must be able to turn loose of its existing ideals
about how it does things, and especially how upper management thinks
things should be done. The mind-set to make continuous improvement work in a business will require three things:
So basically, you have to have a cooperative staff who wants
to make the program work, knows how their work is contributing to the
whole, and has the tools and training to do it.
- There must be motivation for employees and supervisors. They
have to want to do these things. Setting up a reward program is usually
key to getting the best level of support. Rewards can be monetary or
non-monetary. You may battle with the HR department over this since
those policies are typically set at the corporate level rather than the
operational level. [Unless you function as both!]
- There must be a clear vision of the big picture by all
employees. Your staff must understand the ultimate goal, what is
expected of them, what the reward is, and how it is going to work.
- The necessary tools and training must be available.
Your staff must have the proper tools they need to make it possible to
do what is expected of them. This may or may not require much of an
investment, but it is something to make sure you take into
consideration when you begin planning.
By cooperation, we also mean upper level management must
also buy into the idea. This doesn't just mean "talking the talk" and
using "quality" words in your vision and mission statements. It means
they have to "walk the walk" in order for the quality movement to
succeed in your business. Remember these keys to walking the walk.
Techniques For Developing Quality Systems
- Many processes cross into different functional areas. Make
sure you have good communication between groups so that every area can
understand, work through problems, and ultimately "walk the walk."
- In order to get true total company buy-in, set up groups of middle managers that will regularly review the process improvement activities and compare them with the original goals you've established.
- In the same vein, set up teams of workers from all job
function areas that will help ensure that the quality plan is working
at the operational level. They can also help solve other problems that
arise as a result of a process change and refine it to make it work.
- Having exposure to the ultimate buyers or customers is a good
wake-up call for anyone who normally doesn't see the fruit of their
labor in use. By giving everyone exposure to customers and their needs, your business can reap the benefits of better understanding, as well as some good ideas for improvement.
- Measure the satisfaction levels of both your customers and your employees, and use the feedback to further improve your quality.
Aside from extracting quality- and process-improvement ideas from your employees and management, there is also the area of waste
in which to focus your attention. Although waste can be looked at from
the perspective of simply not utilizing raw materials in the most
efficient way, it often considerably affects your bottom line through
defective products. You can combat defects and ultimately improve
quality in three unique ways:
To identify specific areas of waste, look at these aspects of your process.
- Preventing defects through improved processes, training, and equipment.
- Improve the product through re-design to reduce problems, returns, customer complaints and dissatisfaction.
- Improve quality checkpoints on both the product prior to shipping, and the production process itself.
These are the main areas to review when planning for quality
improvement, but as you'll see as you go through this workshop, each
session includes issues that relate to quality improvements and the
re-engineering of your processes.
- The physical actions required to produce the product -- Is
there unnecessary movement required by your employees such as lifting
and carrying objects, bending, pushing, etc. This may not only take
additional time and reduce productivity, but it may also increase
chances of injury and repetitive trauma for your workers.
- The right tools for the job -- Often a large
machine is used to do a job a much smaller machine could do. This
creates waste in the amount of energy consumed, as well as the
additional cost of the equipment itself. Re-visit your equipment.
- High inventory levels -- If your levels of
inventory are too high you're wasting not only money on production, but
also money for the space and energy required to house that inventory.
(We'll go over more inventory and supply issues in the next session.)
- Transporting parts and products -- Do your workers
spend too much time moving materials and products from one area to
another? Could you rearrange work spaces to bring materials closer to
where they are needed, and move the space for finished products closer
to the area where they are actually shipped?
- Down-time -- Are there too many periods of
down-time where employees are waiting for materials, information, or
other things? Can you rearrange the work flow to engineer out some of
those time lags?
The International Organization for Standardization
is a worldwide federation of national standards groups and agencies
from 140 different countries. It develops standards outlining
specifications to be used to define characteristics, rules, and
guidelines for products so that worldwide use is possible. It was
established in 1947 to facilitate the exchange of international goods
IOS/ISO, what gives?
You probably have noticed that the organization's name
is International Organization for Standardization while the acronym is
ISO, which on the surface doesn't appear to make sense.
a little known fact, however, that ISO is not actually an acronym for
International Organization for Standardization. It really is a word
derived from the Greek word isos, which means "equal". OK, now it makes more sense, especially if you also think about other words that use that prefix like isometric which means of equal measure.
[Source: International Organization for Standardization web site.]
To make your job a little easier, ISO has developed
internationally recognized standards for quality known as the ISO 9000
series. This series of standards is used internationally as a
foundation for developing quality systems in business. The ISO 9000
standards have recently been significantly revised and updated to be
more applicable to all industries and to bring in more of a focus on
continuous improvement. They also strived to create a more
The series is broken down into many documents, however the primary pieces we are interested in for this workshop are the ISO 9000:2000 fundamentals and vocabulary document, the ISO 9001:2000 quality management systems requirements document, and the ISO 9004:2000
quality management systems guidelines for performance improvements
document. There is also the ISO 14000 series that deals with
environmental issues. We'll talk about that a little later in this
There is a good resource with instructions for implementing these guidelines into your own quality program at the ISO web site.
Quality should be the guiding principle for every function of
the business. If you can create an environment where everyone thinks
about quality and is motivated to improve it, you'll have a leg up in
continuous improvements to your processes.
Now, let's move on to your supply chain and inventory issues...
Inventory and Supply Chain Management
you manufacture a product, consider this: 70-80 percent of your
manufacturing costs can often be found in the raw materials used to
produce the product. You can considerably reduce production costs by
focusing on your supply chain. In this session, we'll go over some of
the strategies for managing various types of supplies, and provide tips
on getting the best price possible.
First, let's start with how the supply chain works. The supply
chain is the relationship between you and those who supply you with
products, materials, and services. The chain includes the relationships
as they go down the entire product production cycle. This means raw
materials, distributors of the raw materials, manufacturers,
distributors of the manufactured products, retailers, and finally the
customer. Regardless of where your business falls in this chain, you'll
have issues with supplies.
your business may include office supplies, production materials,
utilities, and services by specialists. Typically, the procedures for
You can reduce your costs through bulk purchases (assuming you have the storage space readily available), grouped packages
of products (often available at a reduced price, but be careful of
being too dependent on one supplier), purchasing in bulk by joining in
with other businesses and buying the items together (aka, collective purchasing), Just-in-Time
(JIT) orders (timing orders so they arrive just before you run out of
your supply - saves space for storage and tied up capital.)
- Specifying the information related to the needed product.
- Determining the supplier -- Lists of suppliers should be kept
in order to compare pricing. Quotes should be requested for large
orders, but are usually not necessary for small orders.
- Negotiating prices
- Purchase of supplies
- Delivery and inspection of the supplies
Just In Time (JIT)
some more about JIT. This method of purchasing is part of the total
quality drive. It is becoming more and more popular as software
programs allow for more accurate pinpointing of process flows and
timing of supply needs. The benefits of JIT are obvious. Your order
comes in when you need it so long term storage of supplies is not necessary (space, energy, and transportation savings). Your money is not tied up in inventory that stands the chance of not being used due to changes in any number of things. Quality issues
with the supplies are more important and dealt with more immediately
than they are if your workers can simply go to storage and get another
One thing to remember is that your suppliers must also work
under this system. If they can't guarantee delivery on the date you
indicate, then your system won't work. Make sure you have a written
agreement about the delivery needs. In return, your supplier can get
payments quicker and their cash flow will benefit as well.
MRP: Manufacturing Resource Planning
Resource Planning (MRP) can help you plan and determine the supply
needs and timelines for new manufacturing processes. As a result,
you'll be able to predict delivery times, respond to changes, and have
better control over the various phases of production.
Supply Chain Strategies
If your business depends on revenues from products produced then you
probably should organize the supplies and services into groups that can
help you set strategies for getting the best deals and help you make
the most money.
The supplies (or commodities) you purchase fall into four
categories depending on their availability, price, and quality. The
first group is Leverage commodities.
These are readily available, high volume supplies, that you can get
from a number of suppliers. This group can save you the most money if
you negotiate with your suppliers effectively. By this we mean,
- getting competitive bids
- requesting value-added services like inventory control services, or storage
- breaking out transportation costs
- collective purchases (mentioned above)
Another group is Routine commodities. These are the everyday
things you use and don't pay that much attention to. They are low
priced and can be purchased in many places by anyone. This is the type
of product you want to get for the lowest price possible. They don't
have a big impact on your business. To get the best deals on this type
- Get competitive bids and set up a long-term agreement with the best supplier.
- Simplify the ordering process to take the least time possible.
- Request value-added services as mentioned above.
The next group is Strategic commodities. These include
supplies and materials that have a large impact on your success and
profitability. They are more complex, not available through many
sources, and are usually high dollar items. Strategies to keep your
supply coming at the right price and the right time include:
- Establish good relationships and long-term agreements with your best suppliers
- Consider joint possibilities for new product development and branding
for the same value-added services as you get from your Leverage
commodity suppliers, such as inventory control, system links, or (if
the volume is high enough) on-site representation.
- Always have a back-up supplier.
The final group is the Bottleneck Commodities. These items
have complicated specification requirements often needing special
manufacturing processes. You don't often have alternate products you
can use in place of Bottleneck commodities, therefore they can have a
big impact on your overall business if you can't get the supply you
need. The best strategy with this type of commodity is to try and
engineer the need for them out of your process. Your next best options
- Finding a supplier who wants an ownership stake in the business.
- Establish long-term agreements with preferred suppliers.
- Exchange technology or knowledge with the supplier to create the relationship you need.
Negotiating the Best Deal
Not every negotiation session is centered on price. Surprised? Some
people are. After all, isn't that what's important? Yes, and no. Price
is important, but so is quality, delivery time, service and maintenance
issues, order response time, etc. There are many things to bring to the
negotiating table. And, even though price may not be what you're
talking about, the end result of your negotiations should be cost
savings -- often significant ones.
Here are some angles you may not have considered when negotiating deals with suppliers.
- Payment terms --Ask for improved delivery time or other service related to the supplies in exchange for shorter payment terms.
- Warranty --The warranty on the products you purchase
from suppliers can be negotiated considerably. You may be getting (and
paying for) more warranty coverage than you need. Visit this issue and
see if you can reduce the length for a reduction in item cost.
- Timed cost reductions --If you can't get the price you
need right away, but need the product anyway, try to get the supplier
to agree to future reductions by a set percentage of the item cost.
This would be based on the assumed increase in quantity you will need
and can mean significant eventual savings for you.
Clearly, your business's success and the value passed on to your
customers is affected greatly by your supply chain. By spending the
time setting some strategies and negotiating the best deals, you can
keep that continuous improvement momentum going.
Now, let's move on to less obvious part of the operations managers job.