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?

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 operating conditions. 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 greatly expanded. 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. [Source: Britannica.com]

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.

Here are some of the processes that are linked to production and ultimately the Operations Manager.

• 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 the business.

• 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 manager's role.

• 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.

Analyzing Processes
Operations 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
A 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
By 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:

Operation:		A main step in the process.
Move:		Movement of people or materials from one place to another.
Delay:		Any regular delay in the process, or temporary storage.
Store:		A regular controlled storage phase, as in completed inventoried products.
Inspect:		Routine inspections for quality or quantity.
Decision:		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
The 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 money.

Simulations also allow you to experiment with "what-if" scenarios. You can determine things like:

• 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 supplies.
• 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
This 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.

Queue Theory
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
Unless 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
Beginning 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
In order 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:

1. 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!]
2. 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.
3. 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.

• 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.

• 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.

• 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?

ISO 9000

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. It's 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.]

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 and services.

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 user-friendly document!

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 article.

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
If 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.

Basic purchasing
Purchasing for your business may include office supplies, production materials, utilities, and services by specialists. Typically, the procedures for purchases are:

1. Specifying the information related to the needed product.
2. 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.
3. Negotiating prices
4. Purchase of supplies
5. Delivery and inspection of the supplies

Just In Time (JIT)
Let's talk 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 part.

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
Manufacturing 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 of supply

• 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
• Ask 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 are:

• 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.