Operations Management: Drive the industrial value chain

Operations management involves most of an organisation’s financial and human resources. It designs, plans, directs and improves those activities involved in generating a final product. 

Operations managers must make daily decisions that are key to the running of their organisations. Constant redefining and adjusting this process helps keep systems focused and in line with strategic goals.

There are four key elements to operations management:

Strategic Operations Management

Strategic operations management involves long-term, overall considerations about the viability of the organisation’s business. It asks essential questions, such as “How can we create value for customers and gain a competitive advantage?” Successful strategic operations management seeks to align the organisation’s operations to an overall business strategy. Strategic operations management helps an organisation in high-level planning decisions, taking a business from where it is now to where it wants to be.

Design

What will make a product a success? Planning involves designing a new product, from concept to launch, with several testing phases and consideration for both technical and business requirements. New supply chains or facilities may be required, or new business locations or increased production capacity. Plans should align with the organisation’s overall goals, and consider the costs and matching quality with output capacity.

Supply Chain Management

Supply chain management is the management of the flow of goods and services to the point of final consumption by the customer. It includes the processes that transform resources into finished products, and involves the active streamlining of the organisation’s supply-side activities to gain competitive advantage and maximize value to the customer.

Quality Management and Improvement

How do we measure and maintain the quality of a product? How do we identify and resolve problems? The processes involved in generating a product should be closely monitored according to the quality and capacity they achieve, and the level of inventory and human resources involved.

Operations management principles

Strategic operations management involves the long-term, overall consideration about the viability of the organisation’s business. It helps the organisation in high-level planning decisions, in order to take a business from where it is now to where it wants to be.

Strategic operations management concerns making decisions across four key areas:

Competitive Advantage

How can we create value for customers and gain a competitive advantage? Strategic operations management seeks to answer such questions as, “What are the unique qualities of our product that make it competitive?” Successful strategic operations management aligns the organisations operations to an overall business strategy.

Planning

When designing a product, strategic operations management will seek to answer, “What features will make it a success?”

The operations manager must ensure that the product is designed to cater to the market needs of customers, which means incorporating innovative technologies into the design and selling of the product.

Forecasting should seek to estimate the customer’s demand, so that production can match these needs accordingly.

Delivery Management

This is an important area in which operations managers make decisions. Delivery management involves managing, monitoring, and controlling all activities along the supply chain. It aims to guarantee the timely acquisition of inputs and delivery of outputs to customers.

Delivery management begins with the supply of raw materials and continues through the production of the finished product and its sale to customers.

Improvement & Efficiency

How do we measure and maintain the quality of our product, and how do we identify and resolve problems associated with the production process?

Quality management involves overseeing all those activities required to maintain a desired standard of excellence for the business. It stems from the philosophy that an organisation’s long-term business success is the direct result of a satisfied customer. Quality management plays a key role in monitoring the production and delivery of a product to ensure quality is maximized.

Operations management framework

production and operations management framework

Effective operations management involves three main areas of responsibility:

Supply chain management

A supply chain is the connected network of individuals, organisations, resources, activities, and technologies involved in the manufacture and sale of a product or service. Supply chain management is the management of the flow of goods and services to the point of final consumption by the customer. It includes the processes that transform resources into finished products, and involves the active streamlining of the organisation’s supply-side activities to gain competitive advantage and maximize value to the customer.

Supply chain management aims to develop and maintain a supply chain that is both efficient and economical. By centrally managing the supply chain, from the production to the shipment and distribution of the product, the business can cut excess costs and deliver the final product to the customer with greater speed and efficiency.

Quality management

Quality management, sometimes referred to as total quality management, involves overseeing all those activities required to maintain a desired standard of excellence for the business. It stems from the philosophy that an organisation’s long-term business success is the direct result of a satisfied customer.

For quality management to be effective, it is essential that all stakeholders in the organisation work together to improve processes, products, services, and the culture of the company.

Quality management includes:

  • determination of a quality policy
  • creating and implementing quality planning and assurance
  • exercising quality control
  • seeking quality improvement

Technology adoption

In order for an organisation’s production process to operate at maximum efficiency, it is essential that its operations management adopt and implement new technology to keep pace with the market.

At a time when more and more operations are becoming dependent on technology, operations managers need to have a familiarity with the technologies used in the industry, and a specific understanding of the technology used within their organisation – and how it effects the overall production process.

With the increased complexity of production processes, and product development occurring in small increments, operations management needs to be able to respond to changes in technology by making fast, agile decisions about which technology to adopt and implement. This ensures the organisation’s flexibility in responding to changes in market demand.

Strategic vs. tactical operations management

strategy vs tactics in operations management

Operations management is the management of business processes that transform resources into finished products that add value for the customer. It encompasses both strategic and tactical operations.

Strategic and tactical operations decisions will affect an organisation’s ability to achieve its business goals. Each offers opportunities to achieve a unique competitive advantage and attract potential customers.

Strategic operations

Strategic operations involve operations managers making decisions that have long-term consequences, and can sometimes result in a large expenses and commitment of resources.

Strategic operations decisions may include:

  • facility location decisions
  • determining the type of technologies used
  • planning the use of labour and equipment
  • the long-term capacity of the organisation to meet consumer demand

Tactical operations

Tactical operations involve operations management decisions that have a short to medium term impact on a business. They can typically be changed with more flexibility than strategic operations, and involve less commitment of resources.

Tactical operations decisions may include:

  • workforce scheduling
  • establishing quality management procedures
  • managing inventory
  • vendor contracting
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Digitising Operations Management examples by industry

Recent technological advancements have had enormous impact on the operation of industrial facilities. This new digital age stands to further reduce costs, increase productivity and boost performance across organisations.

Companies need to reinvent themselves to improve productivity. An investment in digital technology could make the difference between leading the market and being left behind.

Here are some examples of the impact that digitized operations have had across several industries.

Oil and Gas, Energy

The oil and gas industry is tailor-made for digital transformation, with operations spanning multiple regions, extensive capital investments, and extended supply chains. The clarity of digital technology offers operations managers unprecedented views into every aspect of the production process, allowing better strategic decision-making. Digital enablers, like process digitsation, automation and robotics, can further support the production process.

While the global oil and gas industry has rebounded somewhat from the precipitous fall in prices of several years ago, it remains an ideal time to invest in digital technologies in order to transform operations and maximize profits. 

McKinsey’s 2016 survey, based on over 100 oil and gas industry cases, identified three areas for the application of digital technologies:

Operations management of the future

While advanced analytics are being used to transform functions such as procurement and to support better decision-making, the latest technologies, such as drones and equipment sensors, are also revolutionizing monitoring and maintenance. According to McKinsey, the potential impact of using advanced analytics for predictive maintenance is a decrease in maintenance costs of up to 13 percent, while analytics for energy and yield also has the potential to increase energy efficiency by as much as 10 percent.

Reservoir limits

Integrating digital applications has allowed companies to significantly increase their reservoir limits, with up to a 20 percent decrease in upstream and downstream capital expenditure. 4-D seismic imaging enables measurement of fluid changes in reservoirs, which increases the recovery rate by up to 40 percent and boosts upstream revenue.<


Digital-enabled marketing and distribution 

Oil companies are applying digital technology, such as geospatial analytics, to obtain a better understanding of customer habits, optimise price models and more efficiently manage supply chains. Collective efforts in this category have lowered costs by up to 10 percent and increased revenue by 3 percent.

Manufacturing

With the advent of cutting-edge technology like artificial intelligence, robotics, complex smart sensors, big data pools, and vast cloud connections, manufacturing now has the perfect opportunity to capitalise on the benefits of digitisation. This means a new era for manufacturers, with a fully integrated digital factory capable of responding to industry and market changes in rapid time, and quickly tailoring products to meet individual customer needs.

The digital factory is a broad network that encompasses an end-to-end ecosystem – from sales, procurement, engineering and R&D through suppliers and customers.

Fujitsu’s plant in Augsburg, Germany is leading the way for these digital factories. An all-encompassing IT network controls a supply “supermarket” where components for Fujitsu products are stored. Once orders are received, parts are picked for assembly by robots, loaded into self-driving electric vehicles, and moved to production stations. The entire process is paperless, leaves virtually no carbon footprint, and ranks among Fujitsu’s most productive and cost-effective in the world.

AEC

Implementing the use of digitised technology can have an enormous benefit across architecture, engineering and construction industries. Building Information Modeling comes with the potential to reduce an organisation’s rework, such as re-keying information into models or making changes in the field, and the more proficient users become, the more opportunities to boost productivity increase. 

Architecture

The evolution of Building Information Modeling began with architecture, where it continues to be enormous benefit during the design phase.

Engineering

Building Information Modeling is of high value to structural engineers, who are able to use the technology to model elements like steel columns, beams and trusses. 

Construction

By reducing rework, Building Information Modeling can help keep budgets in line by saving money during construction.

Pharmaceutical

Digital technologies are beginning to transform the pharmaceutical industry, with many experimenting in digital initiatives.

Cloud and mobile technology, sensors and artificial intelligence are enabling a new wave of automation in pharmaceutical business processes, automating and streamlining work flows to increase efficiency, agility and responsiveness across organisations. Employee on-boarding, sales and operations planning, launch monitoring, marketing-content approval and clinical-trial management are all areas of the pharmaceutical industry which will see a dramatic benefit from streamlined, automated work flows and improved transparency.

Improving productivity and reducing cost in industrial operations management

Efficient operations requires connected workers

Effective operations management means improving productivity and reducing costs across the entire production process, from raw materials to finished goods. In order to achieve this, operations managers should be aware of three key areas.

Workforce

Investing in a values-driven, productive and positive workforce is an essential element of any operations management. Supercharging this workforce with digital technology is how best-practice companies eliminate waste, improve productivity and stay competitive despite market challenges. Enabling workers with technology goes by many names, such as mobility management, workforce management or connected worker strategy.

Businesses need to:

  • be aware that, by 2020, it is estimated that around half of the global workforce will comprise millennials, and recognise the changing workplace culture
  • empower employees to make decisions in the interests of the company, leading to better productivity
  • train employees in a collaborative environment in order to keep operations running smoothly
  • encourage employees to be creative in ways that lead to significant benefits
  • endeavour to promote from within to increase employee motivation

Process

Operational Excellence, or OpX, is a systematic approach for industrial organisations to maximise performance in productivity, quality, and delivery of products across the manufacturing value network. It encompasses product design and development, enterprise resource planning and control, supply chain management, manufacturing and the operational effectiveness of people, processes and assets. OpX drives performance levels that can change an organisation’s competitive position in the market. OpX requires collaboration across the operations management process – between people, processes, technologies and the organisation. It should be an ongoing process.

Visibility and communication

Visibility means an organisation is able to readily access up-to-date information about its key functional areas. Increasing visibility is essential from an operations management perspective, as it enables accurate, timely information about such things as sales analyses, supply and inventory management, production, and labour planning. Digital technologies can help facilitate insights into suppliers, projects, customer and business processes.

It is also essential for an organisation to prioritise communication, as relationships across the supply chain are integral to effective operations management. Processes tend to span diverse supplier bases, regions, time zones and regulations, leading to complexities that can be challenging. Communication helps solves these issues by keeping channels open, providing frequent status updates to carriers, suppliers and partners, and providing transparency regarding the business operations so all involved are on the same page.

Operations management &
Intelligent Enterprise

Intelligent Enterprise refers to a management approach that applies technology and new service paradigms to improving an organisation’s performance.

Highly intelligent systems – such as knowledge-based services and technology – are essential to doing business in an expanding and changing industry, but they require the organisational set-up in order to be implemented. Structures, policies, and systems need to be in place for Intelligent Enterprise to flourish.

From an operations management perspective, Intelligent Enterprise sets the platform that automates processes and allows access to all data that may have been physically and logically dispersed at one time.

Operational Intelligence is real-time, dynamic business analytics that delivers visibility and insight into data and operations. By monitoring business activities and assessing opportunities, inefficiencies and potential threats, it gives organisations the ability to make rapid decisions and act immediately based on real-time analytic insights.

By tapping into data and business processes in real-time, Operational Intelligence has the potential to change the entire fabric of an organisation’s business.

OI technology may include:

  • real-time monitoring and situation detection
  • real-time and industry-specific dashboards
  • correlation of events
  • multidimensional analysis
  • big data analytics

Managing operations management risk and compliance

operational risk management framework
Operational risk frameworks are vital for eliminated unexpected costs

While energy companies face higher, more complex risks than those in other industries – including crashing oil prices, disrupted business models, cyber attacks, and drilling in environmentally sensitive regions – they are frequently exposed by the inadequacy of the insurance products that cover them.

Integrating operational risk management strategy, tools, and processes will lead to an improved product performance, greater brand recognition, and sustainable financial results.

Risk tolerance, appetite and culture

Organisations need to weigh up the quantity of risk they are willing to take on in pursuit of their strategic goals – their ‘operational risk appetite’ – and manage their operational risk accordingly. Conveying this operational risk, both quantitatively and qualitatively, within the organisation, will have significant impact on operations management and culture. A strong operational risk management framework should be supported by risk and performance indicators that facilitate sound decision-making within the context of strategic goals.

Major risk challenges

Organisations face such risk challenges as:

  • business models needing to adapt to changing conditions, like collapsing oil prices
  • an increasingly globalised environment, with unfamiliar regional regulations and disrupted supply chains
  • the need to manage human capital, and retain skills and knowledge to sustain business when the market fluctuates
  • climate change and care for the environment, when energy companies are venturing into environmentally sensitive areas

Operations management risk framework

Operational risk management is a cyclical process that encompasses risk assessment, risk decision-making, and implementation of risk controls. It results in the acceptance, mitigation, or avoidance of the risk of doing business. An operational risk framework allows the organisation to assess risk by analysing and understanding their operational risk profile, and appetite for risk. This in turn allows a business to make informed decisions that balance organisational needs, client and customer demands, product specifications and shareholder requirements. An operational risk framework is a crucial C-suite tool.

A successful ORM framework can lead to better investment, stronger brand and competitive advantage, more effective performance reporting, and greater customer loyalty and relationship confidence.

Best operations management books for COOs

Below you will find a select list of recommended books on operations management:

  • Operations Management – Jay H. Heizer and Barry Rendell
  • Operations Management – William J. Stevenson
  • Operations Strategy – Nigel Slack
  • Introduction to Materials Management – J.R. Tony Arnold
  • An Introduction to Management Science: Quantitative Approaches to Decision Making – David R. Anderson
  • This is Lean: Resolving the Efficiency Paradox – Niklas Modig
  • Principles of Supply Chain Management: A Balanced Approach – Joel D. Wisner
  • Production And Operations Management: Manufacturing And Services – Richard B. Chase
  • Operations Analysis Using Microsoft Excel – Nancy Weida
  • Manufacturing Planning And Control Systems – Thomas E. Vollmann
  • Management Decisions for Production Operations – Robert Goodell Brown
  • Operations and Supply Chain Management – F. Robert Jacobs
  • Operations Management: Strategy And Analysis – Lee J. Krajewski
  • Operations Management: Concepts In Manufacturing And Services – Robert E. Markland
  • Operations Management For Competitive Advantage – Richard B. Chase
  • The Six Sigma Way: How to Maximize the Impact of Your Change and Improvement Efforts – Peter Pande, Robert Neuman and Roland Cavanagh
  • Reengineering the Corporation: A Manifesto for Business – Michael Hammer and James Champy
  • Competing Against Time: How Time-Based Competition is Reshaping Global Markets – George Stalk
  • Execution: The Discipline of Getting Things Done – Larry Bossidy and Ram ChChar
  • Riding Shotgun: The Role of the COO – Stephen A. Miles and Nathan Bennett

Conclusion

Successful operations management requires sound knowledge of all stages of the organisation’s business process, from the conception and planning of designs to the manufacturing, distribution, and quality improvement of the finished product. As we have seen in this overview, effective OM in today’s rapidly changing market means embracing innovative digital technologies and new information systems. By adopting and implementing cutting-edge technology, an organisation can stay ahead of the curve and adapt to changes in market demand, while effectively reducing costs, lowering risks, and maximizing production efficiency for greater profit.

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