Operations Management

What you’ll learn to do: explain operations management in the production of goods and services

Nearly every type of business organization needs to find the most efficient and effective methods of producing the goods or services it sells to its customers. Technological advances, ongoing competition, and consumer expectations force companies to rethink where, when, and how they will produce products or services. In this section you’ll get an introduction to the key concepts and functions of operations management.

Learning outcomes

  • Define operations management
  • Explain the role of the operations manager
  • Explain how operations management relates to the service industry

Operations Management

It’s one thing to be in charge of getting Thanksgiving dinner on the table, but it’s another to manage a complex manufacturing process. Before we explore what’s involved in such an undertaking, let’s begin our study of processes and operations by defining some key terms you will use throughout this module.

Production, the creation of products and services, is an essential function in every firm. Production turns inputs, such as natural resources, raw materials, human resources, and capital, into outputs, which are products and services. This process is shown in Figure 1. Managing this conversion process is the role of operations management.

Diagram shows the inputs, which are factors of production, as natural resources, human resources, raw materials, and capital. A conversion process takes place, and the outputs are products and services.

Figure 1. Production Process for Products and Services (Attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license.)

Practice Question

Operations managers, the people charged with managing and supervising the conversion process, play a vital role in today’s firm. They control about three-fourths of a firm’s assets, including inventories, wages, and benefits. They also work closely with other major divisions of the firm, such as marketing, finance, accounting, and human resources, to ensure that the firm produces its goods profitably and satisfies its customers. Marketing personnel help them decide which products to make or which services to offer. Accounting and human resources help them face the challenge of combining people and resources to produce high-quality goods on time and at reasonable cost. They are involved in the development and design of goods and determine what production processes will be most effective.

Production and operations management involve three main types of decisions, typically made at three different stages:

  1. Production planning. The first decisions facing operations managers come at the planning stage. At this stage, managers decide where, when, and how production will occur. They determine site locations and obtain the necessary resources.
  2. Production control. At this stage, the decision-making process focuses on controlling quality and costs, scheduling, and the actual day-to-day operations of running a factory or service facility.
  3. Improving production and operations. The final stage of operations management focuses on developing more efficient methods of producing the firm’s goods or services.

PRactice Question


Operations Management in the Service Industry

In businesses that produce services, the need for operations management may seem less obvious, since they don’t produce tangible goods. Operations management is all about transformation, though—taking inputs and transforming them into outputs—and it involves things like suppliers, supply chains, and logistics. All of these things are present in service industries. Consider how “operations” play out in a service business—let’s say in a theme park like Wally World. Although the company doesn’t manufacture products, it is still producing an experience. The following breakdown gives you an idea of how and why operations management is so important to this kind of business:

  • How do you control the crowds? How many guests should be let into the park before the line to ride the Tea Cups is intolerably long?
  • How many cars should be attached to the Cyclone of Doom rollercoaster to maximize the number of riders but still ensure their safety and security?
  • For July 4th weekend, how many tons of ice cream need to be ordered to supply all the ice-cream carts and keep all the hot, tired, and hungry patrons happy?
  • Where do you purchase the park’s supplies? That’s everything from souvenir cups with Wally’s picture on them to paper plates and napkins for the restaurants.
  • How do you staff entrances and exits? How much security is enough to let guests feel comfortable letting their children roam around?

How do you manage the operations of this type of business that produces fun as its primary product? Answer: You hire an operations manager!

PRactice Question