OPERATIONS MANAGEMENT

Major Overview
Operations Management is about getting things done effectively and efficiently in organizations.
Demands for business process re-engineering, better quality, better customer service, time-based
competition, and supply chain management demonstrate that superior management of the operations
function is vital in business today. Operations managers manage the production systems in manufacturing
and services. All organizations have an operations function. Operations managers might work in
managing manufacturing processes or managing the delivery of a service to a customer.

What is Operations Management?

Operations Management deals with the design and management of products, processes, services and
supply chains. It considers the acquisition, development, and utilization of resources that firms need to
deliver the goods and services their clients want.

The purview of OM ranges from strategic to tactical and operational levels. Representative strategic
issues include determining the size and location of manufacturing plants, deciding the structure of service
or telecommunications networks, and designing technology supply chains.

Tactical issues include plant layout and structure, project management methods, and equipment selection
and replacement. Operational issues include production scheduling and control, inventory management,
quality control and inspection, traffic and materials handling, and equipment maintenance policies.

According to investopedia, Operations management refers to the administration of business practices to

create the highest level of efficiency possible within an organization. Operations management is
concerned with converting materials and labor into goods and services as efficiently as possible to
maximize the profit of an organization.

Operations management teams design the method of conversion of inputs (materials, labor, proprietary
information, etc.) into outputs (goods, services, value-added products, etc.) that is most beneficial to the
organization. Operations management teams attempt to balance costs with revenue to achieve the highest
net operating profit possible.

Major, overall activities often include product creation, development, production and distribution. (These
activities are also associated with Product and Service Management.) Related activities include managing
purchases, inventory control, quality control, storage, logistics and evaluations of processes.

A great deal of focus is on efficiency and effectiveness of processes. Therefore, operations management
often includes substantial measurement and analysis of internal processes. Ultimately, the nature of how
operations management is carried out in an organization depends very much on the nature of the products
or services in the organization, for example, on retail, manufacturing or wholesale.

Importance of Operations Management

Operations Management explores the way organizations produce and distribute goods and services.
Everything you wear, eat, sit on, use or read comes to you courtesy of the operations managers who
organized its production and distribution. Goods such as automobiles, airplanes, computers and houses,
must be produced, as do the services provided by hospitals, ski resorts, trucks, and airlines. It's the job of
an operations manager to make sure these activities occur when and how they are planned.

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This explanation reflects the essential nature of operations management: it is the central activity in
organizing things. Operations Management is the systematic development and control of the processes
that transform inputs into goods and services. The operations function comprises a significant percentage
of the employees and physical assets in most organizations. Operations Managers are concerned with each
step in providing a product or service. They determine what should go into an operating system, such as
equipment, labor, facilities, materials, energy, and information, to produce the output. Operations
Managers are also responsible for critical activities such as materials management, capacity planning,
purchasing, scheduling and quality.

The importance of Operations Management has increased dramatically in recent years. Significant
competition, shorter product and service life cycles, better educated and quality-conscious consumers, and
the capabilities of new technology have placed pressures on the operations function to improve
productivity while providing a broader array of high-quality products and services.

Sections of operations research include

1. Purchasing
2. Control and Coordinating Function of Management
3. Product and Service Management
4. Quality Management
5. Inventory Management
6. Supply Chain Management
7. Logistics and Transportation Management
8. Facilities Management
9. Configuration Management
10. Distribution Channels
11. Enterprise Resource Planning

Procurement (Purchasing) Practices

This topic reviews guidelines for buying various materials from suppliers and vendors -- materials,
including computers, services from lawyers, insurance, etc.

Procurement (Purchasing) Practices: An Introduction to Supply Chain Management

Increasing competition (whether for-profit or nonprofit) is forcing businesses to pay much more attention
to satisfying customers, including by providing strong customer service. It may help the reader to notice
the role of customer service in the overall context of product or service development and management.
Sections of this topic include
a. Customer Service Basics
b. Top Five Customer Service Metrics (Measuring Customer Satisfaction)
c. Satisfied Customers - Do You Know If Yours Are? (Measuring Customer Satisfaction)
d. Handling Customer Complaints
e. Additional Perspectives on Customer Service
f. Call Centers
Customer Service Basics
Servicing a customer is a part of every purchase and interaction with internal and external contacts. It can
last a few seconds up to hours. So if we all do it and experience it every day in almost everything we do,
why isn’t good customer service the norm?

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We all have stories about when we were treated exceptionally well or extremely poorly. We tend to share
these extraordinary stories with others. We all know that word of mouth marketing can be the absolute
best advantage or the worst drawback for a company.
Warren Buffett said it best: “It takes 20 years to build a reputation and five minutes to ruin it. If you think
about that, you’ll do things differently. “

A few basic rules about customer service:

Honesty is the Best Policy. Integrity – Be honest and own up to your mistakes. Communicate what you
plan to do to change or prevent the same mistake from happening again. Don’t be fooled into believing
that a regular ‘mea culpa’ will get you off the hook. At some point the plan to fix the problem must take
effect!

Break Glass in Case of Fire. Response Time – The best tact is to quickly get on the phone with the
customer to explain your company’s mistake. Don’t rely on email for this communication if it can be done
quickly one on one. If you are communicating to a large customer base then email is certainly the fastest
and most effective way to quickly notify your customers that you are aware of the problem. Frequent
updates is there is a protracted issue and a brief overview of how you will prevent it from happening in
the future will give your customers confidence that you are aware of the customer impact.

Keeping it real. Set a Realistic Expectation – Customers who have been promised something that isn’t
delivered as promised are far more frustrated and disappointed than if they are notified at the outset they
won’t have it sooner than later. In other words, under promise and over deliver is the best policy. This
may take some arm wrestling with other departments who want to take a feature or product to market
before it is ready. Set the expectations correctly internally as to what the fallout may be so everyone
understands the impact to customer satisfaction and ultimately customer retention.

R-E-S-P-E-C-T. Everyone in your company should love your customers. Without them, you have no
company. This doesn’t mean you won’t have difficult customers who will push the limits and try
everyone’s patience. But if you don’t have a company philosophy to respect and appreciate your
customers, the opposite tone will infect customer interactions from all departments. All departments,
customer facing or not, should care about customer satisfaction.
From Gandhi, “We must become the change we want to see in the world.”
Use these 4 tenets as the foundation for your customer service mission. What do you do to ensure your
customers are treated as your most important asset?
How to Calculate the Value of Customer Loyalty
Customer Service Basics
Customer Service Strategies - Self-Help is IN
Don't Forget About Gathering Client Feedback
Outstanding Customer Service A Call Out to Leadership
Empowered Employees for a Unequivocal Customer Experience
5 Principles of Customer Care
How to Host a Customer Event
7 Finishing Touches for Your Customer Service Strategy | Inc.com
Showing Customer Love

Top Five Customer Service Metrics

First question you should ask yourself…How do you measure customer satisfaction?

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If you are measuring by the # of complaints you are or are not receiving, you are in trouble. Not
everybody bothers to take the time to tell you about his/her horrible experience. If you are asking your
customers if they are satisfied, you are telling them that their satisfaction matters.
There are many different ways to ask: post-purchase and post-support surveys, enclosures in the monthly
invoice, follow-up phone calls and quarterly or annual surveys. The right method depends on your
business and your customer base. Try different ways. Just do it.
Let’s be clear: if you’re not measuring any part of your service delivery, you are missing a huge
opportunity to improve, grow or even save your business during these scrutinizing, tight economic times.
The challenge with specifying key indicators is that not all businesses will use the same metrics. For
example, a retail or fulfillment organization will have decidedly different key performance indicators than
a software-as-a-service company.

For the purposes of this discussion, I have highlighted relatively general metrics and incorporated a few
varying perspectives for different use cases.

Service Level – For call centers, support, and service desks, first call resolution is the Holy Grail. For a
shipping operation, product delivery and project implementation, on-time performance is the measuring
stick. In a high transaction business, the first interaction with a customer will be a key determinant of
whether the customer will return. Don’t underestimate the importance of timeliness and thoroughness.

Customer Retention – For SaaS businesses, Utilization is the best indicator of a customer’s dedication to
your service. Use this metric to understand who is at risk at contract renewal time. Monitoring Repeat
Business is going to help non-SaaS businesses understand how sticky their product or service is for their
customer base. You should know which customers are using or buying different parts of your business.
These customers who buy throughout your offerings are perhaps your most important customers to focus
on for your retention strategies.

Response time – You’d be surprised how many customer surveys come back with comments such as
“your service is great, you got back to me right away….” “I was surprised with how quickly you
responded to my inquiry and it made all the difference even if I didn’t get the answer I was hoping for…”
In today’s world of electronic relationship management, response time is one of the only ways we can
communicate our sense of urgency and concern for our customers and their experience with our product
or service. What is your Response goal – within X hours? Set one and achieve it. You should know what
your competition is doing and beat their goal.
Want to really blow away a customer and cement your relationship? Pick up the phone and give them a
personal call.

Time with the Customer – Are your customer-facing employees incentivized to keep calls short or to
move too quickly from customer to customer? If so, you are sending the wrong message and subsequently
affecting the quality of the customer interaction. There is a definite happy medium between the overly
chatty service provider and the thorough and efficient provider. Set your benchmarks for call duration and
general time with the customer in relation to the ultimate goal of first call resolution, NOT the other way
around.
In other words, a completely satisfied customer not requiring a follow-up call or visit is much preferred
over a quick, unresolved interaction.

Churn – Cancellations and returns are the equivalent to churn. If you don’t know how much business you
are losing, you won’t be able to understand how much new business you will require to stay out of the
red. As important as knowing how much, is understanding WHY you are losing customers. Take it to the
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next level and use follow-up surveys, phone calls, personalized ‘how can we get you back’ emails. This
survey information is the real business insight for understanding your lost business.

By all means this is not a comprehensive list of key performance indicators. To expand further we would
need to focus on a particular business model to provide a more granular perspective. Start measuring and
start making changes. Continue to evolve your key metrics as your business evolves. Keep this process
circular for continuous improvement.
Post these key performance indicators in your facility or on your intranet and regularly communicate them
to your employee base to give everyone in your Company sensitivity to how you are performing for your
most important asset: your Customers.
Customer Feedback Helps You Improve the Customer Experience
Basic Methods to Get Customer Feedback
My Top 5 Customer Service Metrics

Satisfied Customers – Do You Know if Yours Are?

In our world of customer service, it is our mission to keep customers.
“It is a privilege to serve you”, that is what the Banker told me today when I called for information
regarding refinancing. Do your employees believe that serving your clients is a privilege? Do your clients
feel like they are appreciated?

Nowadays a lot of consumer product and service companies are asking for feedback. Some companies
incorporate the ‘how are we doing’ insight as a deep part of their company culture. Salesforce.com has a
place for employees and customers alike to log their feedback.

Many e-commerce sites ask at the end of a sale for feedback about the shopping experience. Brick and
Mortar stores are now enticing shoppers to log in and provide feedback on their shopping experience in
exchange for a ‘prize’.

What about the business-to-business companies? With customers locked into contracts, the same drive to
listen and improve is not always as entrenched into the company culture. We can change that. Start by
listening.

Customer Surveys
There are several easy-to-use, cost-effective online survey solutions now to help you launch a Listening
Campaign. Polaris Marketing provides you with some sample questions if you are new at this. Survey
Monkey, Question Pro, and Zoomerang are just a few online resources that will not only help you with
the logistics of doing a survey but also help you formulate a strategy so you get the answers you need.
Online Surveys are not the only option. Make calls to a % of your client base every quarter or send out a
brief survey with your monthly invoice. Depending on your product or service, this simple effort may be a
huge differentiation for you.
Make sure your survey will give you actionable feedback. In other words, ask questions that will give you
answers about specific experiences as your customer so you will know what to fix. General questions like
“ Are you happy with your experience in working with us” give you a good indication of how your
customers are feeling, but if they answer in a negative way you won’t know what part of the experience
needs fixing.

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Action Plans
Once you are ready to roll out a survey, you still have much more work to do. The most important
element in asking for feedback is deciding what you are going to do about what the surveys say. Don’t
bother asking if you don’t intend to allocate the time, resources or money to making changes.

Now it is time to put the feedback into actionable – who, by when and how – plans to make changes. You
won’t be able to fix everything at once, but it is important for both your employees and your customers to
see real change as a result of the surveys. Be realistic about what you can accomplish and set both short-
term and long-term goals.

And Repeat
Now that you have launched your Listening Campaign, you will have the process for next time all
mapped out. Quarterly? Semi-Annually? Annually? Whatever timeline works best for you and your
business to ensure the feedback is put to use.
Using satisfaction surveys to achieve a competitive advantage
When Should Changes Be Made to a Customer Satisfaction Tracking Questionnaire?
Measuring Customer Satisfaction
Measuring and Tracking Customer Satisfaction

Handling Customer Complaints

Best Practices in Resolving Customer Complaints
Listening for Dollars-Customer Complaints Create Profit
Handling Customer Complaints
Customer Complaints - Love Those Lemons To Improve Customer Experience
When Customer Rebellion Becomes Open Revolution
The New Rules of Handling Customer Complaints
How to Handle Complaints: The IBM Way

Additional Perspectives on Customer Service

Make An Action Plan To Improve Customer Service
Improving Customer Service Requires Consistency
Customer Care and Technical Support (with example survey and monitoring forms)
Customer Service Strategies Live Chat
Customer Service Is Dying and I'm Not Feeling So Good Myself!
Customer Service Tips
How One Southwest Airlines Employee Delivered Exceptional Customer Service
Crisis Management and Customer Service
How To Make The Shift To High-End Customers
How to Manage Client Expectations After You Close a Sale
Do Your Customers Deserve a Bill of Rights?
Employees First, Customers Second
Fire Your Highest Margin Customers!
Beware of Letting Competitors Distract You From Customers!
Customer Service or torture?
Six Critical Steps to Training High-Quality Customer Service…
6 Tips to Delivering Customer Value (a Leadership Challenge)
Customer Service Answers You Can’t Do Without
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When Companies Think They Are Too Smart for Customer Service…
Social Media Impacts Customer Service
Poorest Customer Service in the Land Where it Really Counts
Worst DMV Customer Service Cherry Hill, NJ
Is Your Food Good, Yes?
Key Training Ideas for Your Customer Service Program

  Smart Vendor Audit Checklist

Bartering Your Services or Products

Setting Supplier Cost Targets: -- Beyond the Basics (excellent overviews of various aspects)
Companies in a wide range of industries are becoming dependent on their suppliers -- and not just because
outside purchases generally account for more than half of total product cost. These companies are also
learning that suppliers are critical to driving continuous product innovation. As a result, managing
relationships with the "extended enterprise" of suppliers is gaining executive-level attention.

If done properly and at the right level of detail, target costing can insure competitiveness without
jeopardizing supplier cooperation in innovation. The benefits come in five ways:

Delivering the optimal value proposition to end consumers.

Minimizing product-line complexity.
Selecting the appropriate product and process technology.
Lowering design churn late in the innovation process.
Eliminating cost overruns.

Target-Costing Approaches

Target costing is not a new concept. It is not difficult to imagine that an early Roman artisan would have
been asked, "Can you make me a shield for five sovereigns?" However, in a world of unrelenting global
competition, setting the right target for a given product has become exceedingly important.

Three very different approaches to target costing are employed today -- and often without any clear
distinction:

 Price-based targeting.
 Cost-based targeting.
 Value-based targeting.

Price-based competition is at the heart of the free enterprise system. In its simplest form, price-based
targeting simply sets the "target cost" through comparison with competitive offerings. This technique
continues to be a standard negotiating tactic in working with suppliers -- however, many companies are
also applying the technique proactively to their own products. These companies are examining "what the
market will bear" and subtracting a desired margin to determine an appropriate target cost for a product.
Products that do not meet the targets are canceled or sent back to product development to be redesigned to
meet the cost target.

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Management Control and Coordinating Function
Management control and coordination includes a broad range of activities to ensure that organizational
goals are consistently being met in an effective and efficient fashion.
Control Function of Management (includes major activities to ensure goals are being met)

Product and Service Management

As noted above, the major activities involved in product and service management are similar to those in
operations management. However, operations management is focused on the operations of the entire
organization, rather than managing a product or service.
Product/Service Mgmt (product creation, development, production and distribution and sales)

Quality Management
Quality management is crucial to effective operations management, particularly continuous improvement.
More recent advancements in quality, such as benchmarking and Total Quality Management, have
resulted in advancements to operations management as well.
Quality Management (especially continuous improvement, benchmarking and re-engineering)

Inventory Management
Costs can be substantial to store and move inventory. Innovative methods, such as Just-in-Time inventory
control, can save costs and move products and services to customers more quickly.

Basics about Inventory Control and Management

Inventory control system
Models for Inventory Control
Association for Operations Management
RFID Solutions
Inventory System Basics
Finding the Best Inventory Management Solution – Part 1

Supply Chain Management

ABCs of Supply Chain Management
Institute for Supply Chain Management
Supply Chain Management
The Seven Deadly Supply Chain Sins
Considering a Third Party for Supply Chain Management
Supply Quality: Today's Pressing Priority
Supply Chain Management Articles (links to many articles)
The Sustainable Supply Chain
Supply Chain Optimization: Learn How to Reduce Logistics Costs
Supply Chain Logistics
Supply Chain Inventory
Supply Chain Integrated Operations Planning
Supply Chain Procurement and Manufacturing
Supply Chain Customer Accommodation
General Resources about Inventory Control and Management
American Production and Inventory Control Society
Center for Inventory Management

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Software Packages
You can often get a software package that will help you manage your inventory. Usually, these packages
are primarily for accounting. See
Accounting Software

Logistics and Transportation Management

Logistics is focused on the flow of materials and goods from suppliers, through the organization and to
the customers, with priority on efficiency and cost effectiveness.
Business relocation checklist
more business relocation lists
want to outsource logistics? Here's what you should know (free registration required for article)
Warehousing
Transportation Operations

General Resources about Logistics and Transportation

Transportation and Logistics Links
another extensive list of logistics and transportation links
Glossary of Logistic Terms

Also see:
Telecommuting (working from home)

Facilities Management
Effective operations management depends a great deal on effective management of facilities, such as
buildings, computer systems, signage, lighting, etc.
Facilities Management (managing facilities, offices, buildings, signage, lights, etc.)

Configuration Management
It's important to track the various versions of products and services. Consider the various versions of
software that continually are produced, each with its own version number. Tracking these versions is
configuration management.
Configuration Management

Distribution Channels
The means of distribution depend very much on the nature of the product or service.
Distribution

Enterprise Resource Planning

Enterprise resource planning refers to using a software application to integrate multiple internal and
external functions of a business. By facilitating the flow of information between human resources,
accounting, inventory control, and other assets, planning and decision making can be made easier.

General Resources about Enterprise Resource Planning

Enterprise Resource Planning
Enterprise Resource Planning and Web Services The Third Wave
Enterprise Resource Planning (ERP) - Benefits and drawbacks of ERP
Cost-Cutting Software Targets Small Business
Enterprise Resource Planning: Do You Need It?
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Practical Resources for Enterprise Resource Planning Implementation
Enterprise Resource Planning (ERP) for Small and Medium Enterprises (SME)
Managing Change in the ERP Implementation: Busy Work Vs Productivity
Managing Change in an ERP Implementation: The Launch
Managing Change in an ERP Implementation: Post-Launch
Managing Change in an ERP Implementation: The Transition
Managing Change in ERP Implementation: Hiring a Consultant
Also see
Project Management
(NOTE: The major functions of operations management are all referenced from above.)

General Resources
Institute for Operations Management
Operations Management Center (lots of links and resources)
Operations Management division of the Academy of Management
Difference between Operations Managers and General Managers
Linking Innovation and Operations

For the Category of Operations Management:

To round out your knowledge of this Library topic, you may want to review some related topics, available
from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly
practical nature.

Explain Operations Management from systems concept. What are the important decisions in
operations Management?

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