Operational Management: Definition & Types (2024)

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Operational management meaning

Operational management involves the oversight of all tasks related to achieving the highest possible level of operational efficiency.

The meaning of operations management is based on how the individual business defines it. For some businesses, this might be creating a final product out of raw materials and for others, like a social networking site, it might be the process of bringing people closer together. For some, the operational processes can either be labour intensive or capital intensive.

Nevertheless, operations management can be defined and analysed through the 4V model which includes:

• The volume of output,

• The variety of output,

• The visibility of production,

• The variability of demand.

Goals of operational management

There are multiple goals businesses aim to meet through operations management. The main objectives include:

1. Improving customer service to increase brand loyalty, word-of-mouth promotion and efficiency.

2. Allow for effective quality management and notice quality issues before they reach the customer.

3. Work effectively with suppliers and optimise supplier relationships.

4. Improve capacity utilisation to optimise maximum capacity and reduce costs.

Functions of operations management

Through operations management, businesses can evaluate their operational performance.

Operational performance can be defined as the extent to which a business is able to turn outputs into inputs as efficiently as possible.

Operational performance can be evaluated through operational metrics.

Improving operational performance can be done by the operations management process of setting clear goals, analysing performance, making decisions based on the analysis, and evaluating future actions to take. Let's take a look at those steps

Setting goals

In order to improve operational performance, a company has to set operational objectives. This is important because it allows the company to see whether it has met the set targets and evaluate what it should do differently in the future if these targets are not met. These objectives, like all other business objectives, should be achievable and measurable. The main operational goals include:

Analysing operational performance

Operational analysis includes assessing how the operations function is performing in relation to set targets.

In other words, it's an analysis of how efficiently the organisation turns inputs into outputs. The analysis process includes collecting data on current operational performance and transforming this raw data into useful information that management can use to make informed decisions.

• Average response time

• Employee absenteeism

• Employee satisfaction

• Customer satisfaction

• Number of product defects

• Machine downtime rate

• Lead conversion ratio

• Operating profit margin

Operational efficiency measures the profitability of a company based on its operations.

Operational efficiency can be measured by comparing the profits earned by the company in relation to its operational costs. The goal here for operation managers is to maximise profits, whilst decreasing all costs associated with operating the business.

Lean production is a type of production that focuses on reducing waste - anything that does not add value for the customer. Lean production can be used to decrease costs and make the operational process more efficient.

Production efficiency measures how effectively inputs are being converted into outputs.

It can be measured by either the output of an employee (ie output per hour), by the output of machinery or by the unit cost of a finished product. This measurement is important because it helps management understand whether the production process is optimised or whether there are areas of operation in which the company could improve efficiency. For example, production efficiency can be increased by investing in new (more efficient) technology, which increases a machine's output per hour.

Improving quality

Effective management of inventory and supply chains also leads to more efficient operations. The main goal of optimal operations is to match the supply of products to customer demand. This can be achieved by outsourcing, using part-time employees or producing to order.

Just in time (JIT) is a form of lean production that can be used as an inventory management tool. JIT is a type of pull production - where production only starts when it is necessary. Instead of producing the maximum amount of a product, production waits for a signal, such as an order, before starting the production of the product.

This means that costs can be decreased, as overproduction and waiting time is also decreased, increasing production efficiency and overall operational performance.

Operational Management - Key takeaways

• The operations function of a business includes the process of converting a wide variety of inputs into finished outputs of goods and services that are ready to be used by the end consumer.
• Operations management involves the oversight of all tasks related to achieving the highest possible level of operational efficiency.
• Operations management can be defined and analysed through the 4V model.
• The goals of operations management include improving customer service, effective quality management, optimising supplier relationships and improving capacity utilisation.
• Operational objectives can include cost targets, quality targets or environmental targets.
• Operational analysis includes assessing how the operations function is performing in relation to set targets.
• Operational metrics that can be used for analysis include measurements like average response time, number of product defects per batch or average employee absenteeism.
• Operational efficiency measures the profitability of a company based on its operations.
• Production efficiency measures how effectively inputs are being converted into outputs.
• Lean production is a type of production that focuses on reducing waste - anything that does not add value for the customer.
• Lean production is used to improve operational performance.

• Just in time (JIT) is a form of lean production. JIT is a form of inventory management - where production only starts when it is necessary.

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