Although processes vary in many ways, they also share some common characteristics that apply across a broad spectrum of operations. Good operations management begins with understanding and preparing your processes to run as smoothly as possible.
Nearly all processes in operations have three major components:
Inventory: This includes not only the finished goods inventory (products that are complete) but also jobs (products or services) that are only partly complete in your process (known as work in progress, or WIP).
Materials: These are the items needed to make a product or provide a service.
Resources: The equipment, information systems, and people in an operation that make the product or provide the service are considered resources.
Assuming that the business model is aligned with operations strategy, effectively managing inventory, materials, and resources achieves the two goals of operations management: efficiency and risk management. Here are some ways to manage these laudable goals:
Standardize the process and draw it out. Before you try to modify any process, standardize it and all the operations within it. Drawing a standardized process is the first step of process management. And don’t get hung up on making this perfect. Even a rough process drawing can help you spot trouble points in the process, and the drawing can be perfected as you work to improve the process.
Use resources effectively. The key to utilizing resources effectively is to find the bottleneck. The bottleneck is the resource that limits the capacity of a process, and it can be surprisingly hard to find. It’s not necessarily the biggest machine in a process or the most expensive person you employ; it’s simply that operation that is the slowest or most rate-limiting in the whole process chain.
The best way to find the bottleneck is to determine which resource on average spends the most time working on each job (unit of product) that’s completed by your process.
If you need more capacity, make sure to add it at the bottleneck; adding it anywhere else doesn’t help and just wastes it. For non-bottleneck resources, resist the temptation to utilize them 100 percent of the time on the same job (unit of product) because this just ends up creating WIP that builds up.
Keep material moving. Try to minimize the amount of time a job waits around in the process. This is especially important in face-to-face services or when a product is made to order, but using material quickly also matters in standard manufacturing. WIP is essentially tied-up cash that could be used for better purposes (such as collecting interest!).
Keep the process simple. One mark of a simple process is an easy-to-read process flow diagram. Complex processes are hard to schedule and manage; they accumulate lots of WIP and hide defects.
Hedge against variability. Variability in demand is a big problem for process management. If the company sells tangible product from a finished goods inventory, a company can carry extra inventory to ensure that unexpected surges of customer demand are satisfied. However, big inventories are costly.
Extra capacity to make more finished goods is another tool for managing demand variability and is particularly critical in face-to-face services and make-to-order businesses. But capacity, too, can be pricey. Finding the right balance of tools to handle demand variability can provide one of the biggest paybacks from operations management.
Don’t fall in love with technology. Avoid the misdirected comfort of assuming that just buying the fanciest information system can solve a company’s slew of operational problems. The right technology and aggregate planning can help, but these support tools are not cure-alls; they can’t compensate for a basic mismatch of capacity with demand.
Manage the supply chain. A product or service is only as good as the weakest link in the supply chain, the network of suppliers that provide the materials, services, and logistics that support an organization. If a company can make suppliers into actual partners in the business and integrate them tightly into product development and productivity improvement efforts, profitability follows.
Improve quality. Figuring out what the customer actually wants and delivering it is everything in business. Continuously improving the quality of processes is necessary to keep up with changing customer expectations. Better quality can also reduce waste and improve profitability.
Realize it’s a system thing. Operations aren’t about doing one thing right. They’re about doing a lot of things right — at the same time. This means using resources and materials efficiently, producing high quality goods, and maintaining a reliable supply chain while keeping things simple and managing risk. Got all that? One especially effective way to achieve this: the lean process methodology.