What Is Operations Management Theory?

Updated:May 20, 2019
Kenneth W. Boyd

The knowledge of how to successfully oversee company or project operations is important for any project manager. This knowledge is referred to as Operations Management Theory (OMT): the application of several practices with the goal of promoting efficiency in production.

So how do you go about learning how to successfully manage an operation?

Let’s start with why OMT is so important, and what it can do to boost a company’s productivity and return on investment.


Why Companies Love Operations Management Theory

Why Companies Love Operations Management Theory

The effective application of OMT does wonders for a business organization. In essence, OMT offers a makeover to existing processes in the supply chain and actual production management. The reason to redo or improve the existing processes is to make sure that your business is producing goods or services with maximum efficiency.

Many EAs compete with CPAs and other types of accountants. As an EA, you can help clients with tax returns as well as advise on any tax related concerns. You will also use your expertise to represent clients who need to deal with the IRS in any capacity, such as during an audit.

However, with effective operations management, businesses are able to achieve a better output and higher quality of goods and products. This gives them a competitive advantage over their rivals and increases the company’s return on investment (ROI).

What’s not to love about that?


Who’s In Charge of Operations Management?

Who’s In Charge Of Operations Management?

If a company has several departments that handle marketing, engineering, design, and sales, where would operations fall?

The answer is: everywhere!

All departments of a company fall under operations, both in the day-to-day processes of the business and the long-term goals and direction of the company. An effective Operations Manager or Chief Operating Officer (COO) has to wear quite a few hats, acting as a cross-department liaison. No part of the company operations should be unknown to the Operations Manager.

This is for an important reason. Rather than focusing on specific departmental goals, like landing X amount of sales or creating X amount of units, the Operations Manager’s job is to increase efficiency on every level of a company by using the resources on hand. These resources include people (employees, managers, and customers), technology, and equipment.

Operations Managers not only know the production aspect of the business intimately, but they also understand sales and marketing goals, financial projections and more.

Here are just a few things the Operations Manager should know about in order to be most effective at his or her position:

  • They know their customers, both from the marketing and sales aspect. The Operations Manager knows who to target, why, and how. Once those customers are in the door, the Operations Manager knows how best to assist them at maximum efficiency.
  • They are a very effective communicator. They must be comfortable communicating internal company information to different departments and employees, as well as communicating with customers, vendors in the supply chain, and stakeholders.
  • They understand the company’s finances. Goals, cost productions, budget cuts, breakevens…the Operations Manager has a working knowledge of them all.

Basically, the Operations Manager knows the business inside and out. And because they know the business so well, they are the most effective individual to oversee and manage the application of Operations Management Theory.


Effective Supply Chain Management

Effective Supply Chain Management

At heart, OMT centers around effective management of the chain. Operations Managers carefully manage the processes that transform raw materials into components for goods or services. These components then go through the manufacturer to be produced and sold at a retailer before reaching the consumer.

But an Operations Manager’s job does not end with manufacturing; rather, he or she is familiar with and in control of every step of the process and continuously redesigns service operations to keep production at maximum efficiency.


The Theories Behind The Theory

The Theories Behind The Theory

Contrary to popular belief, OMT is not just one umbrella theory used to magically transform a business production process. Rather, it is a long-running conceptual framework that draws on existing theories and applies them to producers of goods and services.

Essentially, it’s been around for quite a long time!

In 1911, at the height of the Second Industrial Revolution, Frederick Taylor published his principles of scientific operations management. This theory included four elements:

  • Developing a science of management
  • Using scientific terms to define an effective worker
  • Education, training, and development of workers
  • Cooperation between management and staff

Modern Operations Management Theory expanded upon Taylor’s early work in the field and is now comprised of four different production systems:

  • Business Process Redesign (BPR)
  • Reconfigurable Manufacturing Systems (RMS)
  • Six Sigma
  • Lean Manufacturing

These four theories are used in tandem to create an effective approach to business chains for Operations Managers.

Business Process Redesign

Business Process Redesign (BPR) first emerged as a theory in 1993. It focuses on creating business processes that are easily redesigned to keep up with changing technologies or markets.

Any area of business can be easily redesigned: manufacturing, production, logistics, customer quality, or marketing. Redesigning elements of a business process can help increase the return on investment, improve the quality of a product, or even reduce unnecessary costs.

BPR uses three core focuses to accomplish its goal:

  • Scoping: When redesigning a business process, it’s important to identify the scope of the redesign. Which processes must be addressed, which would be nice to address, and which are simply not worth the effort?
  • Planning: The planning phase lays out the order of processes to be redesigned and establishes milestones, timelines, cost, and resources.
  • Roadmap: A roadmap depicts the order of tasks, projects or programs to be accomplished, how long they should last, and any requirements. Unlike the planning phase, the Road Map incorporates funding mechanisms, ROI, and the fuel for a sustainable program.

Reconfigurable Manufacturing System

Reconfigurable Manufacturing System (RMS) is another theory that centers on the idea of quickly changing or updating a system. This theory deals with the actual manufacturing system and enables quick changes in structure as well as hardware and software components. RMS theory allows businesses to quickly adjust to capacity or system changes without too much downtime, labor, or money. This keeps the manufacturing process operating at maximum efficiency without negatively affecting customer satisfaction.

The RMS was invented in 1999 at the University of Michigan College of Engineering. The statement “exactly the capacity and functionality needed, exactly when needed” establishes the goal of the system.

The six core RMS traits are:

  • Modularity
  • Integrability
  • Customized flexibility
  • Scalability
  • Convertibility
  • Diagnosability

An RMS may possess all or just some of these characteristics. However, when an RMS has all of the above, the speed of responsiveness to unpredictable events is increased. Because of this, manufacturing can continue at high volume thanks to significant process improvement, resulting in high efficiency.

Six Sigma

Six Sigma focuses on the quality of a product and the manufacturing system behind it with the help of statistics and analytics. The process was developed in the 80’s at Motorola. The word “Six” in its name comes from the control limits the system operates under; it allows for six standard deviations from the normal distribution mean.

Six Sigma is employed in a company to achieve specific financial targets. This may be increasing profits, reducing costs, or other forms of financial gain. It then follows a step-by-step sequence carefully to achieve these. Six Sigma incorporates the use of many calculations, ratios, and charts to achieve its goals.

Lean Manufacturing

Lean Manufacturing is an extremely popular method utilized in operations management and many business processes today. It centers around the idea of ruthlessly eliminating waste in the supply and manufacturing process to cut costs and create shorter processes.

In lean manufacturing, any resources used for a goal that doesn’t create value for a customer is a waste. What a customer will use and pay for is the benchmark for any product or service created with the lean manufacturing method. The theory begins with the customer and is incredibly useful for limiting excess motion, inventory and overproduction.

Lean manufacturing was developed by Japanese industrial engineers Taiichi Ohno and Eiji Toyoda between 1948 and 1975. It was originally called the “just-in-time production” system and made the Toyota auto plants extremely efficient and high-quality. It is now very popular in the West.


Lean Six Sigma- a Useful Hybrid

Lean Six Sigma- A Useful Hybrid

In recent years, operations management and experts have begun to combine the core purposes of Lean manufacturing and Six Sigma to create Lean Six Sigma. The idea of creating value for customers by eliminating waste (Lean) and reducing defects by problem-solving (Six Sigma) makes for a potent combination. Now, Lean Six Sigma is an accelerated process that solves problems and improves processes to become faster and more efficient.

The key principles of Lean Six Sigma are as follows:

  • Prioritize customers
  • Understand the process’ value stream
  • Manage and improve flow of processes
  • Remove non value-adding elements
  • Manage factually while reducing variation
  • Involve people while equipping them in the process
  • Undertake significant activity improvements

The Added Value From Operations Management Theory

The Added Value From Operations Management Theory

Operations Management Theory adds incredible value to company processes. With the correct application and a competent Operations Manager, an organization can meet its business goals with a variety of process design and redesign initiatives.

Under OMT, processes are improved and optimized.

Employees are managed intelligently and strategically to best enhance efficiency.

Unnecessary waste is identified and removed.

The result is an entire business operation– from the beginning of production to the closing of sales — that works smoothly and at high efficiency with minimal waste. Because of this, OMT is an incredible addition of value to any company and a valuable skill for any aspiring professional to master.

Kenneth W. Boyd is a former Certified Public Accountant (CPA) and the author of several of the popular "For Dummies" books published by John Wiley & Sons including 'CPA Exam for Dummies' and 'Cost Accounting for Dummies'.

Ken has gained a wealth of business experience through his previous employment as a CPA, Auditor, Tax Preparer and College Professor. Today, Ken continues to use those finely tuned skills to educate students as a professional writer and teacher.