In a company, there are many coexisting functional areas that make business work properly: management, finances, administration, production/operations, quality, marketing, human resources, project management, process, logistics. In order to reach its organizational objectives, it is vital that all these areas have the same purpose and business strategy.
Next, we are going to delve into the Production/ Operations: what is it, which are its main functions, its biggest challenges, etc.
Definition of the Production and Operations area
In a company, the Production area will be in charge (in a few words) of transforming supplies, resources and materials into a final deliverable product; this area will apply the previous planning in order to obtain a high-quality product with a low cost. The use of the facilities, equipment, specialized workers, tools and every device part of the productive chain will be part of this process that ends with the product delivered to the customer.
At the same time, sometimes we hear about the existence of an Operations Area; this area is in charge of transforming raw material, the same as the Production area, but this time it will end up being a service instead of a product, an intangible deliverable.
Usually, these processes tend to have an input and an output and, in between, we monitor and quantify the efforts made. The information obtained will be registered to assess flaws, correct them, and, if it is possible, avoid them in the future.
In these areas we can see the application of the principles of every business organization:
- Efficiency: the way of taking advantage of the available resources.
- Productivity: how to increase the number of deliverables with the same efforts.
- Cost/benefit: the quantification of the real cost of the final product and the obtained qualities.
- Quality: the constant search for improving the deliverable, no matter if it is a product or a service, by working constantly on the flaws so that they are avoided in the future.
The difference between one area and the other may seem hypothetical or academic but in real life, you can understand their difference. If we think of a financial company or a bank, they are companies that provide a service but they also have production departments so they are in charge of offering tangible goods such as cards, checks, credits, etc, depending on the case.
In other words, it is clear that a medium-sized company will provide both services and products focused on comfort and the best experience for the customer.
Functions of the Production/Operations Area
Even though the functions that your company will have to meed depending on the number of goods or services it provides, in general, we can group the functions as follows:
- Provision: tasks regarding the supply selection, the correct transportation of them, their shelter and storage, and the control of inventory and traffic. Monitoring of the available materials and resources.
- Manufacturing: the creation of the product, no matter if it is manufactured or mechanized; it is the transformation of a supply into a product or service.
- Quality control: comparison between the planned product with the finished product. It will take into account the expectations and the obtained results. The information gathered will be vital to assess the performance of the area.
- Product engineering: everything related to the manufacturing of the product and its development together with the specifications that you have to meet.
- Process engineering: it determines the most adequate way of developing a product and its modifications by preparing roadmaps, establishing time and efforts needed, and monitoring the resources.
- Plant engineering: design, maintenance, and renewal of the facilities that help you achieve the result you desire.
- Industrial engineering: it studies the development, creation, implementation, and assessment of the methods, techniques, procedures, and materials to use.
- Minimizing costs: it seeks to reduce the unit price of each product and benefit the customer.
- Innovation and improvement: by coordinating with the Quality Area, it will try to produce a more competitive deliverable product at a lower cost that satisfies the needs of the customer.
A short history of the area and its evolution over time
The development of products and services for their commercialization is an intrinsic part of human beings because, from the beginning of time, they had to work in an organized way and exchange products. In the last few centuries, it took a different direction and started to be based on the principles of modern science, leaving behind empirical methods.
The roots of production management as we know it today, originated during the 18th and 19th centuries, and it reached its climax in the 20th century with the appearance of automated processes and technologies devoted to customer service.
Taken those times as a reference, we can draw the following diagram:
1. Pre-industrial Revolution: During this period, the Scottish economist Adam Smith, known as the "father of modern economy", established the main guidelines for production management in his book named "The wealth of nations" (1776). Here, the division of labor is approached scientifically in order to get better results. Thanks to his proposal, companies started to organized more efficiently and the production revolution began.
Following Smith's footsteps, Ford modernized his theory by establishing the assembly line and creating the new theory of Fordism. It can also be said that the French engineer Henry Fayol made important contributions to the ideas of the time by publishing his "14 principles of management".
2. Industrial Revolutions: These revolutions have a very important role in the history of production because they involve implementing machines in everyday work to increase production. There was an exodus of workers looking for better working opportunities since the demand was growing and growing; they changed living in the suburbs for living in the city to work in factories. Workers became a new social class ("working class") as opposed to the "capitalists". Even though it meant a great advance in production, it did not necessarily was the same in the quality of the products; that is why Taylor was very important in the study of industrial production and in its use for improving it. Taylorism introduces new processes such as "assembly lines" and "on-time deliveries".
3. World Wars: Motivated by competitiveness and dominance, managers and directors of the companies of the time started to hire specialists in the subject to increase productivity. Together with software and the first computers, they achieved the massiveness they were looking for and which implied greater power both economic and military.
4. End of the 20th century: Taking the 1950s as a starting point, the last advancements have been developing faster and faster since their main tool is the technology which advances even faster than human processes that involved a change in ideology.
We can distinguish two contemporary processes, "operations management" that develops sampling programs together with the "control charts" by the use of statistics and data collection. At that time, there was a change in paradigm because customers and their needs became the most important thing (and not massive and uncontrolled production as it was before). On the other hand, "operations management" established the needs for intangible goods instead of tangible ones, which would be named "services". Marketing and finances worked at the service of the manager that changed the approach; Tahichi Ohno, known as the father of the "Toyota" system, became important in this stage because his main goal was to deliver products on time through the division of tasks. Even though this method developed in the 1930s, it was after the Oil Crisis in the 1970s that became important.
5. Present day: current processes focused on rethinking previous strategies and updating them. Now, thanks to modern technologies and artificial intelligence, production is based on the following concepts:
- “Total Quality”, developed in 1980 by Dr. Deming, it focuses on the improvement of processes through a cross-wise commitment between managers and workers.
- "Process Re-engineering", this practice that developed during the 1990s, states that, apart from looking for the constant improvement of processes, its result will always be the same. That is why it suggests the complete study of processes and their (re)design from scratch taking into account the current globalization and market.
- “Smart Organizations”, emerged from the idea that the current world is in constant change and its needs are specific. Through the study of the five basic abilities that regulate human behavior, they train workers and managers to accept changes positively. These five abilities are: Systemic Thinking, Team Learning, Personal Mastery, Shared Vision, and Mental Models.
- “Bench Marketing”, a model also developed in the 1990s, suggests studying the processes from the most successful companies and, based on the gathered information, adapting them to troubled companies or companies that cannot solve their internal problems.
- “Supply Chain Management”, this theory is focused on the efficiency and effectiveness of processes and tries to make all workers from the supply chain contribute to improving costs and results by optimizing transport costs, storage, distribution and the final launching of the product in the market.
- “Reverse logistics”, also called "green logistics", emerged in the 2000s, and seeks to implement the use of recycled or recyclable resources in all processes so that they have a low impact on the global ecology and the useless materials can be correctly discarded. It is based on the idea of "value recovery".
Tasks of the Production and Operation Managers
The managing area within a company (or the person in charge of these tasks) should have fixed and realistic goals as regards the deliverable they are about to produce. Even if it is a final product or service, the use of resources and workforce is related to the following principles: getting and training workers in order to get a qualified workforce; incorporating innovative technologies and control systems; keeping high quality at a low cost; reducing the manufacturing of products and the provision of services; working in a coordinated and cross-wise way with the other areas (such as quality and human resources); getting partners or quality suppliers by keeping a healthy relationship focused on the satisfaction of the final customer.
These goals are oriented towards continuous improvement; what leads companies to the need of improving constantly is the current competitiveness. The entry of some companies from the Orient or Asia (called "Low-cost markets") into the market made it clear which companies we are competing against. At the same time, the emergence of a workforce "with no borders" and the outsourcing of labor by specialists that are not from the country in which the company is based, have enlarged the improvement opportunities.
Having said this, continuous improvement focuses on the process but also on the final product and here the "design of it" becomes very important. The design of the product is the organization of all the components that give it value; these instructions are transmitted to the area as "product specifications" and this area will establish the qualities it must have before entering the market. The product will have to meet the needs of customers easily and it will have to be comprehensible with no need for the user to look for instructions somewhere else, such as in a manual. This is why the ideal product is: functional, beautiful and low-cost.
No matter if it is a product or a service, managers will have to take into account the different design stages of it because their correct use and monitoring will guarantee that an idea is transformed into a result. In other words:
- Initial idea: through different methods, it seeks to get into the customers' heads to understand what they need, why they need it and how much they can pay to get it. Once this is assessed, you will choose better.
- Selection of the product/service:
through the analysis of the market and the feasibility, the main characteristics of the deliverable are chosen.
- Initial design: design options are assessed and the most adequate one is chosen. Managers will take into account its reliability, lifetime, final price, manufacture, time, etc.
- Final design: by using a film editing studio, you can test the final design. Simulation is a widely used strategy to establish the final specifications and the manufacture diagram. In this stage, you can also assess the development possibilities based on the available infrastructure.
- Process selection: At this stage, you choose the equipment, the workers, flows, etc. through the monitoring of available technologies and more efficient methods; you can also program work through its planning.
Life cycle of the product or service
It is important to know if the products (or services) that you are launching to the market have what is called in marketing "life cycle"; you have to work on this concept in order to increase, control and improve your sales.
The evolution of the product in the market is not linear but it is subjected to different factors both internal and external. By analyzing it, you will work with sales, advertising and distribution strategies, among others, depending on which cycle stage the product is in.
It is generally divided into five phases: development, introduction, growth, maturity and decline. These phases are not exclusive and the reader can recognize some other phases to emphasize but, in general, these ones are present in every company. The importance of knowing them consists in that the production and operation areas try to improve the existent situation by improving or changing the transformation of supplies. Therefore, we can say that these phases have the following characteristics:
- Development: here is where the business idea is researched previously to its massive production and launching. The first estimations of market reception are made.
- Introduction: once the product is launched, this area tries to accomplish the biggest impact and penetration in the market by using marketing strategies. In general, price policies choose to sacrifice profit at first to assure customers in the future. Utilities are usually low or non-existent because of advertising and distribution expenses.
- Growth: positioning the product in the market. Utilities are increasing but they are still low for their potential. Sales rise as prices decline to consolidate their customers.
- Maturity: the sales increase reduces but customer loyalty rises. The participation in the market is excellent and the company has high profitability. Points of sale are increased.
- Decline: Period of closure. Sales drop and consumers look for something new. The advertising and the distribution channels reduce and you have to make the decision of taking the product out of the market and start the cycle again with a renewed idea.
To conclude, even though it may seem like the Production and Operations area is the core of a company, we do not have to forget that they work in cooperation with the rest of the areas to assure an excellent final product; the contributions that the Human Resources area makes in the training of the staff, Quality in the constant improvement and testing, and Marketing in the market insertion will be vital for the final result.
The automation tools and technology have redesigned the way in which these areas work drastically; by being in constant evolution, it will be the job of a hard-working manager to take this area to the vanguard and with the most favorable working conditions for the business.