Guide to key business functions: operations

Introducing the areas you'll find in every business – here it's operations

This series of articles will introduce - and demystify - the key areas that you'll find in every business.

In this article, the focus is on operations.

Operations

Operations is about designing, managing and improving the set of activities that create products and services and deliver them to customers. It's a area of work that many graduates are not aware of, but it can offer fascinating and challenging roles right at the heart of a business.

It might seem that operations concepts are most applicable in manufacturing contexts, such as in a clothes factory or a car plant, but in fact they're relevant in a very wide range of industries - everything from transport to agriculture.

Whenever operations professionals look at a process, whether it's bread-making or preparing a flight for departure, they break it down into a process flow diagram showing how inputs move through processes to produce outputs.

To take bread-making as an example: raw materials are mixed, proved, baked and packed to become finished and saleable loaves. There are four key elements in this process, and other operations processes: capacity, efficiency, flexibility and quality.

Capacity is the rate of output from the process and is measured in units of output per unit of time - in this case, how many bread loaves per hour or per day the process can make. Capacity is easy to define, but much harder to measure.

It's often possible to determine the theoretical capacity of a process - the most output it could generate under ideal conditions over a period of time. But for planning purposes and management decisions, however, it's more useful to know the effective capacity of a process - that is, how much it actually produces - and to measure effective capacity, it's necessary know about the process in detail, such as the hours worked by particular groups of employees or the age and effectiveness of machines used.

Efficiency relates inputs to outputs - for example, if our process uses 80 per cent of raw materials, such as flour or yeast, effectively while 20 per cent goes to waste, it has an efficiency of 80 per cent.

Flexibility is a measure of how long it would take to change the process so that it could produce a different output - for example, how long it would take to change our bread-making line into a pastry-making line. It's the characteristic that's hardest to define and quantify out of all those considered here and must often be described in qualitative terms - this doesn't, however, make it any less important to operations professionals.

Quality is whether the process reliably produces a product consistent with expectations. Within an operations process, the impact of poor quality can be considerable, potentially leading to increased waste, reworking, lost capacity, machine downtime, additional testing phases and lost management and worker time.

Looking at all these different elements, operations professionals decide how to design or improve a process, which can get extremely complicated for more elaborate manufacturing processes.

Case study: Toyota

For several decades, car manufacturer Toyota has been regarded as having one of the most innovative operations systems in the world that's also a model of "lean manufacturing" - a business philosophy that involves trying to eliminate as much waste from operational processes as possible.

Key characteristics of Toyota's manufacturing processes are "just-in-time production" - producing only what's needed when it's needed; and "jidoka" - a Japanese concept involving instantly flagging up any production problems.

Toyota has created a culture of "kaizen", or continuous improvement. Managers strongly encourage employees to report problems and then to ask why they've occurred five times, which usually identifies the root of a problem and goes some way to finding a potential solution.

Raising problems increases efficiency and reduces the number of cars in production that needed to be re-worked at any given stage, as problems are usually fixed before the car reaches the next stage of the assembly line. This enables the production process to be quick and responsive.

From the 1990s, Toyota has shared its operations philosophy, now known as the Toyota Production System, with its suppliers. It's also "donated" the system to charities - for example, it assisted the Food Bank of New York with its operations, reducing product packing times and customer queues.

Key concepts

Bottleneck

A factor that limits production, usually tasks that take the longest time to complete.

Cycle time

How often a finished unit "drops off" the end of the process.

Idle time

Any time when useful work is not being performed - can be used both in the context of machines and workers.

Process

Anything that takes inputs (for example, raw materials, labour, capital, energy) and creates outputs that are of greater value.

Throughput time

Length of time a process lasts.

Utilisation

Ratio of the input used by a process in creating the output to the amount of the input available to use after the process has been completed.

Further reading

The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt

Matching Supply with Demand: An Introduction to Operations Management by Gérard Cachon and Christian Terwiesch

The Phoenix Project by Kevin Behr, Gene Kim and George Spafford

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