The management area dealing with operations management has now become one of the most important administrative functions in any company. The Chartered Institute of Procurement & Supply (UK) defines operations management as follows: “Operations management is the business function responsible for designing and managing products, processes, services and supply chains.” The focus is on ensuring that materials and labour are transformed into goods and services in ways that maximise a company's Return on Investment (ROI). This means that operations management is directly linked to planning, sourcing, procurement, logistics, transportation, warehousing, manufacturing (if applicable), storage, inventory, shipping, distribution, consumption and, in some cases, reverse logistics. So, in summary, operations management involves the management of a company's operations and processes. If this is done incorrectly, everything else in the organisation breaks down.
To better understand how important effective operations management is to the success of a company, it is important to keep in mind three other interrelated areas. These are demand management, project management and Six Sigma.
This is a planning approach that uses forecasting, trend analysis and data to predict the potential demand for goods and services over a period of time. Demand management is the perfect tool to combat the bullwhip effect in logistics, which I have already written about in this blog article
. That means that when demand management works, operations management almost works itself. The most apt definition of demand management, in my opinion, is the Chartered Institute of Procurement & Supply (UK) summary: “Demand management is a process within an organisation which enables that organisation to tailor its capacity to meet variations in demand or to manage the level of demand using marketing or supply chain management strategies.”
The Project Managers' Guide (IAPM)
summarises project management as a function related to the core of the project, the people working in projects and the type of certification used to demonstrate project competence.
The Project Management Institute (PMI) defines project management as “the use of specific knowledge, skills, tools and techniques to deliver something of value to people.”
Operations management deals with repetitive processes. As these processes may differ from each other depending on the phase or stage, this is consistent with the definition of project management. Therefore, the effective or ineffective management of each phase or stage will undoubtedly affect the overall success of operations management for an organisation. Florida Tech University is almost always right, in my opinion, when they say that “operations management and project management can align and intersect.” In reality, I believe they always overlap and are aligned.
Six Sigma is a quality control method developed by Motorola in 1986. It was developed to focus on process improvement while reducing the number of manufacturing defects to a set level of units or events. This management approach was revolutionary when it was introduced and remains so today. Over the years it has evolved into Lean Six Sigma, which is paraphrased by the ASQ as “Lean 6Sigma drives out waste (non-value added processes and procedures) and promotes work standardization and flow.”
Thus, efficient operations management must be able to eliminate waste and ensure standardisation in order to make a company profitable. The best implemented Lean Six Sigma success stories are credited to Caterpillar Inc. and Bank of America respectively. Both companies consistently emphasise the importance of Six Sigma in ensuring the effective and efficient sustainability of all operations management functions.
The obvious correlation between demand management, project management, Six Sigma and operations management makes it so important to always find some sort of binding agent to ensure that all of these separate management functions work together seamlessly to ensure sustainability and growth for each company.
In the context of operations management, the Six Sigma method is mainly used in the areas of process control, inventory and quality management. However, Six Sigma can also be used to effectively manage any contract life cycle to ensure that a contract is drafted, reviewed, signed and executed without any form of waste, i.e. delays, ambiguities, etc. This includes the correct definition of an active contract life cycle from conception to closure (including the contract administration phase). The complicated journey is understood and subdivided. It starts with the request for issuance of a contract and ends with the revision, extension or conclusion of the contract.
Therefore, every input required for successful operations management, from demand planning (management), to adapting approaches to project logistics management to provide both material and human resources for operations management, to implementing Lean Six Sigma to ensure waste minimisation, must be included in the contracts that include and define these working arrangements.
It is clear that operations management can be a function on its own. However, the economy is constantly evolving and the emergence of unknown unknown risks such as Covid-19 shows us that what exists beyond the horizon may never be imagined or foreseen.
My suggestion for a tool to ensure that the various aspects of management are intertwined to achieve continuous operational growth and sustainability is Six Sigma contracting. This perfect option will help achieve a seamless fusion of demand management, project planning and Six Sigma. Innovative (hybrid) contracting provides a simple platform to achieve this by creating contract design and review options that use DMAIC
to consistently assess the contract life cycle and output to ensure that the best value for money is continuously achieved from operational management life cycle costs.