Operations management is about the management process of creating goods and services that people want to purchase, using the resources that are available to the organization in question. Businesses earn a profit from the production process by adding value in the production process, i.e. the price that customers pay for the good or service is greater than the costs of producing that product.

To produce goods and services, businesses need to combine human, physical and financial resources in an effective way. These resources are collectively known as the factors of production:

• Land – These are natural resources needed to produce goods and services. Examples include water, timber, sand, minerals, metal ores, plants, and animals.

• Labour – This refers to human effort used to produce goods and services, in terms of physical and intelletual human input.

• Capital – This refers to non-natural (or man-made) resources used in the production process. Examples include tools, machinery, motor vehicles, physical premises, and infrastructure.

• Entrepreneurship – This refers to the knowledge, skills and experiences of individuals who have the capability to manage the overall production process. Entrepreneurs have the ability and willingness to take risks in order to produce goods and provide services to customers, profitably.

The production process

Productivity is a measure of a firm’s efficiency level in terms of how well things are done within the organization. It calculates the rate at which inputs (factors of production) are transformed into outputs (good and services), adding value in the production process. Productivity can be increased by opting for labour-intensive production or capital-intensive production.

When an organization relies more on labourers to produce its output, rather than machinery or capital equipment, it can be described as a labour-intensive firm. Essentially, this means that wages and salaries account for the most significant proportion of the firm’s costs of production. An example is the teaching profession, where staff salaries accounts for the largest share of a school’s operational costs.

Lecturing and teaching are labour-intensive professions

Other examples of labour-intensive production include:

By contrast, when an organization relies more on machinery and equipment to produce its output, rather than labour, it can be described as a capital-intensive firm. Essentially, this means that the cost of capital (machinery, equipment and tools) account for the most significant proportion of the firm’s production costs. An example is the energy industry, which incurs huge set-up and operational costs.

The energy industry is highly capital-intensive

Other examples of capital-intensive production include:

The various functions or roles of operations management include:

Business location is a key role of operations management

 Watch this 10-minute virtual tour of an Amazon fulfilment centre - if you can't get out on a field trip, this is perhaps the next best option:

Recall that production is the process of planning, organizing, and controlling resources in order to make a good or to provide a service, i.e. the output of goods and/or services. This is only posssible by combining the various functions of a business (namely human resource management, finance and accounts, and marketing) to produce outputs of goods and services to meet the needs and wants of customers.

Therefore, operations management is an integral part of an organization’s decision-making process as it directly impacts the other functional areas of the business. Some example are provided below:

• Certain operations methods (methods of production) or decisions may require higher or lower levels of staffing. For example, flow production and capital-intensive output require the approval from the finance department because of the large amount of money needed for mass production.

• Producing exclusive, one-off products using job production (customized production) enables the marketing department to sell these goods or services at a premium price.

• Market research is required prior to the operations management department producing the goods or providing the services to meet the needs and wants of customers.

• The organization's goods and services need to be promoted by the marketing department so that customers are informed and persuaded to purchase these. In addition, the products need to be made available to customers using an appropriate range of distribution channels.

• Funds needed for research and development expenditure, including finance for creating and testing prototypes, need approval and support from the finance department.

• Production managers are held accountable for their budgets and the organization's various items of expenditure.

• Production operatives need to be recruited, trained, and developed to work effectively, irrespective of what goods or services are being provided. Similarly, supervisors and quality control inspectors may also need to be hired with the support of the human resources department.

• A  crisis management team might need to be created and trained appropriately.

Essentially, the production department cannot function effectively without the support of all other sections of the organization. Production managers are in charge of working with other managers from the organization to ensure their teams achieve the overall goals of the business.

Watch this fascinating 45-minute video documentary about China’s EUPA mega factory, titled “The Biggest Factory in the World”. Not atypical of many mega factories, the workers live on campus, with their children attending school there too. The 17,000 employees of EUPA make up the "Factory City" in this southeast corner of China, which pumps out 15 million irons per year, millions of sandwich grills, microwaves, coffee makers, food blenders, and even solar powered products.

The video features EUPA's 2,500 microwaves in its five staff cafeterias that cook four tons of rice each day!

An interesting feature of this video is that it doesn't just focus on how goods are made in the mega factory, but also how the "Factory City" operates on a scale the world has barely witnessed.

 ATL Activity 1 (Research and Thinking skills) - The Coca-Cola Company

Coca-Cola is the world’s most successful consumer drinks company. However, this also means the company is the planet’s largest plastic polluter. Read this BBC article about the impacts of Coca-Cola’s operations on the environment, and answer the questions that follow:

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1. Coca-Cola was once associated with “teaching the world to sing”. According to the author, what is it being increasingly associated with today?

2. Who is the global chief executive of the Coca-Cola Company?

3. How many plastic bottles does the Coca-Cola Company produce each year?

4. What does the company aim to achieve by 2030?

5. What is Coca-Cola’s annual sales revenue?

6. What are the largest growth areas for the company?

7. When did the UK government introduce its sugar tax?

8. If Coca-Cola reduced its use of plastics by 5%, how many plastic bottles would be avoided in the production process?

 Teacher only box

Answers

1. Coca-Cola was once associated with “teaching the world to sing”. According to the author, what is it being increasingly associated with today?
   Plastic pollution and childhood obesity

2. ---

   Who is the global chief executive of the Coca-Cola Company?
   James Quincey

3. ---

   How many plastic bottles does the Coca-Cola Company produce each year?
   Over 100 billion plastic bottles!

4. ---

   What does the company aim to achieve by 2030?
   To recover every plastic bottle for every one the company sells, and to use 50% of this for new bottles (an example of cradle to cradle manufacturing)

5. ---

   What is Coca-Cola’s annual sales revenue?
   Over $40 billion (that equates to $109,589,041 in sales revenue every day of the year!)

6. ---

   What are the largest growth areas for the company?
   Zero-sugar versions of Coca-Cola and the company’s water and juice drinks

7. ---

   When did the UK government introduce its sugar tax?
   2016

8. ---

   If Coca-Cola reduced its use of plastics by 5%, how many plastic bottles would be avoided in the production process?
   500 million fewer bottles (which is the same as saving 1,369,863 plastic bottles per day of the year, or a staggering 57,077 plastic bottles each hour of the day, every day)

In 2018, Coca-Cola used three million tonnes of plastic in its global operations. Coca-Cola sells more than 100 billion throw-away plastic bottles each year - that's more than 8.3 billion plastic bottles per month, 1.9bn per week, almost 274 million per day or more than 11.4 million single-use plastic bottles per hour! Across the planet, more of Coca-Cola's plastic packaging is found littered than any other brand. Since then, Coca-Cola has announced that the company will replace all plastic shrink wraps for its multipacks, and replace these with 100% recyclable cardboard.

Read more about this initiative here.