Operations Management: Definition & Fundamentals

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  • 0:03 What Is Operations Management?
  • 1:13 Goods & Services
  • 3:08 Process Management
  • 3:58 Supply Chains & Inventory
  • 4:43 Quality Control
  • 5:37 Lesson Summary
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Lesson Transcript
Instructor: Christian George

Christian has a PhD in Business Management and an MA in Accounting & Financial Management

This lesson will introduce and define operations management. We will review how operations management helps a company achieve its business goals through managing four key aspects of operations.

What Is Operations Management?

Joey is the operations manager at ABC, Inc., a local factory that manufactures furniture. Let's watch him while he shares his best operations management practices.

Joey knows that operations management is the area of management that is responsible for designing and managing the production of a good or service in order to fulfill organizational goals. He and the other managers are frequently asked to analyze production processes and determine whether the current process is the most effective use of resources. They monitor the progress of the business' operations and address risk and other process issues when they surface.

The goal of operations management is to support and fulfill the strategic goals of the business while using the least amount of resources available without sacrificing efficiency or quality. By maximizing the efficiency of their processes, Joey's company uses the least amount of resources to complete a process and meets the needs of customers and other external parties.

ABC, Inc. develops operations practices based on 4 key areas. They include goods & services, process management, supply chain and inventory, and quality control.

Goods & Services

Companies spend a lot of time trying to figure out how to add value to their goods or services. ABC, Inc. works to add value to their furniture through the transformation process. This means that inputs or materials are transformed into an output in the form of goods and services. In the case of ABC, Inc., this means raw materials like wood are used to create furniture. Let's take a look at an example of two types of businesses that each produce an output in the form of a product or a service to demonstrate the transformation process.

What's the difference between the goods and services provided by a hospital versus an auto factory? A hospital provides services, while an auto factory develops goods. Through healthcare (the transformation), doctors and nurses use specialized supplies (or the components) to turn sick and injured patients (or inputs) into healthy individuals (or outputs). In the auto factory, workers use tools and equipment (or components) to turn parts and sheet metal (or inputs) into high-quality cars (or outputs), through the fabrication and assembly of cars (or the transformation). Let's look at the next chart to see the differences.

Goods Services
Tangible Intangible
Can be inventoried Cannot be inventoried
No interaction between customer and process Direct interaction between customer and process

Most products that a customer buys are a combination of goods and services. For example, the hospital provides medical supplies (or the good) while providing medical care (or service) to patients. Another example relating to this hospital is the cafeteria. It provides food (or a good) prepared by workers (or the service) for patients, guests, and staff. On the extreme ends, an example of a business that provides almost a pure service is a law firm, while a business that provides almost a pure good is the auto factory.

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