Core Operations Management Concepts Explained
Lean Manufacturing (TPS)
Lean Manufacturing (TPS) Lean manufacturing is a production approach focused on eliminating waste and improving efficiency. It originates from the Toyota Production System (TPS), which is based on two key principles:
- Just-in-Time (JIT): Products are made only when needed and in the exact quantities required, reducing excess inventory.
- Jidoka: Allows the production line to stop immediately when a defect appears so the problem can be corrected at the source.
Lean emphasizes continuous improvement and the removal of waste such as waiting time, excess inventory, unnecessary movement, and defects.
Cloud Service Models
SaaS, PaaS, and IaaS
Software as a Service (SaaS) delivers applications over the internet without requiring installation, such as email or online productivity tools. Platform as a Service (PaaS) offers an online environment for developers to build and deploy applications without managing physical servers. Infrastructure as a Service (IaaS) provides virtual servers, storage, and networks that companies can rent instead of buying hardware. These models help businesses reduce costs and improve efficiency.
Quality Management Principles
Quality Focus
Quality management is guided by two essential principles:
- Customer Focus: Quality is defined by how well a product or service meets customer needs and expectations.
- Continuous Improvement: Involves constantly refining processes to reduce errors, cut costs, and increase satisfaction.
By following these principles, companies achieve higher performance and better long-term results.
Value Chain Analysis
Understanding Business Activities
The value chain includes all activities performed by a company to create value for customers.
Primary Activities
Include inbound logistics, operations, outbound logistics, marketing and sales, and service.
Support Activities
Such as infrastructure, human resources, technology development, and procurement, help primary activities function effectively. Analyzing the value chain allows companies to identify cost advantages and areas for differentiation.
Project Management Methodologies
Traditional vs Agile Approaches
Traditional project management, such as Waterfall, uses a linear approach with fixed steps and clear initial requirements. It works well for stable, predictable projects. Agile methodology is flexible and iterative, involving short work cycles and frequent feedback. It is ideal for projects where requirements may change, especially in software development and innovation.
Inventory Costing
Weighted Average Method
The weighted average method is an inventory costing technique used when items are purchased at different prices. It calculates the average unit cost by dividing the total inventory cost by the total number of units. This method helps assign consistent costs to products and smooths price fluctuations.
Artificial Intelligence in Operations
AI Engineers and Capabilities
Artificial Intelligence (AI) improves operations by forecasting demand, optimizing supply chains, detecting defects, and monitoring machine performance. An AI engineer designs, builds, and maintains these AI systems so they run effectively. AI helps companies reduce costs, improve accuracy, and make better decisions.
Agentic AI Advancements
Agentic AI is an advanced form of artificial intelligence that can act independently. Unlike traditional AI, which provides recommendations, agentic AI can plan tasks, adjust schedules, reorder inventory, and respond to issues without human supervision. In operations, it increases flexibility, reduces errors, and allows companies to react quickly to unexpected changes.
Digital Goods Characteristics
Electronic Product Delivery
Digital goods are products delivered electronically, such as software, music, e-books, and online courses. They have low reproduction costs, allow instant global distribution, and often use digital rights management (DRM). Digital goods frequently rely on subscription models, freemium strategies, or bundles, making them scalable and profitable.
Quality Error Prevention
Poka-Yoke Techniques
Poka-yoke means “mistake-proofing” and refers to methods designed to prevent errors or detect them immediately. It ensures that defects are avoided by designing processes that make mistakes difficult or impossible. This is a key concept in improving quality and reducing waste.
The Operations Management Function
Input Transformation
The operations management (OM) function transforms inputs such as materials, labor, and technology into outputs that meet customer needs. It involves scheduling production, controlling inventory, ensuring quality, maintaining equipment, and managing costs. Effective operations support productivity and coordination with other departments.
Understanding Services
Service Characteristics
A service is an intangible product produced and consumed simultaneously. Managing service operations requires attention to customer interaction, reliability, speed, and experience. Services cannot be stored, so real-time delivery and employee performance play a major role in customer satisfaction.
Service Production Process
The service production process includes designing the service, delivering it using people and technology, and collecting feedback for improvement. Because customers often participate in the service process, managing quality, time, and customer expectations is essential for success.
Project Planning Tools
Planning and Critical Path
Planning determines what needs to be done, how, and when, to achieve organizational goals. The Critical Path Method (CPM) identifies the longest sequence of dependent tasks in a project, which determines the minimum project duration. Managing the critical path prevents delays and improves project efficiency.
Input → Output Transformation
Operations transform inputs—such as materials, labor, information, and technology—into outputs, which are final goods or services. Monitoring inputs and outputs helps managers improve efficiency, reduce waste, and meet customer needs effectively.
Supply Chain Network
Coordination and Delivery
The supply chain is the network connecting suppliers, manufacturers, distributors, and customers. Its purpose is to deliver the right product, at the right time, in the right quantity, and at the right cost. Effective supply chain management reduces delays, improves quality, cuts costs, and increases customer satisfaction.
Innovation and Development
Research and Development (R&D)
R&D focuses on creating new products, improving existing ones, and developing better processes. It promotes innovation, supports competitiveness, and helps companies adapt to market changes and customer needs.
Internal Stakeholders
The Internal Customer Concept
An internal customer is someone within the organization who depends on another department’s work, such as sales depending on marketing or production depending on maintenance. Treating internal customers well improves workflow, communication, and overall performance.
Competitive Analysis
Porter’s 8 Forces Framework
Porter’s 8 Forces analyze a company’s competitive environment. The five traditional forces are the threat of new entrants, supplier power, customer power, threat of substitutes, and competitive rivalry. The three additional forces—complementors, government and regulation, and technological change—give a broader view of opportunities and threats affecting industry performance.
Resource Planning Systems
MRP and ERP Integration
Material Requirements Planning (MRP) is a system that calculates which materials are needed, in what quantities, and at what time. It helps prevent stockouts and excess inventory. Enterprise Resource Planning (ERP) integrates all key business functions—such as production, finance, HR, and logistics—into a single system. This integration improves coordination, transparency, and decision-making across the organization.