SPECIAL GUEST BLOG By Pat O'Sulllivan, Strategic Change Mentor, Mentors.ie
There are many different definitions out there for what operations management is, but for the purposes of this article we will sum it up as:
"an area of business that is concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient and effective.”
In a simplistic definition this is the role of operations management, doing the right thing, at the right time, for the right price. I short the role of operations management is to protect the profit margin and keep the costs in line to deliver what was promised, when it was promised and for the price that was promised. Rest assured that unless you are in a rather unique industry if the costs of making the good or service exceed the quoted costs, your company will end up bearing the burden of the increased cost.
Business comes down in short to 2 factors- Sales Price and Cost. Each part of the above equation has a dramatic impact on the continued operation of your business, and in effect how long you are in business. Effectiveness will have a dramatic effect on the sales price of your product, as customer perception and your relevant place within the market will determine whether or not you can charge a premium price within your field. On the contrary efficiency controls cost variables that can dramatically impact the profit margin of the business without having to go after your customer for an additional cost up.
So how do you know that your operation is effective, and more importantly how do you define effective? Many companies use KPI (Key Process Indicators) measures to determine effectiveness, Six Sigma uses VOC or Voice of the Customer to determine the CTQ (Critical to Quality) requirements that will spell out whether or not you are effective in your operations. Effectiveness is more however about meeting the contractual requirements in all areas, and this equals a perceived value in the marketplace.
Efficiency on the other hand is optimizing the use of all your resources to deliver the goods or service at the best level. Efficiency will dictate whether or not as an operation you will be able to deliver consistently at the profit margin and deal with the fluctuations of your industry in a way that keeps you on top as an effective entity. Efficiency is about resource optimization, but without being effective it is irrelevant how efficient you can be, because it is not sustainable in the long term. Efficiency without effectiveness will develop a perception in your industry as a cost cutting bottom-feeding organization and cannot lead to sustainable profits.