UNIT 5: OPERATIONS
MANAGEMENT
IB Business Management
Revision Guide
5.1 The Role of Operation Management
Operations management and its relationship with other business functions (A01)
Operations management is about acquiring the necessary resources needed for
production in the most efficient and cost-effective way. It impacts on the other
functional areas of a business, such as:
Marketing
➢ Goods/services are produced based on market research in order to meet the
needs and wants of customers
➢ the good/service needs to be promoted to existing and potential customers
➢ the finished product also needs to be distributed using appropriate channels
➢ a suitable pricing strategy is needed to ensure the products sell well on the
market
Finance
➢ Costs of different production methods (e.g. mass production, are needed to gain
economies of scale although this could also require high set-up costs)
➢ Funding is needed for all aspects of operations management (e.g. product
testing, research and development, lean production)
➢ Production managers must be held accountable for their expenditure and
budgets
Human resources
➢ Production workers need to be hired and trained to work productively
➢ Supervisors and quality controllers may also need to be hired
➢ A crisis management team might need to be formed
➢ Operations managers are responsible for collaborating and working with
managers from other departments to meet organizational objectives
● Operations management in organizations producing goods and/or services
(AO2)
1
, What does operations management do?
- focuses on the management process of creating goods/ services using the
available resources of the organization.
- looks at the need for businesses to decide how production should take place.
(ex. the type of product- such as a haircut or a commercial building will affect the
production method chosen).
- does not only apply to manufacturing because production is concerned with all
four sectors of the economy:
● Primary sector - extracting raw materials, harvesting crops and rearing
animals, (ex. mining, agriculture and fishing)
● Secondary sector - turning natural resources into processed or finished
goods, (ex. steel production and car manufacturing)
● Tertiary sector - the provision of services, (ex. finance, insurance, travel
and tourism, transportation, and healthcare.)
● Quaternary sector - the provision of intellectual, knowledge-based
activities that generate and share information, (ex. ICT, R&D, consultancy
services, and scientific research).
- Essentially, the role of production is to turn factors of production into the output
of goods and services cost-effectively.
- In doing this, operations managers must be concerned with:
- efficiency of production – keeping costs as low as possible will help to
give competitive.
- quality – the good or service must be suitable for the purpose intended.
- flexibility and innovation- the need to develop and adapt to new
processes and new products is increasingly important in today’s dynamic
business environment.
- The factors of production (land, labour, capital and enterprise) are commonly
known to marketing and production managers as the Five Ms - materials,
manpower, money, machines and management, i.e. the available resources to a
business.
- The 5 Ms can be a useful tool in devising both marketing and production plans.
They are combined in a cost-effective way to ensure that there is value-added
during the 'production stage of the transformation process, i.e. the value of the
output is greater than the costs of production, thereby earning a profit for the
business.
2
, Operations management strategies and practices for ecological, social (human
resource) and economic sustainability (AO3)
- Business operations have an important role in ensuring sustainability by creating
a balance between the ecological, social and economic needs of people today
and those of future generations.
- Businesses are increasingly reporting their triple bottom line, to evaluate their
performance in a broader context of sustainable business activity.
Ecological sustainability
➔ a capacity of ecosystems to maintain their essential functions and processes,
and retain their biodiversity in full measure over the long term (the need to take
ecological factors into account when making decisions)
Operations management can achieve greater ecological sustainability by:
- reducing waste at all levels of the organisation
- using less energy and sourcing energy from renewable sources where possible
- reducing water use and recycling water
- reducing the use of non-renewable resources in production
- designing products that use recycled materials or allow materials to be recycled
at end of useful life
- designing products that use less harmful energy sources, e.g. electric cars.
Social sustainability
➔ the ability of a community to develop processes and structures which not only
meet the needs of its current members but also support the ability of future
generations to maintain a healthy community (the need to take human factors
into account, both internally, e.g. workers, and externally, e.g. local
communities, when making business decisions)
Operations management can achieve greater social sustainability by:
designing production systems that are safe and healthy for employees
- designing work and workplaces to allow for social interaction
- creating jobs in low-income or deprived areas – this may mean relocation of
operations facilities
- reducing the negative impact of production on communities – e.g. cutting
harmful pollution.
3
MANAGEMENT
IB Business Management
Revision Guide
5.1 The Role of Operation Management
Operations management and its relationship with other business functions (A01)
Operations management is about acquiring the necessary resources needed for
production in the most efficient and cost-effective way. It impacts on the other
functional areas of a business, such as:
Marketing
➢ Goods/services are produced based on market research in order to meet the
needs and wants of customers
➢ the good/service needs to be promoted to existing and potential customers
➢ the finished product also needs to be distributed using appropriate channels
➢ a suitable pricing strategy is needed to ensure the products sell well on the
market
Finance
➢ Costs of different production methods (e.g. mass production, are needed to gain
economies of scale although this could also require high set-up costs)
➢ Funding is needed for all aspects of operations management (e.g. product
testing, research and development, lean production)
➢ Production managers must be held accountable for their expenditure and
budgets
Human resources
➢ Production workers need to be hired and trained to work productively
➢ Supervisors and quality controllers may also need to be hired
➢ A crisis management team might need to be formed
➢ Operations managers are responsible for collaborating and working with
managers from other departments to meet organizational objectives
● Operations management in organizations producing goods and/or services
(AO2)
1
, What does operations management do?
- focuses on the management process of creating goods/ services using the
available resources of the organization.
- looks at the need for businesses to decide how production should take place.
(ex. the type of product- such as a haircut or a commercial building will affect the
production method chosen).
- does not only apply to manufacturing because production is concerned with all
four sectors of the economy:
● Primary sector - extracting raw materials, harvesting crops and rearing
animals, (ex. mining, agriculture and fishing)
● Secondary sector - turning natural resources into processed or finished
goods, (ex. steel production and car manufacturing)
● Tertiary sector - the provision of services, (ex. finance, insurance, travel
and tourism, transportation, and healthcare.)
● Quaternary sector - the provision of intellectual, knowledge-based
activities that generate and share information, (ex. ICT, R&D, consultancy
services, and scientific research).
- Essentially, the role of production is to turn factors of production into the output
of goods and services cost-effectively.
- In doing this, operations managers must be concerned with:
- efficiency of production – keeping costs as low as possible will help to
give competitive.
- quality – the good or service must be suitable for the purpose intended.
- flexibility and innovation- the need to develop and adapt to new
processes and new products is increasingly important in today’s dynamic
business environment.
- The factors of production (land, labour, capital and enterprise) are commonly
known to marketing and production managers as the Five Ms - materials,
manpower, money, machines and management, i.e. the available resources to a
business.
- The 5 Ms can be a useful tool in devising both marketing and production plans.
They are combined in a cost-effective way to ensure that there is value-added
during the 'production stage of the transformation process, i.e. the value of the
output is greater than the costs of production, thereby earning a profit for the
business.
2
, Operations management strategies and practices for ecological, social (human
resource) and economic sustainability (AO3)
- Business operations have an important role in ensuring sustainability by creating
a balance between the ecological, social and economic needs of people today
and those of future generations.
- Businesses are increasingly reporting their triple bottom line, to evaluate their
performance in a broader context of sustainable business activity.
Ecological sustainability
➔ a capacity of ecosystems to maintain their essential functions and processes,
and retain their biodiversity in full measure over the long term (the need to take
ecological factors into account when making decisions)
Operations management can achieve greater ecological sustainability by:
- reducing waste at all levels of the organisation
- using less energy and sourcing energy from renewable sources where possible
- reducing water use and recycling water
- reducing the use of non-renewable resources in production
- designing products that use recycled materials or allow materials to be recycled
at end of useful life
- designing products that use less harmful energy sources, e.g. electric cars.
Social sustainability
➔ the ability of a community to develop processes and structures which not only
meet the needs of its current members but also support the ability of future
generations to maintain a healthy community (the need to take human factors
into account, both internally, e.g. workers, and externally, e.g. local
communities, when making business decisions)
Operations management can achieve greater social sustainability by:
designing production systems that are safe and healthy for employees
- designing work and workplaces to allow for social interaction
- creating jobs in low-income or deprived areas – this may mean relocation of
operations facilities
- reducing the negative impact of production on communities – e.g. cutting
harmful pollution.
3
