# Operations Management: What It Is and How It Works

> **Definition**
>
> Operations management employs and prioritizes business practices in an organization to achieve maximum efficiency. Operations managers coordinate the activities of all departments within a company to optimize efficiency from production to end-product distribution.

## What Is Operations Management?

Operations management (OM) plans, organizes, and revises business practices to achieve maximum efficiency and profitability. Operations managers oversee multiple departments in a company to help them coordinate with one another to work toward the company’s goals.

Operations management teams balance costs with [revenue](https://www.investopedia.com/terms/o/operating-revenue.asp) to achieve the highest possible net [operating profit](https://www.investopedia.com/terms/o/operating_profit.asp).

### Key Takeaways

*   Operations management (OM) is the practice of administering business processes to maximize an organization’s efficiency.
*   Operations managers coordinate new processes while reevaluating current structures.
*   Operations managers balance costs with revenue to maximize net operating profit.

![Operations Management (OM)](https://www.investopedia.com/thmb/XBjFwjEoHTJZt69cy6J7-Zeghes=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/operations-management_final-f575016906c74440859eb9e34f3c6de5.jpg)

*— Katie Kerpel / Investopedia*

## What Operations Managers Do

Operations managers coordinate new processes while reevaluating current structures. Organization and [productivity](https://www.investopedia.com/terms/p/productivity.asp) are two key drivers, and the work often requires versatility and innovation. They may determine the size of manufacturing plants or implement the structure of information technology networks.

Operations managers may oversee inventory management processes, [work-in-process](https://www.investopedia.com/ask/answers/051315/what-difference-between-work-progress-and-work-process.asp) levels, [raw materials](https://www.investopedia.com/terms/r/rawmaterials.asp) acquisition, [quality control](https://www.investopedia.com/terms/q/quality-control.asp), materials handling, and maintenance policies. As part of their daily responsibilities, operations managers must possess a variety of skill sets, including:

*   **Technical expertise** in production automation, data entry, budget tracking, and design
*   **Organizational ability** to track project files, employee reports, budgets, schedules, and other details related to company processes
*   **Motivational prowess** in the form of strong leadership skills that provide the expertise to motivate others, inspire ideas, and foster a supportive and diverse team
*   **Analytical aptitude**, including risk analysis and mitigation when initiating new projects. Operations managers must analyze processes to identify challenges and offer solutions.
*   **Decision-making proficiency**, especially under stress, when there is very little time to assess all factors
*   **Maintain quality standards**, including raw materials, machinery, manufacturing procedures, packaging, delivery processes, and the finished product.

> **Important**
>
> The daily activities of a company to produce and sell a product and generate revenue are its operating activities.

## Operations Management Tools

*   **Business Process Reengineering (BPR)**: Focused on analyzing and designing [workflow](https://www.investopedia.com/terms/w/workflow.asp) and business processes within a company. BPR seeks to optimize processes and eliminate redundancies. [BPR](https://www.investopedia.com/terms/b/business-process-redesign.asp) (also known as business process redesign) helps companies dramatically restructure the organization by designing the business process from the ground up.
*   **Six Sigma**: Introduced by Bill Smith at Motorola in 1986 to improve manufacturing quality. The term “six” references the control limits at six [standard deviations](https://www.investopedia.com/terms/s/standarddeviation.asp) from the normal distribution mean. Tools used within the [Six Sigma](https://www.investopedia.com/terms/s/six-sigma.asp) process include trending charts, potential defect calculations, and other ratios.
*   **Lean Manufacturing**: Aims to reduce waste and improve continuity in [supply chain](https://www.investopedia.com/terms/s/supplychain.asp) management. Lean manufacturing targets the flow of products from the production stage to customer delivery.

## Operations and Supply Chain Management (OSCM)

A critical function of operations management relates to [inventory](https://www.investopedia.com/terms/i/inventory.asp) flow through the supply chain. This process is known as operations and supply chain management (OSCM). Operations management professionals understand [logistics](https://www.investopedia.com/terms/l/logistics.asp), global trends, customer demand, and available resources for production.

Operations management approaches the acquisition of materials and the use of labor in a timely, cost-effective manner to deliver customer expectations. Inventory levels are monitored to ensure that ample quantities are on hand. Operations managers find vendors that supply the appropriate goods at reasonable prices and that deliver the product when needed.

Operations managers use numerous formulas, such as the [economic order quantity](https://www.investopedia.com/terms/e/economicorderquantity.asp) formula, to determine how large an inventory order to process and how much inventory to hold on hand. Managers may follow up with customers to ensure products meet quality and functionality needs. Operations managers take feedback and distribute relevant information to each department for improvement.

## What Is the Purpose of Operations Management?

Operations management (OM) evaluates the production process and business operations and creates an efficient outcome. OM professionals balance operating costs with revenue to maximize net operating profit.

## What Education Is Required to Become an Operations Manager?

Operations managers usually possess a bachelor’s degree in a business field. A [master of business administration (MBA)](https://www.investopedia.com/terms/m/mba.asp) degree in operations management can provide a global perspective on industry trends and an awareness of financial regulations and political uncertainties that can affect an organization. It also provides a solid grasp of the inherent complexities and the tools needed to respond effectively to change.

## What Is the Difference Between an Operations Manager and a Project Manager?

An operations manager coordinates the activities of all of the departments in a company to ensure the company is running smoothly and efficiently. A [project manager](https://www.investopedia.com/terms/p/project-management.asp) plans and executes projects with a firm start and end time. They usually coordinate the input of various employees working on the project.

## The Bottom Line

Operations management (OM) is the process of [prioritizing and employing business practices](https://www.investopedia.com/terms/t/triage.asp) to achieve maximum efficiency. Operations managers balance the efficient use of resources, including staff, materials, equipment, and technology.

> **Article Sources**
>
> 1.  Indeed. “[15 Essential Operational Management Skills](https://www.indeed.com/career-advice/resumes-cover-letters/operational-management-skills).”
>     
> 2.  IBM. “[What Is Business Process Reengineering (BPR)?](https://www.ibm.com/think/topics/business-process-reengineering)”
>     
> 3.  Six Sigma Online. “[History of Six Sigma: Exploring the Roots](https://www.sixsigmaonline.org/six-sigma-history/).”
>     
> 4.  Association for Supply Chain Management. “[What Is Lean Manufacturing?](https://www.ascm.org/topics/lean-manufacturing/)”
>     
> 5.  University at Buffalo, School of Management. “[Operations and Supply Chain Management](https://management.buffalo.edu/career-resource-center/students/preparation/job-market-research-tools/business-company/functional-area-resources/supply-chains-operations-management.html).”
>     
> 6.  Claremont Lincoln University. “[What Is the Typical Operations Manager Salary?](https://www.claremontlincoln.edu/news-blog/operations-manager-salary/)”
>     
> 7.  Northeastern University Graduate Programs. “[Project Management vs. Operations Management: What’s the Difference?](https://graduate.northeastern.edu/knowledge-hub/project-management-vs-operations-management/)”