As businesses strive for greater efficiency, profitability, and adaptability—regardless of economic conditions—operations management principles play a vital role in the success of companies across industries.
The mandate to do more with less will remain a constant as organizations of all sizes navigate ever-changing markets. Improve efficiency. Cut costs. Adapt processes. Ensure customer satisfaction with quality products, services, and experiences.
Operations managers must approach an increasingly complex and fast-paced business world holistically and with agility using the best digital capabilities for the many facets of each process, including product design, development, and quality control as well as the logistics involved in forecasting, purchasing, inventory management, and shipping and delivery. All this must be balanced with maintaining excellent employee and customer experience.
Although the practical tools and theoretical approaches to each business process may vary and will inevitably change, some foundational principles can guide your company to gaining and maintaining the operational efficiency and competitive edge so crucial for success in 2023 and beyond.
The principles of operations management balance disciplined control of the fundamental elements of operational efficiency, creative problem solving, and agile change management.
Perhaps the most-cited guidance on this topic is Randall Schaefer’s presentation at the 2007 Association for Supply Chain Management (APICS) International Conference. He described 10 principles:
Schaefer blamed violation of these fundamental principles as a major contributor to the struggles of many companies. Businesses practicing the fundamental principles of operations management are the most profitable and competitive.
Although Schaefer presented these principles in the context of why U.S. manufacturers were falling behind competitors from around the world, the core focus still applies to today’s global economy and across sectors and industries.
Let’s take a closer look at Schaefer’s principles of operations management and apply them to modern business.
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The balance struck between managing highly controlled and predictable business operations and embracing rapid, inevitable change is well suited to succeeding in volatile times. Think of Newton’s physics and chaos theory teaming up.
Theories and thinking and principles are great, but no single one can solve all of your problems. That’s because reality is messy and moves faster and in different directions than our best schemes and frameworks.
Universal solutions don’t exist. Principles and frameworks are tools, and it’s easier and more comfortable to focus on them than a problem or set of problems that are wicked messy.
But to be effective, focus on the problem(s), not the tool(s). Problems are the reality now; tools came from past problems that aren’t always the same as today’s problems. What worked last time may not work this time in the same way.
Rather than trying to perfect the supply chain, a better approach is to focus on risk, then build out the capabilities needed to manage it.
Organization translates to consistent, predictable profits. That’s the goal, the ideal. Keep in mind that reality creeps in with messy problems, so don’t be surprised when something different happens.
Plus, change is inevitable, and changing one thing changes something else, often in unanticipated ways. Newton’s third law has its limitations.
Innovation is one of capitalism’s favorite buzzwords, and for good reason. Whether in science, art, or business, innovation often leads to the major breakthroughs to change the world.
Innovation is the fun and exciting stuff in the spotlight. But it’s usually only possible because of diligence in the fundamentals of business operations and operations management that take place largely behind the scenes, including keeping accurate records of inventory, smooth logistics, human resources, and supply chain management.
These functions and processes ensure that people, information, and materials come and go and get where they need to be on time and efficiently are fundamental operations that keep a business productive and profitable, creating margins for innovation to take place.
Sticking strictly to the fundamentals, day in and day out, is the best chance for businesses to survive the lean times while nurturing innovation and preparing for growth.
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Holding people accountable for their contributions and outcomes is a great motivator. Operations managers are responsible for establishing goals, standards, and metrics, and then evaluating the outcomes to determine the appropriate positive or negative reinforcement.
These goals and standards need to be well communicated so that everyone knows what’s expected and how performance is measured.
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Depending on the context, goals, and perspective, variance can be good or a bad. When you’re seeking greater control of processes to maximize efficiency and achieve lower costs, variances are invariably bad.
However, when the goal is greater variety and a wider range of options, variance can be good. After all, innovation requires variance to develop and emerge as something new from a highly controlled process or system.
But the fact is that some degree of variance is inevitable. Sometimes variance is creative and even designed into the system, and sometimes it’s the symptom of an underlying problem.
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Get to the root of the problem and solve that rather than treating symptoms that will spring back up over and over as long as the underlying cause exists.
Symptoms must be dealt with, of course, but it can be tempting to focus only on symptoms and move on with your day once they’re alleviated.
Managers are responsible for running the business as efficiently and profitably as possible, which requires control over all aspects of operations, making them as predictable as possible to reduce the number and volatility of variables.
Successful managers also know how to motivate and manage the passion of employees through accountability as well as rewards and constructive criticism.
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Socrates and Shakespeare had similar things to say about wise people being acutely aware of the limits of their own knowledge. Pride is another one of those forces that can be good or bad.
Pride can be creative when it nurtures confidence to take on new challenges and do your best work. When pride keeps you from admitting that you don’t know something or from asking for help or seeking wise counsel, it gets expensive quickly. You’re going to encounter problems you haven’t dealt with before.
Good managers can admit when they don’t know what to do. Then they ask for help, learn from the situation, and get on with business.
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Adaptability helps you establish and maintain operations, but also weather tough economic times like recessions and foster growth. You define success for your business, set goals with KPIs and OKRs. But as markets and economies change (read: as customers change)—it’s important to revisit, rethink, and revise what constitutes success.
Internal operations are vital to the success of any business, and the reason your business operates is to deliver great products, services, and experiences to your customers.
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The only constant is change. Solutions are temporary. New problems and challenges will arise that don’t fit the current playbook or set of tools at hand.
The first tool wasn’t lonely for long. New issues required new thinking and new tools. Managers may have favorite heuristics and methods for evaluating and attempting to solve problems, but it’s important to avoid fixating on one view, one tool or one theory.
“Manage for stability in the short term,” Schaefer said. “Understand that everything will eventually change and manage for change in the long term.”
That doesn’t mean trying to predict the future — although the advent of data analytics, machine learning, and the internet of things has helped give managers greater visibility into operations and information for more accurate decision making). “The ability to manage change separates good managers from weak ones,” Schaefer said.
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Two facets of operations management — supply chain management and logistics — incorporate most or all of these qualities and play important roles in making a business profitable and successful.
Discipline and control are the essence of the principles of operations management. Increasing efficiency and cutting costs are evergreen concerns for being and staying competitive and profitable. But when the economy contracts and the threat of recession looms, businesses have to prepare for lean times. Budgets tighten and cost-cutting measures become top priority.
Inflation and supply chain disruption are wreaking worldwide havoc as cost-of-living prices soar and economies falter.
Adapting the Pareto Principle (the 80/20 rule) to operations management, Schaefer said that diligent execution of the core fundamentals can drive your business 80% of the way to success.
Adaptability, change management, creative problem solving and application of the appropriate principles and theories to root causes of problems can drive the remaining 20%, whatever that definition looks like at the moment.
Schaefer named the principles specifically for the APICS presentation, so later versions appear in various forms by different experts. But almost three decades later, his presentation remains relevant. Sure, the list has been adapted and iterated, but the essence of the principles carry on, serving as a reminder that the more things change, the more they stay the same.
