Operations management: what you need to know

Any business, no matter how big or small, will contain multiple operations or processes that need to run in tandem in order for the business to succeed. Depending on the kind of work you’re doing, these can be very diverse, relating to everything from procuring raw materials to planning how to advertise your business.

So, the answer to the question “what does an operations manager do?” is quite simple: they make sure the crucial processes of a business operate smoothly and integrate with each other as seamlessly as possible.

Good operational management means maximising productivity, minimising and swiftly rectifying any disruptions that may occur, keeping running costs and downtime as low as possible, and profit margins as high as possible.

A complex business with several staff members, such as a large restaurant, may have a dedicated operations manager. But even if your goal is more modest and you’re just thinking of how to make money on the side, being aware of the principles of operations management can prevent problems and maximise profits.

In this guide, we’ll talk you through those principles and how they can be vital to your business. We’ll also shed light on some of the tools that can significantly optimise operational management, from portable card readers to an online business account that makes it easier to track running costs and revenues.

What does operations management cover?

In a word: everything. But to break it down for clarity, we can say that operations management encompasses all the processes that are involved in turning inputs into outputs. 

The inputs for a business will typically include the following:

• Raw materials

• Knowledge and expertise

• Money invested – eg your own money, a loan, or from small business crowdfunding

• Equipment

• Fuel

• Employees’ time and labour

The outputs of a business refer to the quantity of products and/or services you sell in a particular time period. For example, you might be interested in creative ways to make money and decide to set up a business selling handmade jewellery. Your key output here may be the number of units of jewellery you sell in a year.

Or, if you’re attracted to service-based online business ideas such as social media consultancy, your output may be measured in how many projects you invoice for in a year.

What are the 4Vs of operations management?

When formulating your approach to operational management, it helps to be clear on the nature of your business, its particular challenges and goals. This is where the 4Vs come in.

The 4Vs are often described as the four dimensions or metrics of a business. Depending on what your business does, certain Vs will be more essential for success than others. Being clear on your Vs will give you a better idea of where your operational pain points may be, and which processes require the most attention.

Volume

This V refers to the quantity of products and services your business will produce. An example of a high-volume business would be a busy food and drink outlet like a pizzeria, churning out countless units of very similar items every working day.

By contrast, a low-volume business like a small graphic design studio creating logos, bespoke fonts, unique product packaging and distinctive websites for clients will generate its profit based on a smaller but more specialised output.

Optimising your workflow is essential to high-volume businesses, as you’ll need to repeatedly provide the same kinds of products within a tight time frame. Even the smallest delays in sourcing raw materials, in production, and in delivery can have a huge knock-on effect for your business.

Variety

This V refers to how diverse your range of products and services will be. Many businesses rely on a very narrow range of offerings – think of the pizzeria in our previous example, or perhaps a company mass-producing a few types of clothing.

On the other hand, a high-variety business is a more eclectic enterprise creating lots of different kinds of products and services, and this can bring more operational management challenges.

For example, a business creating a wide range of artisanal homeware products may have to source many different kinds of raw materials from multiple third-parties, requiring more focus on supply chain management compared to a business mass-producing just a few items.

The ‘knowledge supply chain’ of a high-variety service-based business will also be more complex than lower variety counterparts. For example, a copywriting agency catering to many different client types will need to be agile enough to become well versed in new subjects and sectors in order to create accurate editorial content.

This means staff will have to factor in the time to read up on such subjects and gain that necessary knowledge. By contrast, someone whose side hustle ideas include writing freelance articles on one specialist subject – such as gardening, say – won’t have to factor this into how they operate.

Variation

Not to be confused with the previous V, variation refers to how predictable the demand for your products and services will be.

Some businesses experience a high variation in demand, whether over the course of a week, a month, or a year. For example, bars and restaurants tend to be far busier on Fridays and Saturdays and during public holidays.

Certain business ideas from home can also experience fluctuating demand. If you’re selling unique greetings cards and other forms of stationery online, you can expect to see a marked uptick in orders around events like Christmas, Valentine’s Day and Mother’s Day. 

Operations management at high-variation businesses will need to take such fluctuations into account, so that stock levels and service capacity can be adapted ahead of time.

Visibility

The last V refers to how visible your business processes will be to your customers. Weighing up ideas on how to start a business from home? These will all be low visibility ideas, although it may be important to provide a way for customers to track orders online – even if that’s simply by updating them on delivery schedules by email.

High-visibility businesses, where you and any staff are dealing with people face-to-face, will require a big emphasis on interpersonal skills and customer service in general. The good news is that there are tools specifically designed to optimise how high-visibility businesses operate.

For example, being able to take payments with portable card readers can be essential for tradespeople and food outlets in our increasingly cash-free society. Speaking of food, allowing customers in your café or restaurant to order through the self-service SumUp Kiosk can cut queueing times and encourage bigger orders.

Important aspects of operations management

The 4Vs model provides a broad framework through which you can identify the operational priorities of your business. But now it’s time to drill down into some of the specific aspects of operational management you may need to factor in when considering small business ideas.

Determining products and services

While the provision of products and services will rely on relevant skills such as design, crafting, coding, writing and so on, the process of deciding which products and services to offer falls within the category of operational management.

For example, a company making bespoke furniture for upcycled materials will naturally include designers within its team. But there may also be one or more staff members responsible for identifying market trends and exactly what buyers of upcycled furniture are looking for, style-wise, in a given year.

Knowing how to do market research for small business success is vital to this aspect of operations management. You’ll want to look at social media influencers and chatter relating to your business sector, read online reviews and gauge where the tastes and requirements of customers lie. Reaching out to existing and potential customers through emails and surveys can also help.

Finance

Keeping close track of finances is an essential, ongoing operational process for all businesses. Having an online business account will allow you or designated staff members to accurately chart overheads such as the costs of utilities, equipment and staff, as well as revenues and profit margins.

This data will allow the operations manager (or whoever is multitasking as the operations manager) to set maximum limits on how much the company spends on overheads and resources, and formulate how to price a product or how to price a service so that the profit margin remains as high as possible.

Supply chain management

The term ‘supply chain’ refers to all the people and technologies involved in procuring materials essential for the running of your business, and in delivering your goods and services to your customers.

Efficient supply chain management will help streamline how a business operates, keeping costs down and eliminating unnecessary steps in procurement and delivery. This process optimisation involves:

Calculating resource requirements

Also known as capacity planning, this is particularly important for high-variation businesses, where demand can surge and dip dramatically throughout a given time period. A business needs to be aware of the demands it will need to meet, and calculate what is required in terms of raw materials, resources and staffing. This will then lead into…

Sourcing the necessary materials and inventory

Forging partnerships with the right suppliers of materials and inventory is key to maintaining a reliable and cost-effective supply chain. For example, if you’re planning things to make and sell, you’ll need to research online for trustworthy vendors for types of wood, metal, synthetic materials, precious gems and so on.

This kind of in-depth research will also be necessary if, rather than creating your own products, you’re selling on pre-existing items through a dropshipping online store. You can utilise networks of tried-and-tested vendors such as SaleHoo and Worldwide Brands, but be sure to check delivery timelines and weigh up how much they cost compared to other suppliers.

Plan logistics for delivery and returns

Supply chain management also encompasses the delivery of your products to your customers. Will you be simply using the regular postal service, or specialist couriers? How much will you need to charge your customers to maintain your profit margin? And what are your contingency plans if your usual delivery method isn’t available?

You’ll also need to have a process in place for customers who wish to return unwanted products. This is known as reverse logistics, and you’ll need to make customers aware of how refunds are handled, whether or not refunds are ever given, and how products should be sent back.

Quality control

Whether you’ve set up a business as a complete change of career, or are thinking of ideas for second income generation, you’ll want your products or services to be the best they can possibly be. That means quality control needs to be a part of your operations management plan. How you do this will depend very much on your business type. If, for example, you’re engaging in creative work like design projects, it’s useful to have another pair of eyes look over anything you’re going to send to your client.

If you’re the only person in your business, put completed work aside for hours or even days, then return to it with fresh eyes to edit it properly before submitting to clients.

If your business creates physical products, time should be scheduled for regular inspection of these products to check they are robust and meet the standards customers might expect. Remember that there may be official legal requirements for starting a small business in your chosen sector.

For example, if you’re making or selling food items, you’ll need to meet the minimum requirements of the Food Standards Agency. Or, if you’re selling cosmetics and beauty products, the Office for Product Safety and Standards will have to be notified.

Staff management

If you have anyone working for you in your business, then ensuring they’re content and working well with each other should be a component of operational management. 

Scheduling regular one-to-one chats with employees to discuss their workloads and get their input can make them feel like a valued, integral part of the business. If you have the resources, then investing in training and upskilling programmes for staff – such as part-time courses or special training events – can boost morale and reduce employee turnover.

Why is operations management important?

The relative significance of operations management will depend on the size and scope of your business.

If you’re working alone and interested in low cost business ideas which are fairly straightforward – such as getting into domestic cleaning or providing handyperson services in your area – then your operations management process will of course be less involved than if you’re running an office with several employees.

But whatever the nature of your business, here are some of the reasons why you should implement some form of operations management.

It can reduce your costs

Process optimisation can cut your business costs by cutting out unnecessary steps when it comes to things like procuring materials and managing orders. 

For example, allowing customers in your food outlet to order dishes themselves through SumUp Kiosk can allow orders to come in more smoothly and free you and your staff up to take care of other tasks, saving time and money.

It allows you to better utilise resources

Operational management emphasises doing your research into suppliers and logistics, so that you spend your budget more wisely on the best possible options. It encourages you to “look before you leap” and build links with reliable third-parties.

It motivates your staff

If you do have people working for you, good operations management will foster a more organised, more cohesive and collaborative business environment where staff can communicate openly, lessening the risk of siloes (where colleagues’ workloads aren’t in tandem).

It gives you a better understanding of your market

Learning how to do a competitor analysis and gaining a deep understanding of your chosen business sector is part and parcel of effective operations management. By assessing rivals’ websites and social media engagement to see what kinds of products and services customers are seeking, you’ll be well placed to devise an effective marketing strategy for small business success. It helps you meet your business goals

Close monitoring of every aspect of your business, from your inventory levels to the performances of team members to the status of invoices, will help you fulfil your overall targets as a business, and minimise the impact of delays and disruptions. This, ultimately, is why process optimisation is so important.

The main challenges of operations management

We’ve covered the main reasons why any entrepreneur should incorporate operations management into their work schedule. But what are the main challenges you should anticipate? Let’s run through them.

Supply chain disruption

Even if you do your due diligence when it comes to vetting your suppliers and clearly informing them of your requirements, delays and disruptions will inevitably happen throughout the lifespan of your business.

If your business relies on the regular supply of raw materials, you should have alternative vendors in mind, in case your primary partners are experiencing disruption. It’s also important to track your inventory at all times so you’re never caught short.

Quality control negligence

Passive income ideas aside, running a business can mean spinning a lot of plates at once, with multiple tasks to be carried out daily. In the thick of the action, it can be all too easy to neglect quality control processes.

However, maintaining quality is vital to keeping clients and customers happy, and encouraging repeat business. So guard against this potential pain point by scheduling QA procedures on a rolling basis, even if it’s just an afternoon every month.

This can include testing how well-made your products are, carrying out an audit of your services to check they measure up to what your competitors currently offer, and promoting an awareness of minimum quality standards among staff.

Lack of technology adoption

Whether you’re considering how to start an online business or you’re poised to make your dream of running a shop or restaurant a reality, there’s a plethora of tech out there which can optimise the whole process, empower you and your staff, and make operational management far more straightforward.

So, you’ll be missing a trick if you don’t implement what’s available, from cloud-based messaging services like Slack which make it easy to communicate with colleagues and third-parties, to online Payment Links which keep your business flexible by allowing you to take payments through texts, email and social media.