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How to Use Operations Management Tools in Business

Sid Kemp is a business consultant and author of 10 books on project management and business success.

If you know how to use operations management tools, you'll become better at business. See what they can do for you.

If you know how to use operations management tools, you'll become better at business. See what they can do for you.

What Are Operations Management Tools?

Back in the 1970s, W. Edwards Deming, the guru of Total Quality Management (TQM), discovered that 94% of all errors in business were caused by management, not by workers. And management can eliminate these errors by putting good operations management tools in place. When these errors are eliminated, the company makes 1/20th as many errors as it used to. Errors cause defects, create unhappy customers who go elsewhere, and cost lots of time and money.

A company with effective operations management stays in business; a company without it loses to the competition. This is how Japanese electronics manufacturing took over the TV and photocopier industries in the 1970s. And US and European industries learned from the Japanese (who learned from Deming), improving quality and implementing network-based operations management tools in the 1980s and 1990s.

How to Understand These Tools

The easiest way to understand these tools is to picture two restaurants. One is an old-style diner without operations management tools. The waitress writes up your order and posts it at a window to the kitchen. The cook reads it and prepares the order. If the waitress listened well, and the cook can read her handwriting, and he pays attention, and she watches the window or hears him yell "order up," then everything is fine.

But if even one of those steps is missed, the order is wrong, and the customer is unhappy. This old restaurant works well because the team has learned to work together. But what if the old waitress wins the lottery? There will be a lot of errors before the new waiter learns how to get all the details of an order right, and the cook learns to read his handwriting.

Now, compare this to a 21st-century restaurant with web-based operations tools. Waiters and waitresses are trained in how to take an order and repeat it back to the customer, and then enter it into the restaurant point-of-sale (POS) system. (That's an operations tool.) The cook gets a printout of the order - no handwriting problems. There's a quiet signal indicating "order up"; no yelling.

If an order goes in wrong, the system can tell management which waiter or waitress made the mistake. Waiters and waitresses can trade shifts from their iPhones, and management can be sure that enough people are coming to work. A restaurant like this can have 70 brand-new waiters on opening day and do good business. And it can quickly sort out the team members who want to do well from those who are not really trying to learn and succeed. There's plenty of information to use to help those who want to get better, and there's plenty of evidence of error if someone isn't working out.

Note: As a business consultant, I'm not a total fan of operations management tools, at least as they are often used. They can be used to create rigid, authoritarian environments, cutting costs at the cost of the real value, teamwork, loyalty, and contribution, which make for true success. I am a total fan of operations management tools if they are used to build a great team and help everyone do a great job.

Before we get into operations management tools in depth, we need to understand standard operating procedures and the attitude that creates a successful, team-oriented company or department.

Operations management tools predate computers by centuries.

Operations management tools predate computers by centuries.

Standard Operating Procedures and Continuous Improvement

Operations management tools—whether on paper or on the Internet—embody a standardized way of working that prevents errors. A standard way of doing a task in operations is called a Standard Operation Procedure, or SOP. By and large, American managers and workers hate SOPs.

Our attitude toward them is captured in an episode of the TV show ER, where the ER has to be evacuated because of a toxic leak. A nurse asks the head doctor, "Where is the evacuation manual?" and he says, "It's in a black binder in the office." The camera turns to the office, which has black binders falling off every shelf. They never find the manual, and they evacuate any way they can.

In the US, by and large, an SOP manual is left on a shelf somewhere. By the time we find it, it will be hopelessly out of date. When SOPs are followed, it is a struggle to keep up to standard.

The Japanese approach is very different. This approach is called kaizen, which means "continuous improvement." Dr. Masaaki Imai, founder of the Kaizen Institute, says, "A standard operating procedure is the worst way we ever do a job. We always meet the SOP, and, each day, we try to improve on it." The manual is a living document of improving methods. Whoever finds the best way to do anything improve the SOP for that task, and then everyone learns from it and does it in the newer, better way.

Operations management tools are computer software systems that make it easy—and mandatory—to follow SOPs. If we do this with the attitude of kaizen, working as a team to improve and excel—then these tools are a powerful way to become, and remain, the cutting-edge leader in your field of business.

Credit card readers are part of POS (point of sale) systems, which integrate into operations management tools for finances, inventory, and customer relations management (CRM).

Credit card readers are part of POS (point of sale) systems, which integrate into operations management tools for finances, inventory, and customer relations management (CRM).

Save Money and Reduce Risk With Operations Management Tools

If we define effective business procedures, then set up a computer system that makes those procedures easy to learn and follow, we can save money and reduce risk in our business. Let's illustrate this with the example of the two restaurants above:

  • A computerized POS system calculates the customer's check automatically: There are no billing addition errors.
  • Errors in reading hand-written tickets are reduced, reducing food waste.
  • Errors in taking orders are automatically tracked, so waiters and waitresses can be trained to be more precise.
  • If a waiter or waitress leaves, a replacement can be trained quickly, reducing the risk of costly errors while training new employees.
  • An automated system allowing wait staff to go online to confirm shift times and replacements reduces the risk that the restaurant will be understaffed if someone can't or won't make it in to work.

Please note that these tools can be used badly, in which case they backfire. If the system is set up without proper alignment to business practices, then it creates hassle for people trying to do good work. We've probably all been to restaurants that couldn't handle a special order or tried to buy an item on two-for-one sale, and heard a frustrated waitress or cashier say, "the system won't let me do it."

I walk out of stores that have that problem and never go back. A poorly implemented or poorly maintained system loses us customers. With regards to staff, if the information in the system is used in a punitive ways, instead of for training purposes, team members become resistant and slow down work or even quit. And the cost of that churn—high employee turnover—is often enough to put a company out of business.

As we move forward and look at the design and implementation of automated operations management tools, let's keep in mind effective business practices and effective team building and team management.

When the system doesn't work for a person, the person will make his own system to get his work done.

When the system doesn't work for a person, the person will make his own system to get his work done.

Customizable, Web-Based Operations Management Tools

Operations management tools allow workers to receive instructions, work, and enter data very efficiently. The information flow guides the flow of products and services for the customers. This reduces the cost of serving the customer while reducing error. That produces higher quality results at a lower cost, which is a competitive advantage.

Large companies, of course, can implement their own completely custom computer systems. But even that is rare these days. Most companies rely on customizable software, such as PeopleSoft or SAP. Medium-sized companies use these as well, and small companies often find SalesForce useful in similar ways.

And, of course, there are also industry-specific tools, such as restaurant operations systems or supermarket POS systems, or engineering tools that turn CAD drawings into control programs that run robotic equipment.

The Ten Billion Dollar Problem

The Comptroller (chief financial officer) for a very large state in the United States was working to implement a custom, integrated tool for financial operations management. It required purchasing and integrating three different software tools—a front end for data entry, a processing and calculation tool, and a reporting tool. They put the system together and began testing. All went well until they tried a set of transactions that totaled over $9,999,999,999.99. When they did that, all the numbers came out wrong.

It took a while to discover the problem. It turned out that the middle piece of software wasn't designed to work with figures with over 12 significant digits—that is, calculations failed at the $10 billion mark. If the state had been using only one tool, this problem would have been discovered early. But since the three tools were tied together, the data going in looked fine, and the data coming out looked bad, and it took a lot of work to find the problem.

This is the kind of problem that large companies and governments face when building integrated solutions to create operations management tools.

Implementation Problems: Large, Medium, and Small

Operations management tools require effective implementation. Without it, they often reduce operational efficiency, increasing cost, adding delay, or locking the company into a system that works poorly.

The problems created by poorly implemented operations management tools are different for large, medium-sized, and small companies. In my fifteen years of consulting with corporations, government organizations, and not-for-profits of all sizes—from the Fortune 500 down to one-person businesses—I've seen everything that can go wrong.

Implementation Problems at Large Companies

A large is probably already working with either a generic operations management tool, an industry-specific (vertical market) tool, or a combination of both. And the system probably is probably built on a mix of information technology platforms: internal systems, intranet, and secure Internet services. For these companies, key issues are:

  • Integrating different tools so the data moves seamlessly. Improving processes through advanced techniques such as Six Sigma, benchmarking, and development of best practices.
  • Integrating systems after mergers and acquisitions—which can take years.

Implementation Problems at Medium-Sized Companies

Medium-sized companies face a different set of issues:

  • Choosing between vertical-market industry-specific tools and generic tools
  • Implementing those tools effectively and at a low cost

As an example of the second point, a major error that I've seen many times in the last fifteen years is a medium-sized company deciding to implement PeopleSoft or SAP or even the less expensive SalesForce and trying to skip expensive customization of the system.

This inevitably leads to disaster, followed by a complete re-build of the system—getting it done right the second time at a cost of tens or hundreds of thousands of dollars. Or—and I've seen this—the company dies from the mistake, unable to afford to do it too right, after losing money from not doing it right the first time.

Small Business Implementation Problems

Small businesses either avoid automation too long or rush in without good customization. They are then locked into a system that reduces efficiency or prevents growth. I know many small businesses that spend more time and money living with a bad computer system than they spend doing actual good work for their customers. Sometimes, we can solve these problems and save the company.

The Important Information Is Elsewhere

One time, I managed the migration of data off a dying computer onto a new, web-based vertical-market operations management tool for a stock photography company. The old system had a number of problems: It was on a German operating system, even though no one at the company spoke German; The hard drive was crashing and destroying data; and, as I discovered one day, the information that mattered wasn't even on the computer.

As I was analyzing the data with the small business owner, I saw some hand-written numbers on sales sheets that were circled. I asked what they were. The owner answered, "Oh, those are the most important pieces of information of all. Those are codes that track the type of company that placed the order, and the industry they are working in. We total up all those numbers each month, and that shows us where sales are growing and where to focus our advertising."

"By hand?"

"With a calculator. There's no place on the computer system to put the information."

Well, there was a place to put the information in the new system. I spoke to the seller of the vertical-market operations management software for stock photography that they were buying, and he showed me where to put the data. I named and configured the custom fields, entering the company's own codes, and setting up the reports.

With the new system, they didn't need a calculator anymore. It generated the sales income reports by category and sped up their marketing campaigns a great deal. The company grew while competitors were losing ground and going out of business.

Choose: Vertical Market or Generic?

Let's say that you're in charge of a small company or a department that wants to automate. The key question is: Is your company better off with a vertical-market tool designed for your industry or with a generic operations management tool, such as SalesForce.

Note: SalesForce is primarily designed to manage sales. But it is so flexible that it can actually manage client services and fulfillment, that is, operations, as well.

Here are some key questions that will guide your decision:

  • Are you in a well-established industry that has at least one—and better, two or three—options for industry-specific software? (Restaurants and real estate are good examples.)
  • Are you handling the physical production of specialized items or production of specialized imagery, such as high-resolution photos, music, or production video? (Engineering design with manufacturing and stock photography are good examples.)

If the answer is "yes" to either of these questions, then take a look at software for your own vertical market.

If, on the other hand, you are in a company that handles paperwork and information, and it is a new industry that is changing rapidly, you are likely to be better off using generic software that you can customize to grow with the changes in your business.

Building a Simple Operations Management Tool

Let's say that you want to build a simple operations management tool. You've chosen a customizable, web-based platform. What's next?

The first key is to design business processes that actually reflect what employees are really doing. This takes time, but it is totally worthwhile. It can actually lead to the improvement of business processes. And, if it is not done, there is an inevitable push-back.

Most often, workers barely use the system, and the information that really matters to the company is tracked on post-it notes that are stuck onto people's monitors and desks. That's what happened before I arrived on the scene to create the problem I found and solved.

Also, be sure to hire a competent systems analyst, not a programmer who thinks he knows what he is doing but doesn't understand data. If the data is not properly organized into relational structures that represent the real information you are working with, then your company is doomed. Later on, you will discover that:

  • It is impossible to generate useful, simple business reports from your own data.
  • It is impossible to make changes to your system that match improvements and changes to your business.
  • Business growth is impossible without scrapping your entire computer system and starting from scratch.