Every business has an operational aspect to it. Whether you are running and managing a restaurant or a retail business, the manner in which you run your operations can determine if your business is profitable and sustainable.
Most SME owners and investors do not pay any attention to this critical aspect of their business.
Definition of operations management
My definition of operations management is that it includes the formulation, design, planning, process mapping, execution and the control of operations to convert all your resources into products, services and or goods. In other words, the operations management is how you execute on your intended business strategy. The resources could range from your people, financial, inventory, capacity and or any resources deployed to create incremental value.
Most operational management issues discussed here would seem very obvious to you. However you will be surprised to note how many small businesses really pay heed to these obvious management issues. Otherwise, we will not often hear of theft, vandalism, lack of inventory or stock and poor after sales and or customer service in many SMEs..
The list of operational issues that I will discuss in this chapter is by no means mutually exclusive nor are they completely exhaustive.
A note on policy, procedures and process and systems
Having a policy, procedures and processes will significantly help a small business to combine a documented system under which the small business will operate.
Policy – A policy can either be written or a verbal statement of a small businesses stance on an issues or topic. It helps the SME owner to define how things are done in his or her business and what rules apply to the respective stakeholders. Policies can include such things as annual leave, payment to suppliers, overtime, dress code, internet usage and others in the workplace.
Procedure – A procedure is a step-by-step instruction to achieve a certain outcome of the business. Some procedures are general whilst others must be detailed. A manufacturing process or the handling of work place injuries or the operation of the factory machinery or heavy equipment must be detailed and written by an expert.
The process should be repeatable and structured. In other words you cannot have different processes and ways every other day. The process should ensure that nepotism (in hiring), fraud, theft, verification and check and controls are in place so that no one or 2 persons can jeopardize your business. However, check and controls should not create unnecessary layers of bureaucracy that will affect your service to your customers.
It is important for small business owners that company policies, procedures and processes are properly documented and can be easily understood and is made available to all relevant employees.
An important note on employment contracts – When policies, procedures or processes form part of your small business employee’s term and condition of employment, they must be attached or linked to the employment contract.
So what are the benefits of a documented system?
There are many benefits among which include:
- Consistency in the delivery of customer experience across all touch points
- Smooth operations of the small business
- Lack of dependency on the owner for the running of the business
- Faster and easier exit for the owner
- Reduction of overall risk to the small business
- Enables training of employees
It is important that you as a small business owner or manager have a defined process (not necessarily documented in a binder that no one reads) that your employees and you can follow for critical processes like:
- Ordering and receiving inventory
- Supplier payment
- Inventory management
- Production or service methods
- Sales and marketing
- Cash handling
- Salary payments
Key operational management issues that a small business should pay special attention
It is imperative that you should first and foremost address the safety and security of your business, your employees and customers.
You should put preventive measures to mitigate risks of fraud, theft and vandalism so as to ensure that your small business assets, inventory and machinery and other critical assets vital to the running of your business are not jeopardized.
You should conduct a thorough assessment and contingency plan to help minimize losses due to:
- Injury to your employees
Data storage and back up
Please ensure that your entire critical customer, supplier, employee and other information are redundant and regularly backed up. I have personally seen many small business incur significant losses by not paying attention to this one issues.
As our digital lives are a matter of fact, please pay special attention to Internet fraud or online fraud scheme that uses email, web sites, chat rooms or message boards to represent your company or you for fraudulent solicitations and or transactions. Pay special attention to your online cash transfer process and verification.
Watch out for disgruntled employees or others installing spyware into your computer systems to takes things from you without you even knowing about it.it without the permission or knowledge of the user..
If you have personal customer information stored in your computer systems, watch out phishing from within or outside your company. Phishing is a technique used to gain personal information for the purpose of identity theft.
Small business owners often do not pay any attention to the administration and management of their business. As a small business owner, you should be acutely aware and comply with reporting and record-keeping obligations that you might have.
As a small business owner, you will have to pay special attention to the process mapping and administration management of a few critical areas:
- Financial management – Ensure that your small business accounts payable and receivable management, the preparation of financial statements, budget planning and reporting processes are structured and well understood by your employees.
- Business compliance requirements – Ensure that all regulatory and governmental compliance requirements are met. These could range from ensuring that there is adequate insurance, tax withholding, payment of social security tax, transportation records and employee visas and details. If for some unfortunate reason your firm is audited by any governmental or regulatory authorities, you will be mired in countless hours trying to prove that you are in full compliance. Remember that the onus is almost always on you! Therefore, pay special attention to record keeping, which includes but not limited to filing, collecting information on business issues and maintaining statutory documentation.
- Database management systems and process – Ensure that you have redundant and reliable database management systems and processes to accurately track your customers, suppliers and competitors.
- Human resources and people issues – Ensure that the administration of supervising your employees and maintaining records of their payroll and sick days and vacations are proper.
- Office equipment and supplies purchases and maintenance – Ensure that processes are in place to maximize the productivity of your employees. I have seen many businesses not having adequate supplies and wherein employees often end up wasting time until supplies or equipment are replenished or replaced.
- Supplier management and contracting – Most small businesses ignore supplier management and legal contract issues to their own detriment. Pay special attention to mitigate fraud and overcharging and or potential legal suits down the road.
- Outsourcing – Small businesses should consider outsourcing as a viable option if too much time is spent on administration of a specific process or task.
Administration issues often distract a SME owner or manager and take up invaluable time that should be spent on running the core operations of the business.
It is therefore imperative to create systems, methods, processes and procedures to increase productivity of your employees and cut unnecessary repetition and wasting of valuable time and resources.
Supply chain & logistics management
Every small business irrespective of the industry – has a supply chain.
Supply chain management includes the management of all tasks and activities to transform the raw materials, service or products into a customer value proposition and includes ensuring that these services and products are delivered to the customer. It also includes the management of processes and system for assembling, storing and disposing of waste materials for your finished customer value proposition.
Most small businesses face critical supply chain management issues when the business is growing. These challenges and issues often lead to a decrease in productivity, increased costs and lower customer satisfaction.
So, what are the critical elements of a supply chain management system?
- Selecting suppliers – single and multiple
- Managing lead times for inventory
- managing supplier relationships
- production or service planning
- inventory management
- procurement and purchasing
- Customer service management
- Inventory and distribution management of returned or faulty goods
Excessive inventories lead to additional costs or wastage that your small business cannot afford. Lack of inventories could mean order cancellations and customer dissatisfaction.
Budget furcating and planning are critical to ensure that your small business has the optimal inventory at all times.
Your operations management should have process and systems that accurately report the performance of your business. This include
- Employee performance and other employee issues such as sick leave, vacation and others
- Customer activity
- Sales performance
- Product performance
- Performance of your factory or major assets
- Stock and Inventory
- Financial performance
- Customer service performance
- Cash flow and float
- Supplier performance
- Computer and telecommunications systems
Many small businesses pay little or no attention to end to end performance reporting for their business. Remember always that what you cannot measure, you cannot report and what you cannot report, you cannot manage. If you cannot manage something, you definitely don’t have chance to improve performance.
Operations management is an important aspect of your business. It is often mundane and basic common sense. Many small business owners pay scant attention to this critical aspect of their business. Your failure to pay special attention to this important aspect of your business could mean lost customers and profits. In simple words, what this means is that the prudent management or lack thereof of the operations of your small business, could determine if your business perish or flourish.
I want to leave you with a final thought on operations management. In the end all business operations could be summarized into 3 areas…People, propositions and profits. Unless you have a grapple on the operations of your small business all three areas of your business will be impacted.
On that note, here is a quote from Scott Allen “a project is complete when it starts working for you, rather than you working for it”.