The Role of Operations Management in Business

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Forecasting and Financial Planning

Forecast estimate of the firm’s future performance that is done by the corporate planners, economists, and security and credit analysts by the use of software is known as a forecast. An econometric model is a technique that is used by economists so as to help in projecting inflation, Gross Domestic Product, unemployment among other things. The cash flow and operating results of the company are projected always by financial planners where they use the trends that happened in the past and also make assumptions when there is a need so as to help in financial planning and budget making. Projections are used by Credit Analyst so as to predict the debt service ability. Cash flow per single share and earning trends is what is used by a security analyst, on the other hand, to help in projecting dividend coverage and the market value. The process by which a firm order, stores and uses the firm's inventory such as raw materials and finished products are known as inventory management. (Miller et al., 2012) In an industrial setting, inventory management can be defined in a different way as the management of the organization's materials which are very crucial in earning revenue to the organization in the future and it is under control of the operational manager.

Forecasting in Operations Management

The production mechanisms of the organization are achieved through the use of forecast methods of operations management and production. Forecasting in an organizational setting will always involve the use of different estimation strategies so as to realize the possible future results of the business. The job operations management is tasked with the process of planning the expected outcomes of the company. Also, operations management is involved in the process of manufacturing and product distribution. The operations management consists of several aspects such as developing, creating, production, and distribution of the organization products (Consumer et al., 2013).

Inventory Management and Reordering

The question of the when to make an order gets its answers from reordering. The process of forecasting is vital for main businesses that deal with wholesale since they operate with high capital and large products stock. (Curricula & Certification Council, 1998).

Reorder Point and Economic Order Quantity (EOQ)

The action to replenish that particular stock is triggered by the inventory. The lead time (the period before products delivery) needs to be considered since making abrupt restocking is not achievable and that means safety stock (the extra stock that is necessary in the case of supply and demand uncertainty) in a very crucial business (Hong Kong Institute of Banks, 2013). The reorder point can be calculated using the formulae below:

Lead-time days × the daily average rate of usage = reorder amount

Economic Order Quantity (EOQ)

Where D is the cost per year, K is demand in units per year, and H is carrying a cost per year.

Fixed costs, annual demand and the annual carrying cost per unit are the three requirements for the calculation of EOQ. The amount used in stock procurement, inspections, approval process cost among others is known as fixed costs. The amount spent on utilities and storage is known as carrying costs (Lonsdale, & Obradovic, 2014).

The Importance of Operations Management

The operation management is very important to an organization as it can help in implementing organization achieving strategies, planning, processes, and strategic aims and controlling. The main crucial purpose of operations management is to manage properly the organization's resources so as to enable the organization to increase the potential of the serves or product that is being offered by the firm. The operation management depending on the nature of the organization can include several functions such as human resource management, information, materials, production, logistics, transportation, inventory, procurement, and purchasing (Jaber, 2009).

Coordination and Challenges in Operations Management

To achieve organization success, the operations management has to include several components. However, perfect the effective plan that can be in an organization, success cannot be achieved unless proper planning is carried out by the operations manager. There are several mistakes that usually happen in an organization from the first stage of manufacturing to the selling stage. This then means that the proper coordination of the marketing, operation functions, accounting, finance, engineering, human resources, and information systems is crucial for the organization to achieve its objectives. This, therefore, shows the basic demerit of operations management which is that it becomes unnecessary if there is no proper working and coordination of several components (Oregon, & Oregon, 2005).

Effect of Inventory and Operations Management on Business Success

From all the discussion above it is very evident how having a proper inventory management is helpful to a business or a firm. Every business always targets to make profits, therefore for profits to be made then the business owners need to have a well operational inventory management system and also proper operations management since these all are very important areas of consideration. Proper operations management will mean that there is proper coordination in the entire organization. This will help to reduce wrangles and therefore smooth running of the firm’s affairs. When the business is able to control its stock during any time in the season it will be able to fully satisfy the customer demands. Having customer demands full met will help to sell the firm's brand hence increasing sales and earning more profit.


Anderson, M. A., Consumer, D. S., Anderson, E. G., & Parker, G. (2013). Operations management for dummies. Mississauga, Ontario: John Wiley & Sons Canada, Limited.

Curricula and Certification Council (American Production and Inventory Control Society). (1998). Inventory management reprints: Articles selected by the Inventory Management Committee of the APICS Curricula and Certification Council. Falls Church, VA: APICS--the Educational Society for Resource Management.

Hayes, D. K., Ninemeier, J. D., & Miller, A. A. (2012). Foundations of lodging management. Boston: Prentice Hall.

Hong Kong Institute of Bankers. (2013). Operational Risk Management. John Wiley & Sons.

Jaber, M. Y. (2009). Inventory management: Non-classical views. Boca Raton: CRC Press.

Lonsdale, P., & Obradovic, D. (2014). Public Water Supply: Models, Data and Operational Management.

Oregon, & Oregon. (2005). Forecast. Salem, Or.: Oregon Dept. of Human Services, Finance & Policy Analysis.

October 30, 2023

Business Economics



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