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Introduction to Operations Management:

Session 1
Professor Gad Allon
Kellogg School of Management, Northwestern University

G. Allon
What do you mean by Operations?
What Is Meant by Operations?
The secret of Zaras success is its speedfour weeks for a new
fashion idea to hit the shopsand the feedback that store managers
send to head office, to help it fine-tune its ideas. There is also firm
control from Spain, the sole logistics hub.
The Economist Mar 10, 2011.
The average time patients spend waiting to see a health-care
provider is 22 minutes, and some waits stretch for hours.
Orthopedists have the longest waits, at 29 minutes; dermatologists
the shortest, at 20. The report also noted that patient satisfaction
dropped significantly with each five minutes of waiting time.
The Wall St. Journal Oct 18, 2010.

Opus = Work (Latin)


Who has better operations?

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Southwest and Bags Fly Free

What annoys travelers most, Consumer


Reports, June 2010

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Three Questions on Improvement
What is an improvement?
Linking operations to strategy
Where to target improvement?
Linking operational flows to financial flows
How to improve?

G. Allon
Who has better operations?

Price Absolutely, Positively,


Ships everywhere overnight

Hub and Spoke


Five empty planes in indirect routes
10% of planes fly half empty by design
Each package is inspected by three
employees

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Strategic View: Whats an improvement

G. Allon
A Strategic Framework for Process Design and Improvement:
Three questions
1. What is our strategic position: how do we
compete & provide value in the market?
competitive
What is the value proposition to our
strategy customers?
Rank (Price, Time, Quality, Variety)
Alignment

operations 2. Given our strategic position, what must


operations do particularly well?
strategy
Which competencies must ops develop?
Rank (Cost, Time, Quality, Flexibility)

3. Given needed competencies, how should


Process operations processes be structured to develop
competencies that support strategy?
structure & mgt
Process choice (structure) and management
Southwest Airlines vs. American Airlines

Competitive Strategy: Competitive Strategy:


Price Variety of origins and
On time performance destinations

Process: Process:
Flying point to point Hub and spoke
Flying to smaller airport Different types of aircrafts
No assigned seats Baggage fees
Bags fly free
Limited number of aircraft

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Summary
Whats an improvement:
Maximizing Value
Alignment (Tradeoff)

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Next:
Process View: Where to target improvement

G. Allon