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Departamento de Ingenieria Industrial

Resumen del Programa de Curso

IN4704 – Gestion de Operaciones II

Semana Tue Thur

1 12-Mar 1.Introduction 2.Caso: Beleza

2 19-Mar 3.Caso: CircoRed 4. Start Littlefield
3 26-Mar 5.Debrief Littlefield 6. Queuing
4 2-Apr 7. Saint Marie Hospital 8. Aravind Eye Hospital
5 9-Apr 9. Newsvendor 10.Caso: Club de Vin
6 16-Apr 11.Caso: Sport Oberm. 12.Order-Up-To Model
7* 23-Apr Preparacion Control NO CLASS
8 30-Apr NO CLASS 13.Du Pont´s Titanium Dioxide1
9 7-May 14.Caso: Benetton 15.Managing Risk in SCs
10 14-May 16. Stochastic Opt 17. Case: Timbuk2
11 28-May 18. Pricing game 19. Revenue Management
12 4-Jun 20. Revenue Manag. 21. Retailer game
13 11-Jun 22. Markdown Pricing 23. Quality Manag.
14 18-Jun 24. Statistical Process Control 25. Caso: Ritz Carlton
15 25-Jun Lean Operations 27. Conclusion

(*) Semana de Control

Subrayado son clases donde se controlara asistencia obligatoria.

1. Utilizaremos el horario de auxiliar del miércoles 2 de Mayo para analizar el caso también. Es
decir, dedicaremos dos sesiones al caso, ambas obligatorias.

Departamento de Ingenieria Industrial
Operations Management II -- IN4704.
Universidad de Chile

Prof. Marcelo Olivares

Departamento de Ingenieria Industrial
Beauchef 851, of. 624

Methods and Materials

The course uses a variety of teaching methods and materials, including lectures, case discussions, analytical
tools and experiential activities (e.g. games). Some of these activities will require working in groups. This
syllabus provides a detailed description of the material to be covered on each class.

Text and Readings

Required readings must be completed before coming to class. The syllabus describes case preparation
questions for each case (and also for the lectures); students should come prepared to class to discuss these
questions. For every case, the students are required to hand in a one-page executive summary answering the
case preparation questions.

Some assignments and class activities will require working in groups. Please work with your pre-assigned
group on these.

Class Preparation
Class participation will be evaluated on each class, but specially during case discussions.

- No electronic devices will be permitted in class, unless otherwise established by the professor. In
some sessions we will work with Excel during class.
- All class participants should arrive on time. If you plan on leaving early, please talk to the professor
ahead and provide your justification.
- Do not walk in and out during class.
- All class participants should be respectful to the professor and classmates.

Your grade in the course will be based on individual, as well as group efforts and performance. We will use
the following weighting scheme:

Case Studies & Assignments 30%

Class Participation 10%
Midterm + Final Exam 60%

Class Participation
We will judge class participation on the extent to which you appear prepared, the relevance and depth of
your comments, the degree to which you listen carefully and respond to your peers, and your willingness to
take chances in order to further the educational experiences of others. Please bring your name card to class.
Please notify your instructor by email in advance if you have to miss a class, or if you will be late or
leaving early from class.

There are several group assignments related to the class material and the case studies. Instructions for the
group assignments will be provided during the course.

Littlefield Labs Game

During the course, we will play an experiential game, “Littlefield Labs”, to get some hands-on experience
on some of the concepts covered in class. The game simulates a laboratory that provides blood testing to
customers, and each team will have to manage several aspects of the lab (input materials, capacity at
several stages of the process, etc.) in order to maximize the profit of the company. Teams (formed by your
working groups) will compete during one week, playing the game online (using a web browser) outside
lecture hours. The grade for this activity will be calculated based your ranking in the competition (20%)
and a write-up to be handed in at the end of the game (80%). A detailed outline for the write-up will be
provided. The grade for this activity will be part of Case Studies & Assignments grade.

There is a midterm and a final exam. Students should bring class notes to both evaluations. The final exam
requires using a laptop with Excel and additional software to be specified.

Class by Class Summary

Class 1

The operations function and the process view of operations. Overview of topics.

Process analysis.

Class Activities:
Course overview. Introduction to process analysis. Link operational performance metrics to business

Class 2
Discuss Beleza Natural case.

Read the “ CBS case “Beleza Natural” and think about the following questions for class discussion:
1. What are the key elements of Beleza Natural business strategy? In what way does the organization of
the institutes support this strategy?

2. Discuss the efficiency of the process? What improvements measures do you suggest? How would
you prioritize among those measures?

Write a one-page summary answering these questions.

Class 3
Discuss “Pumping Iron at Cliff & Associates” case

Read the case and write a two page report answering the following questions:

1. What is your assessment of the plant’s current production cost, measured in cost per ton?
Assume that the fluidized bed is the constraining process step, so that there is no need to put
more raw materials into the system than the fluidized bed can handle. Assume that the variable
costs in Exhibit 11 of the case are in $/ton of inflow at the following steps. (see the table below
for the inputs of each step).

2. You have been retained as an adviser by a company that is considering acquiring the Circored
plant. What do you think is a fair value to pay for the plant? Support your answer with process
analysis. Feel free to use your best managerial judgment for any data that is not provided in the
case (discount rate, etc.)

3. What is your assessment of the suggested improvement projects that are identified in the case?
Would you invest in any of them? When evaluating the yield improvement project, assume that
this project reduces yield losses at the pre-heater and at the briquetting machine almost entirely.
Assume that the plant availability will improve with experience and reach an availability of 99%
in 3 years.

Variable cost for Proportional to inflow at

Iron ore [per ton] Preheater
Magnesium oxide [per ton] Lock-hoppers
Natural gas [per ton] Preheater
Hydrogen [per ton] 1st reactor
Nitrogen [per ton] Discharge
All other 2nd reactor

Class 4
Prepare for the Littlefield game
Read instructions to play Littlefield. Form groups to play the game and bring a laptop to class (at least one
per group).

Class 5
Debrief the Littlefield game
Be prepared to discuss your experience playing the Littlefield game and the answers your group provided
in your report
Littlefield game write-up. The report should be at most one page long covering the following:
• Describe the initial strategy that your group decided to play the game.
o How does this strategy manage the different uncertainties faced at the initial stage of the
o Describe any qualitative and quantitative analysis that you used to support this strategy.
o How did your strategy evolved as you played the game? What kind of data did you use to
adjust your strategy?
• Describe the strategy you decided to use for the last 100 days of the game and the logic supporting

Class 6
Managing waiting times in service industries.

(Optional) Read the book chapter “Variability an Its Impact on Process Performance: Waiting Time
Think about the following questions for class discussion:
1. How important is response time in the businesses you are familiar with? What are the causes of the
response time problems in these businesses? How can a firm effectively manage response time?
2. What are the consequences of exactly balancing capacity and demand? Why is excess capacity

Class 7
Applications of queuing models to healthcare operations: Saintmarie Hospital

Read the case and write a report answering the following questions:

1. How do you think they can try to solve this problem from a psychological waiting time perspective?
This would be useful for every case?
2. Over the past few years, there has been a recurring debate at the management of the hospital
regarding the possible solution of dividing the ED into two separate units: Inpatient (acute cases)
and outpatients (non-acute cases). What are the pros and cons of this idea?
3. Calculate
a. p: the average processing time (min)
b. arrivals per day
c. a: average interarrival time (min)

Class 8
Designing Service Operations: Aravind Eye Hospital

Read the case and answer the next questions:

Compare in terms of recovery time, equipment (technology), price, lense, op. time and outcome the
ICCE and ECCE methodologies.

Aravind model can me replicated in Chile´s Region de Coquimbo

Class 9
Dealing with uncertainty in a make-to-stock operation: the Newsvendor model.

Make a forecast for the iPhone world-wide sales (in units) during the fourth calendar quarter (Oct-Dec) of
this year (this is the first fiscal quarter of Apple for next year). Please provide your forecast in the following
web survey before coming to class:

Recommended optional reading: “Betting on Uncertain Demand: The Newsvendor Model”.

Class Activities:
We will learn the Newsvendor model to understand the implications of production pre-commitment,
forecasting and risk in supply chain management.

Class 10
Club de Vin case.

• What are the costs of having one bottle too few in inventory (underage cost)? What are the costs of
having one bottle too many in inventory (overage cost)? List these costs qualitatively and then
attempt to attach numbers to them for, say, a 10 Euro bottle of white wine.
• Assume the underage cost is 3 Euro and the overage cost is 1 Euro. Based on Le Club’s past
forecasting performance (Exhibit 1), how many bottles would you order of a wine that is forecasted
to sell 2000 bottles?
• How much of each wine listed in Exhibit 2 would you order? Be prepared to explain and justify
your decisions.
You can use the spreadsheet Le Club.xls to answer the questions, which have Exhibit 1 and 2 from the
Submit a one page summary of the group exercise and be prepared to discuss it in class.

Class 11
Role of speculative and reactive capacity in matching supply with uncertain demand.

Read “Sport Obermeyer, Ltd.”. Write a one page report answering the following questions:

1. Using the sample data given in Exhibit 10, make a recommendation for how many units of each
style Wally Obermeyer should order during the initial phase of production (a spreadsheet with
Exhibit 10 is posted in the course website). Assume there are no limits in the total size of the order
(i.e. there is unlimited capacity), and ignore the minimum order quantity constraint in your analysis.
Also, assume that there would be no future production for these parkas (i.e., only one production
decision is taken to satisfy the demand).

2. As indicated in the case, there are two production runs in Asia. The first production takes place six
months before the Las Vegas show (production early), and the second one right after the show
(production late). The production capacity after the show is limited and therefore some production
must be done early. Discuss qualitatively the factors that Wally Obermeyer should consider in
deciding which parkas to produce early and which to produce late.

Class 12
Introduction to Supply-Chain Management. The Order-up-to Inventory Model.

This session studies service levels and lead times in a supply chain. Unlike with the newsvendor model, we
now consider a supply chain that has demand over a long time horizon, so multiple replenishments are
possible. This class will primarily be a lecture.
(Optional) Read “Service Levels and Lead Times in Supply Chains: The Order-up-to Inventory Model.”

Class 13
Capacity Planning: Operations Strategy

Read Du Pont´s Titanium Dioxide



Class 14
The Power of Postponement: Bennetton

Read the “Benetton” case and answer the following questions


Class 15
Managing risk in Supply Chains.

Read the case “Online Book Retailing” and be prepared to answer the following questions.
1. What are Amazon’s operational advantages and disadvantages relative to BN?
2. Do advantages outweigh disadvantages?

Class 16
Stochastic Optimization
This lecture will review some concepts from optimization and show how they can be applied in the context
of stochastic optimization, where the objective functions and the constraints can include random variables
as some of the model parameters. Examples of these kind of problems will be covered.

Class 17
Timbuk 2 case
Analyze the implications of sourcing decisions on operational efficiency. Mass customization offers an
infinite variety of goods that are customized to a consumer’s exact specifications. This session explores the
pros and cons of this strategy and also discusses issues involved in outsourcing of manufacturing operations
to low-cost countries.

Read “Where in the World is Timbuk2” case.
Related to the Timbuk2 case, discuss the following questions with your group and provide a one-page
summary of your conclusions:

1. What channels does Timbuk2 sell through and which one is the most profitable?
2. How should Timbuk2 go about deciding which options to offer customers through mass-
customization? In other words, what general principles or analysis could be used to deepen their
understanding of the appropriate choices? You may want to consider several of the options
mentioned (an added handle, different color logos, different size panels, etc.)
3. What are the costs and benefits of moving production to China? If so, what challenges are they
likely to face and what changes will they need to make? In particular, think about utilization of San
Francisco factory before and after outsourcing as well as about inventory needs.

Classes 18-20
Introduction to Revenue Management: decisions with demand uncertainty when capacity is fixed.

In the first class, we will play an experiential activity with your groups in which each group will be in
charge of managing the sales of a tour package. The second class consists on a brief revision of the history
behind revenue management, models, tools and managerial practices that are used in this área. In particular,
we will discuss about booking limits and overbooking.

Classes 21 & 22
Markdown pricing: managing prices of retail inventory during the selling season.

In the first class, we will play an experiential activity with your groups where each group will be in charge
of managing the prices that a retailer sets, given a fixed amount of inventory, during the selling season.
This practice is known as markdown pricing. The second class covers models that are used to optimize the
timing and depth of the markdowns.

Download the application “Retailer” from the course website and install it in your computer. Bring a laptop
to class, one per group. Read the “instructions to play the Retailer game”

Class 23
Lean Operations and the Toyota Production System

Listen to the first 30 minutes of the NPR American Life documentary about NUMMI.
(the episode is also available on iTunes)
Think about the following:
- What are the main differences between General Motors (GM) and Toyota in how the view
production efficiency in their plants?
- Why did Toyota choose to hire the same employees that worked in the GM Fremont plant?
- What is an “andon chord”? What are the benefits and costs of “pulling the chord”?

Class 24

Quality Management and Statistical Process Control. In quality management, we will discuss the following
1. Definition of quality.
2. Process capability and Six-sigma.

During the class we will conduct an experiential activity to learn about process improvement.

-Answer the online:

Class 25
Statistical Process Control

Read the case “Improving Customer Engagement” and download the spreadsheet from the course website.
Bring your laptop with the spreadsheet to the class.

Class Activities:
1. What is statistical process control, and why is it important?
2. What is special and common cause variation? Why is it important to distinguish between the two?
3. Constructing and interpreting control charts.

Class 26
Application of SPC to service industries: The Ritz Carlton case
Read the Ritz Carlton case and work on the following assignment.

The Excel file ritz.xls contains a listing of a subset of all defects reported in the DQPR for the Ritz-Carlton
Buckhead over the period from January 1997 to November 1997. The subset contains all defects for twelve
categories of defects that directly impact the customer and are identified as causes for customer

Analyze this data file and answer the following questions in an executive summary due at the start of class:

1. Does the data in the file ritz.xls indicate any significant quality problems?

2. If you were to select a category of defect to address from the DQPR data, which category would
you address? Why?

3. Using the data and your common-sense knowledge of hotel operations, generate hypotheses about
the possible root causes of the defect category that you selected.

Explanation of fields in the ritz.xls file:

Field Name Explanation

ID Unique ID number assigned to each defect in report
Date1 The date the defect was recorded in the DQPR
Date2 The date the defect occurred
Time The time the defect occurred
Count The number of defects of this type
Keyword The category of defect type that the defect is assigned to
Memo Detailed description of the defect
Source Source of information of this defect to the DQPR
Room The room number of guest
Department Department where suspected cause of the defect

The "Summary Counts" workbook contains total counts of defects by keyword for each date (Date 2). This
workbook also has the occupancy data (estimated number of guests in the hotel on each day).

Class 27
Review and conclusion of the course. We will discuss how the topics discussed in this course can be useful
to understand innovations in process design and new emerging business models. Think about the following
- Identify similarities among the business models of Uber, Cornershop and TodoVa. What other
business opportunities can you identify that can benefit from this operational model?
- What does and have in common? In what ways are these online retailers
different from traditional retailers selling similar product categories? Other online retailers selling
general merchandise?