Operations Management

• Introduction to Operations Management

• Operations Strategy and Strategy Execution
• Productivity calculation

ADM 3301 - Operations Management

Davood Astaraky, Telfer School of Management
Outline
• Introduction to the Course
• Matching Supply with Demand
• Efficient Frontier (Operations Frontier)
• Operations Management
• History and Evolution of Operations Management
• Dimensions of Operation’s Performance
• Comparing Operations
• Strategy, Strategy Execution & Focused Operations
• Operations Objectives Tradeoffs and Combinations
• Operations levers
• Exercises:
- Operations Strategy in a Global Environment
- Case Study: Dell Business Strategy
- Case Study: Motorola’s Global Strategy
- Case Study: IKEA Strategy
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Introduction to the Course
 Textbooks
Of cial course textbook : Used as references in lectures:
Operations Management: Sustainability and
Supply Chain Management
Fourth Canadian Edition

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Course structure
• Course outline

• Assignments

• Quizzes & Exercises

• Exams

• Discussion forum

• Read the course outline carefully and post any questions on the discussion forum.

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Course delivery methods
• The course will be delivered virtually and in person.

• This course offers both synchronous and asynchronous approaches to learning.

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Matching Supply with Demand
Matching Supply with Demand
• Consider the following examples:
- In the spring of 2020 hospitals experienced a rapid increase in patient volume as a result of the COVID-19 pandemic. They
were not only struggling to find sufficient hospital staff and hospital beds, but also experienced a dramatic shortage in the
supply of personal protective equipment (PPE).
- Some of the big winners of the covid-19 pandemic have been food delivery services such as Uber Eats. These companies have
been able to respond to the demand quickly and inexpensively. Restaurants that relied entirely on in-person service suffered
major losses.
- Sony launched its PlayStation PS5 in November 2020. However, shortages in semiconductor supply severely limited sales and
the demand for PS5 still exceeded supply in 2022.

- What do all these cases have in common?

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Dif culty in matching supply with demand
• Why is matching supply with demand difficult?

- 1) Demand can vary, in either predictable or unpredictable ways.

- 2) Supply is inflexible.

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Examples of Supply - Demand mismatches

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 Ef cient Frontier
(Operations Frontier)
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The ef cient (operations) frontier
• Position and strategic direction in the competitive space.
- For instance: Convenience × Cost
- Operations management provides tools to defines efficient frontier
- Minimal curve that envelopes the players of an industry.

Convenience

High

Low A
High Low
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 Ef cient frontier - Airline industry in the year 2000
• X-axis shows the miles obtained per $ expense and
• Y-axis shows the revenue $ per mile.
• AmericaWest and NorthWest were (Pareto) dominated.

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 Ef cient frontier - Airline industry in 2012
• No obvious “underperformer” in 2012.
• All airlines are on the efficient frontier.

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 Ef cient frontier - Supermarkets and grocery stores industry

Convenience Frontier

High

WAL˜MART

Low
Cost
High Low

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Restaurant industry
1-7

Which
• Which restaurant do you Restaurant Do You
expect to make money ? Expect To Make Money?

Responsiveness

High 3 min
Restaurant D
5 min
Restaurant B

10 min
Restaurant A

15 min
Low Restaurant C

$6 $5 $4 $3 Cost Performance
Low High (e.g. $/customer)

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 Ef cient frontier in the health care sector

Responsiveness
World-class
Emergency Room

operations
One general frontier
facility
World-class
(non-emergency)
Hospital
Cost efficiency
https://www.shouldice.com/

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How can Operations Management help ?
• Operations Management tools can be applied in different ways:
- 1) To ensure that resources are used as efficiently as possible; that is, the most is achieved with what we have.

- 2) To make desirable trade-offs between competing objectives.

- 3) Used to redesign or restructure organization’s operations so that they can improve performance along multiple dimensions
simultaneously.

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1) Overcome inef ciencies
• Operations Management provides tools to identify and eliminate inefficiencies.
• It thus moves firms toward the efficient frontier
• Example:
- Benchmarking shows the pattern above.
- Don’t just manage the current system… Change it!

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2) Help making operational trade-offs
• Operations Management provides tools to support strategic trade-offs
• Example: Call center
- Objective: 80% of incoming calls wait less than 20 seconds.
- Starting point: 30% of incoming calls wait less than 20 seconds.
- Problem: staffing levels of call centers/impact on efficiency.

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3) Evaluate proposed redesigns/new technologies
• Operations Management evaluates system designs before they occur.
• It helps to shift the frontier further through innovation.
• Example:
- What will happen if we develop / purchase technology X?
- Better technologies are always (?) nice to have, but will they pay?

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 What keeps rms from the ef cient frontier?

Fast-food Rental cars Fashion retailer Emergency room

restaurant
Waste Leftover food Cars sitting in the Items that stay in the Time spent on patients
parking lot store all season who could have been
seen in primary care
In
Variability Swings in Bad weather Consumer demand Sudden increases in
customer demand conditions delaying driven by fashion patient volume due to
the arrival of cars the u season

In exibility Rigid staf ng levels Inability to move Long times to Inability to admit
vehicles across replenish items from patients due to a lack
rental centers overseas of inpatient beds

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 exibility?
• Flexibility is an operation’s ability to react to variability.
• It is also the inability of an operation to quickly and cheaply change in response to new information.
• Examples in the restaurant setting:
- Increase the size of the restaurant at noon, but then scale back down at 3 p.m.
- Cross-train employees
- Flexible hours/short minimum shift durations
- Common ingredients across dishes
- Ability to repurpose parts of a menu item to a different menu item

In

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 c Management
• As industrialization was finding its way into different industries, the term
“collaboration management” emerged out of war.

• The movement was led by efficiency engineer, Frederick Winslow Taylor

• He pioneered the application of the principles of the scientific approach to “Operations M

management. Frederick Winslow Taylor
1856 - 1915
• He believed in a “science of management” based on observation, measurement,
analysis and improvement of work methods, and economic incentives

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Emergence of Decision models & Management Science
• F.W. Harris – mathematical model for inventory management, 1915

• Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s

• Tippett – statistical sampling theory, 1935

• Operations Research (OR) Groups – OR applications in warfare

• George Dantzig – linear programming, 1947

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Summary of the history of OM

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 In uence of Japanese manufacturers - focus on quality
• Refined and developed management practices that increased productivity

• Credited with fuelling the “quality revolution”

• Lean, and Just-In-Time (JIT) production

• At that time Japanese already had highly standardized processes

• Operations management and industrialization are independent.

“Operations Management”
Frederick Winslow Taylor Taiichi Ohno
1856 - 1915 1912 - 1990

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Summary of the history of OM

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Summary of the history of OM

Globalization focus

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Dimensions of Operation’s
Performance
Understanding Operation’s objectives
• First, we need to understand how Operations Management relates to the business strategy of a firm.

• This will help us determine the type of goals that management will set for operations that will guide the
performance measures to be tracked.

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Operations in an emergency department
• What factors are important in Operations of an Emergency department of a hospital?

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Operations in an emergency department
• What factors are important in the Operations of an Emergency department of a hospital?

- How long to wait for service

- Receive the right care
- Receive high-quality of care
- Charges for the service (cost)

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Operations in a fast food restaurant
• What would customers expect from Operations of a fast food restaurant ?

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Operations in a fast food restaurant
• What would customers expect from the Operations of a fast-food restaurant?

- Time to serve the food

- Variety in the menu
- Quality of the food
- Price of the food

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Operation’s performance: trade-offs
• Four dimensions of operation’s performance:

Cost Quality

Four key
operations
objectives

Flexibility Delivery
(variety) (timeliness)

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How to measure each objective
• Cost :
- What companies do you think of as low-cost competitors? (Walmart, Southwest airline)
- Measured by cost per unit, labor productivity, utilization
• Quality:
- Quality has many dimensions:
- Meeting specifications (conformance) (Toyota)
- Performance quality (BMW)
- Features (leather seats, navigation, power seats)
- Durability
- Serviceability
- Defect rate, etc.

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How to measure each objective
• Delivery (timeliness):
- Responsiveness to demand
- Fast (fast food)
- Reliable (FedEx)
- Measured by speed, customer lead time, flow time
• Flexibility (variety):
- Customer heterogeneity
- Ability to bring many new products to market
- Ability to maintain a large product mix
- Measured by the number of possible combinations, number of options, make-to-order
- Examples: Starbucks, BMW

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Comparing Operations
Where will you have lunch today?
Chipotle Subway McDonald’s

Starbucks A food truck A diner

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A comparison
• Which one manages Operations better ?

• Is FedEx Operations cost effective ?

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A comparison
• Which one manages Operations better?

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A comparison
• Which one manages Operations better?

• Lower costs
• Better utilization
• Better labor productivity
• Faster airplane turnaround

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A comparison

- Overbooking

- Luggage charges

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Other examples of operations based successes

• Lower prices • Keeping up with changing fashions

• Lower costs • Consistent reasonable pricing
• Lower inventories • Few inventory-clearance discounts
• Owed to operations management features: • Owed to operations management features:
- Cross-docking - Quick response from design to production to distribution
- Supply chain relationships - Systematic timing of product release and frequent updates
- Information technology

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Strategy, Strategy Execution
&
Focused Operations
Strategy & Strategy execution
• Strategy is an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a competitive advantage. (Hitt, Ireland and Hoskisson, 1997)

• Strategy is a well-coordinated set of objectives, policies, and plans, for securing long-term competitive advantage

• Strategy is a plan for achieving organizational goals.

• “Competitive strategy is about being different. It means deliberately choosing a different set of activities to
deliver a unique mix of values.” (Porter, 1996)

• The organizational strategy is a major success/failure factor

Strategy
Strategy Execution

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Alignment among strategies

Corporate Strategy

Business Strategy

Functional Strategies

Marketing Operations Finance

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Strategy execution framework
• Framework to plan and implement business strategies

1) Develop a mission statement,

2) Carefully define, characterize, and rank the operation's objectives,

3) Develop initiatives that implement those objectives (Management levers, operations decisions),

4) Identifying and monitoring successful metrics.

Strategy
Strategy Execution

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Mission (Vision) Statement
• The reason for the organization’s existence.

• It is a clear statement of objectives that guide the formulation and implementation of the strategy and decision-
making.

• States a purpose for the operations and priority among objectives. It specifies the primary task which must be
achieved for operations to succeed.

• It is derived from the business strategy, objectives, and particular business situation.

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Mission (Vision) Statement
• The reason for the organization’s existence.

• It is a clear statement of objectives that guide the formulation and implementation of the strategy and decision-
making.

• States a purpose for the operations and priority among objectives. It specifies the primary task which must be
achieved for operations to succeed.

• It is derived from the business strategy, objectives, and particular business situation.

• Corporate Mission (Vision) Statement : • Operations Mission Statement :

- What you do? - How do you do what you do?
- Who are you?

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Example - FedEx mission statement

https://investors.fedex.com/company-overview/mission-and-goals/default.aspx
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 Operations Objectives
Tradeoffs and Combinations
Operations objectives
• Key to making connection between strategy and strategy execution

Cost Quality

Four key
operations
objectives

Flexibility Delivery

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Ranking each objective & Making operational trade-offs
• Determine which is most important

• Determine which is least important

• Perform trade-offs between objectives

- Cannot achieve one capability without sacrificing another SACRIFICING ONE CAPABILITY FOR ANOTHER

- To achieve high-quality production, costs will increase

High = unit or organization
- To achieve flexibility, costs will increase and quality will decrease

Responsiveness
Tradeoffs
Have to decide on which of these four
dimensions you want to compete.

Low
Low Cost efficiency High

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Winners and quali ers
• Qualifiers :

- Components of a product or service that every firm in the industry must offer (i.e., food safety ).

- This is the minimum selection criteria that permit products or services to be considered by the customer.

• Winner:

- An element of the product or service that leads the customer to choose your product or service

- The criterion that differentiates the products or services from competitors, that results in winning orders of
customers. (Low price, speed, etc.)

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Example: Starbucks
• Trade-offs

- Flexibility vs. Delivery

- Flexibility v. Cost

- What is the order winner for Starbucks?

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Example - Macdonald’s
• How would Macdonald’s rank its operations objectives?

• Cost? Flexibility? Quality? Speed?

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Examples of alignment of operations with the strategy

Organizational Strategy
(order qualifiers and Operations Strategy
winners attractive to (Competitive capabilities needed
customers) from operations) Examples of Companies or Services
Low Price Low Cost U.S. first-class postage
Wal-Mart

Responsiveness Short processing times McDonald’s restaurants

On-time delivery FedEx

Differentiation: High performance design and/or Sony TV

High Quality high quality processing Coca-Cola
Consistent Quality
Differentiation: Innovation 3M, Apple
Newness

Differentiation: Flexibility Burger King (Have it your way”)

Variety Volume McDonald’s (“Buses Welcome”)

Differentiation: Superior customer service Disneyland

Service IBM

Differentiation: Convenience Supermarkets; Mall Stores

Location

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Revisit FedEx vs. Post Canada

- Price - Hub and Spoke

- Ships everywhere
- 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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Revisit Southwest vs. AA

Competitive Strategy:
Competitive Strategy:
• Price
• Variety of origins and destinations
• On time performance
Process: Process:
• Flying point to point routes • Hub and spoke
• Flying to smaller airports • Different types of aircrafts
• No assigned seats • Baggage fees
• “Bags y free”
• Limited number of aircraft
• One type of aircraft
• Cross-trained staff
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Operations strategy alignment with competitive strategy

Competitive
strategy

Alignment
Operations
strategy

Process
structure & mgt

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 Operations levers

Operations strategy decision

areas?
 Key operational decisions
• Key operational decisions a firm needs to make to match supply with demand.

Fast-food restaurant Rental cars Fashion retailer Emergency room

What is the product or
service?
Who are the customers/their
heterogeneous needs?
De ne the recipes and the Pick vehicles for the Choose an assortment of Create a care path for a
cooking instructions eet attractive apparel speci c procedure
Let customers choose from Choose different car Determine sizes and colors Diagnose the unique medical
a menu, potentially allow for types needs of each patient and
special requests deliver the appropriate care

How much do we charge?
How ef ciently are the
products or services
delivered?
Where will the demand be
ful lled?
Pricing for the various items Pricing for the vehicles; Pricing; potentially discounts Reimbursement rates
on the menu potentially advance at the end of the season
booking discount
Decide on how much Make sure to not have Make sure to not have too Determine staf ng plans for
equipment to buy, how too many or too few many or too few items of a doctors and nurses and
much staff to hire, and how vehicles in the parking particular piece of clothing organize the ow of patients
to organize cooking and lot through the ER
cash register
Location of restaurants; Location of rental Store locations Location of hospitals;
potentially take-out or stations; potentially pick potentially provide some care
home delivery services up customer from home in outpatient clinics

When will the demand be Decide if you prepare the Right level of staff, Avoid long lines at check-out Ensure short wait times,
ful lled? food ahead of the customer enabling a fast service especially for high acuity
order. Ensure fast service. patients. Decide on triage
process.

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Management levers
• How do we achieve operations objectives ? These are the hows !
- New product/services
- Technology
- Facilities
- Processes
- Capability/Capacity
- Planning/Scheduling
- Quality management
- Human resources
- Supply chain

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Operations strategy decision areas
• Operations Management decision areas:
- Size of facility and its capacity
- Location and layout of facility
- Choice of technology
- Vertical integration
- Salaries and incentives, and employee training
- Quality management
- Scheduling of production
- Centralized vs decentralized control

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Example - Nissan
• Jidoka : quality at the source
• Objective ranking : Quality is more important than cost

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 Exercise:
Operations Strategy in a Global
Environment
Achieving competitive advantage through operations
• Within the food service industry (restaurants that serve meals to customers, but not just fast foods), find
examples of firms that have sustained competitive advantage by competing on the basis of:

- (1) cost leadership

- (2) response

- (3) differentiation

• Cite an example in each category, and provide a sentence or two in support of each choice. Do not use fast-
food chains for all categories

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Baja Fresh
• In 2002, Baja Fresh was the leading chain in the quick-service, “Fresh-Mex” restaurant segment, which emphasizes
freshly prepared meals. By 2005, it had lost that position to Chipotle Mexican Grill. Today, it lags behind both
Chipotle and Qdoba Mexican Grill. Many industry observers claim that the breadth of Baja Fresh’s menu is
partially to blame. The chain has always offered a wide variety of items while Chipotle’s menu features less than
20 choices.

• Why would the range of offerings be a problem for a quick-service restaurant?

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The role of Operations
• How are the operations of those two grocery chains aligned with their respective mission?
- https://www.aldi.us/en/new-to-aldi/shopping-at-aldi/
- http://www.wholefoodsmarket.com/mission-values/core-values

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 Case Study:
Dell Business Strategy
Dell business strategy
• Dell business strategy in PC industry.

Click on the image to watch the video

 Case Study:
Motorola’s Global Strategy
Motorola’s Global Strategy
• Read the case study “Motorola’s Global Strategy”. Visit “https://www.motorola.ca/ ", do some online research
and answer the following questions:

1. What are the components of Motorola’s international strategy?

2. Describe how Motorola might have arrived at its current strategy as a result of a SWOT analysis.

3. Discuss Motorola’s primary business strategy.

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 Case Study:
IKEA Strategy
IKEA strategy
• Consider IKEA, and its operations strategy decisions.

• Identify IKEA’s qualifiers and winners and the tradeoffs in the qualifiers and winners that Ikea is trying to satisfy
for its customer needs.

• Identify the operational capabilities that provide these order qualifiers and winners to the customers.

• Develop operation strategy choices that would help Ikea.

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Order winners and quali ers
• What are the customer’s expectations when visiting Ikea?

• Why would customers choose Ikea vs. its competitors?

• What are the tradeoffs in the qualifiers and winners that Ikea is trying to satisfy for its customer needs?

• In order for Ikea to offer its order winner and qualifiers, how do they manage their operations?
• What are the decisions they would have to make to realize their competitive strategies?

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