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 Page i

Matching Supply with Demand

An Introduction to Operations Management
 Page ii

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 Page iii

Matching Supply with Demand

An Introduction to Operations Management

Fifth Edition

Gérard Cachon
The Wharton School,
University of Pennsylvania

Christian Terwiesch
The Wharton School,
University of Pennsylvania
 Page iv

MATCHING SUPPLY WITH DEMAND

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 Page v

To the teachers, colleagues, and professionals who shared with us their knowledge.
 Page vi

About the Authors

Gérard Cachon
The Wharton School, University of Pennsylvania

Professor Cachon is the Fred R. Sullivan Professor of Operations, Information, and

Decisions and a Professor of Marketing. He teaches a variety of undergraduate, MBA,
executive, and PhD courses in operations management. His research focuses on operations
strategy, and in particular, on how operations are used to gain competitive advantage.

His administrative responsibilities have included Chair of the Operations, Information and
Decisions Department, Vice Dean of Strategic Initiatives for the Wharton School, and
President of the Manufacturing and Service Operations Society. He has been named an
INFORMS Fellow and a Distinguished Fellow of the Manufacturing and Service Operations
Society.

His articles have appeared in Harvard Business Review, Management Science, Marketing
Science, Manufacturing & Service Operations Management, and Operations Research. He is the
former editor-in-chief of Manufacturing & Service Operations Management and Management
Science. He has consulted with a wide range of companies, including 4R Systems, Ahold,
Americold, Campbell Soup, Gulfstream Aerospace, IBM, Medtronic, and O’Neill.

Before joining The Wharton School in July 2000, Professor Cachon was on the faculty at
the Fuqua School of Business, Duke University. He received a PhD from The Wharton
School in 1995.

He is an avid proponent of bicycle commuting (and other environmentally friendly modes of

transportation). Along with his wife and 4 children he enjoys hiking, scuba diving, and
photography.

Christian Terwiesch
The Wharton School, University of Pennsylvania

Christian Terwiesch is the Andrew M. Heller Professor at the Wharton School of the
University of Pennsylvania. He is a Professor in and the chair of Wharton’s Operations,
Information, and Decisions department, co-director of Penn’s Mack Institute for Innovation
Management, and also holds a faculty appointment in Penn’s Perelman School of Medicine.
His research on Operations Management and on Innovation Management appears in many
of the leading academic journals ranging from Management Science to The New England
Journal of Medicine.

Professor Terwiesch has been teaching MBA and executive courses for 24 years and has
received a number of teaching awards for his Operations Management course. Based on his
MBA course and this book, Professor Terwiesch has launched the first Massive Open Online
Course (MOOC) in business on Coursera. By now, well over half a million students enrolled
in the course.

His first management book, Innovation Tournaments, was published by Harvard Business
School Press. The novel, process-based approach to innovation outlined in the book was
featured by BusinessWeek, the Financial Times, and the Sloan Management Review and has
led to innovation tournaments in organizations around the world. His latest book,
Connected Strategies, combines his expertise in the fields of operations, innovation, and
strategy to help companies take advantage of digital technology leading to new business
models. The book has been featured as the cover story of the Harvard Business Review and
has been featured by Bloomberg/BusinessWeek as one of the best books in 2020.

Professor Terwiesch has researched with and consulted for various organizations. From
small start-ups to Fortune 500 companies, he has helped companies become more
innovative, often by implementing innovation tournament events and by helping to
restructure their innovation portfolio. He holds a doctoral degree from INSEAD and a
Diploma from the University of Mannheim.

Just like his co-author, he is a passionate cyclists and commutes to Penn’s campus by bike.
Since both authors have a good chunk of their commute in common, large parts of this
book have been discussed on bike rides.
 Page vii

Acknowledgments
We would like to acknowledge the many people who have helped us in so many different
ways with this ongoing project.

We begin with the 2004 Wharton MBA class that weathered through our initial version of
the text. It is not practical for us to name every student that shared comments with us, but
we do wish to name the students who took the time to participate in our focus groups:
Gregory Ames, Maria Herrada-Flores, Justin Knowles, Karissa Kruse, Sandeep Naik,
Jeremy Stackowitz, Charlotte Walsh, and Thomas (TJ) Zerr. The 2005 MBA class enjoyed a
much more polished manuscript, but nevertheless contributed numerous suggestions and
identified remaining typos and errors (much to our chagrin). Since then, we have continued
to receive feedback from our undergraduate, MBA, and executive MBA students at
Wharton. In addition to Wharton students, we received helpful feedback from students at
Texas A&M, the University of Toronto, and INSEAD.

Along with our students, we would like to thank our co-teachers in the core: Naren Agrawal,
Krishnan Anand, Omar Besbes, Morris Cohen, Marshall Fisher, Richard Lai, Chris Lee,
Pranab Majumder, Serguei Netessine, Kathy Pearson, Taylor Randall, Nicolas Reinecke,
Daniel Snow, Stephan Spinler, Anita Tucker, Karl Ulrich, Senthil Veeraraghavan, and Yu-
Sheng Zheng. In addition to useful pedagogical advice and quality testing, they shared many
of their own practice problems and questions.

This book is not the first book in Operations Management, nor will it be the last. We hope
we have incorporated the best practices of existing books while introducing our own
innovations. The book by Anupindi et al. as well as the article by Harrison and Loch were
very helpful to us, as they developed the process view of operations underlying
Chapters 2 through 9. The book by Chase and Aquilano was especially useful for
Chapter 7. We apply definitions and terminology from those sources whenever possible
without sacrificing our guiding principles.

We also have received some indirect and direct assistance from faculty at other universities.
Garrett van Ryzin’s (Columbia) and Xavier de Groote’s (INSEAD) inventory notes were
influential in the writing of Chapters 2 and 16, and the revenue management note by
Serguei Netessine (Wharton) and Rob Shumsky (Dartmouth) was the starting point for
Chapter 18. The process analysis, queuing, and inventory notes and articles written by
Martin Lariviere (Northwestern), Michael Harrison (Stanford), and Christoph Loch
(INSEAD) were also influential in several of our chapters. Martin, being a particularly
clever question designer, was kind enough to share many of his questions with us.

Matthew Drake (Duquesne University) provided us with invaluable feedback during his
meticulous accuracy check of both the text and the solutions, and we thank him for his
contribution.

Several brave souls actually read the entire manuscript and responded with detailed
comments. These reviewers included Leslie M. Bobb (Bernard M. Baruch College), Sime
Curkovic (Western Michigan University–Kalamazoo), Scott Dobos (Indiana University–
Bloomington), Ricki Ann Kaplan (East Tennessee State University), and Kathy Stecke ­-
(University of Texas at Dallas).

Our Ph.D. student “volunteers,” Karan Girotra, Diwas KC, Marcelo Olivares, and Fuqiang
Zhang, as well as Ruchika Lal and Bernd Terwiesch, took on the tedious job of quality
testing. Robert Batt, Santiago Gallino, Antonio Moreno, Greg Neubecker, Michael Van Pelt,
and Bethany Schwartz helped to collect and analyze data and could frequently solve practice
problems faster than we could. The text is much cleaner due to their efforts.

The many cases and practical examples that illustrate the core concepts of this Page viii
book reflect our extensive collaboration with several companies, including the
University of Pennsylvania Hospital System in the Philadelphia region, the Circored plant in
Trinidad, the Xootr factory in New Hampshire, the An-ser call center in Wisconsin, the
operations group at O’Neill in California, and the supply chain group at Medtronic in
Minnesota. We have benefited from countless visits and meetings with their management
teams. We thank the people of these organizations, whose role it is to match supply and
demand in the “real world,” for sharing their knowledge, listening to our ideas, and
challenging our models. Special thanks go to Jeff Salomon and his team (Interventional
Radiology), Karl Ulrich (Xootr), Allan Fromm (An-ser), Cherry Chu and John Pope
(O’Neill), and Frederic Marie and John Grossman (Medtronic). Allan Fromm deserves
extra credit, as he was not only willing to share with us his extensive knowledge of service
operations that he gathered as a CEO of a call center company but also proofread the entire
manuscript and tackled most of the practice problems. Special thanks also to the McKinsey
operations practice, in particular Stephen Doig, John Drew, and Nicolas Reinecke, for
sharing their practical experience on Lean Operations and the Toyota Production System.
We especially thank our friend, colleague, and cycling partner Karl Ulrich, who has been
involved in various aspects of the book, starting from its initial idea to the last details of the
design process, including the cover design.

Through each edition of this text we have been supported by a fantastic team at McGraw
Hill: Harper Christopher, Anne Ehrenworth, Melissa Leick, and Eric Weber.

Finally, we thank our family members, some of whom were surely unwilling reviewers who
nevertheless performed their family obligation with a cheerful smile.

Gérard Cachon

Christian Terwiesch
 Page ix

Preface
This book represents our view of the essential body of knowledge for an introductory
operations management course. It has been successfully used with all types of students, from
freshmen taking an introductory course in operations management, to MBAs, to executive
MBAs, and even PhD students.

Our guiding principle in the development of Matching Supply with Demand has been “real
operations, real solutions.” “Real operations” means that most of the chapters in this book
are written from the perspective of a specific company so that the material in this text will
come to life by discussing it in a real-world context. Companies and products are simply
easier to remember than numbers and equations. We have chosen a wide variety of
companies, small and large, representing services, manufacturing, and retailing alike. While
obviously not fully representative, we believe that—taken together—these cases provide a
realistic picture of operations management problems today.

“Real solutions” means that we do not want equations and models to merely provide
students with mathematical gymnastics for the sake of an intellectual exercise. We feel that
professional training, even in a rigorous academic setting, requires tools and strategies that
students can implement in practice. We achieve this by demonstrating how to apply our
models from start to finish in a realistic operational setting. Furthermore, we openly address
the implementation challenges of each model/strategy we discuss so that students know
what to expect when the “rubber hits the pavement.”

To fully deliver on “real operations, real solutions,” we also must adhere to the principle of
“real simple.” Do not worry; “real simple” does not mean plenty of “blah-blah” without any
analytical rigor. Quite the contrary. To us, “real simple” means hard analysis that is made
easy to learn. This is crucial for an operations text. Our objective is to teach business
leaders, not tacticians. Thus, we need students to be able to quickly develop a foundation of
formal models so that they have the time to explore the big picture, that is, how operations
can be transformed to provide an organization with sustainable competitive advantage
and/or superior customer service. Students who get bogged down in details, equations, and
analysis are not fully capturing the valuable insights they will need in their future career.

So how do we strive for “real simple”? First, we recognize that not every student comes to
this material with an engineering/math background. As a result, we tried to use as little
mathematical notation as possible, to provide many real-world examples, and to adhere to
consistent terminology and phrasing. Second, we provide various levels of detail for each
analysis. For example, every little step in an analysis is described in the text via an explicit
example; then a summary of the process is provided in a “how to” exhibit, a brief listing of
key notation and equations is provided at the end of each chapter, and, finally, solved
practice problems are offered to reinforce learning. While we do humbly recognize, given the
quantitative sophistication of this text, that “much simpler” might be more accurate than
“real simple,” we nevertheless hope that students will be pleasantly surprised to discover
that their analytical capabilities are even stronger than they imagined.

The initial version of Matching Supply with Demand made its debut in portions of the Page x
operations management core course at Wharton in the 2002–2003 academic year. This
edition incorporates the lessons we have learned over the last 2 decades of teaching the
content of this book to thousands of students at Wharton and beyond. Much has happened
during this time, including the global financial crisis and the Covid-19 pandemic. The
challenges and the opportunities associated with better matching supply with demand,
however, have only grown. We hope that through this book and through our teaching we can
help reduce some of the costs that arise when supply and demand do not match, be it in the
form of insufficient care capacity in ICUs or global supply shortages of goods and services.

Gérard Cachon

Christian Terwiesch
 Page xi

New to This Edition

The fifth edition has benefited from the comments and suggestions from students, faculty,
and practitioners from around the world.

The world has changed again between this and the previous edition. Consequently, we have
updated data and examples to try to maintain the timeliness of the content.

We have made a number of changes that make the material easier for students to absorb,
including:

Chapter 1: A new introduction with current examples throughout

Chapter 2: New data for retailers; new information on inventory turns

Chapter 3: Refined explanation of process capacity

Chapter 5: New discussion on setup times and product variety; refined explanation of the
SMED method

Chapter 8: New information on the limitations of lean systems, in light of Covid-19

Chapter 11: New examples of scheduling

Chapter 13: New data on the pandemic outbreak; new discussion on the importance of
other forecasting methods beyond time series analysis, especially in the context of Covid-19

Chapter 17: New data on Hon Hai sales revenue

Chapter 19: New data on inflows and outflows through the U.S. retail trade sector

In addition, we have moved all of the Selected Solutions to the end of each respective
chapter.
 Page xii

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 Page xii

Brief Contents
1. Introduction 1
2. The Process View of the Organization 10
3. Understanding the Supply Process: Evaluating Process Capacity 32
4. Estimating and Reducing Labor Costs 56
5. Batching and Other Flow Interruptions: Setup Times and the Economic Order
Quantity Model 81
6. The Link between Operations and Finance 111
7. Quality and Statistical Process Control 128
8. Lean Operations and the Toyota Production System 152
9. Variability and Its Impact on Process Performance: Waiting Time Problems 171
10. The Impact of Variability on Process Performance: Throughput Losses 208
11. Scheduling to Prioritize Demand 223
12. Project Management 248
13. Forecasting 264
14. Betting on Uncertain Demand: The Newsvendor Model 293
15. Assemble-to-Order, Make-to-Order, and Quick Response with Reactive Capacity 326
16. Service Levels and Lead Times in Supply Chains: The Order-up-to Inventory Model
344
17. Risk-Pooling Strategies to Reduce and Hedge Uncertainty 376
18. Revenue Management with Capacity Controls 411
19. Supply Chain Coordination 432

APPENDIXES
A. Statistics Tutorial 460
B. Tables 467
C. Evaluation of the Expected Inventory and Loss Functions 483
D. Equations and Approximations 485

GLOSSARY 493

REFERENCES 501

INDEX OF KEY “HOW TO” EXHIBITS 505

SUMMARY OF KEY NOTATION AND EQUATIONS 507

INDEX 511

DIGITAL EDITION
 Page xv

Table of Contents
Chapter 1 Introduction 1
1.1 Learning Objectives and Framework 3
1.2 Road Map of the Book 5
Chapter 2 The Process View of the Organization 10
2.1 Presbyterian Hospital in Philadelphia 10
2.2 Three Measures of Process Performance 14
2.3 Little’s Law 16
2.4 Inventory Turns and Inventory Costs 19
2.5 Five Reasons to Hold Inventory 22
Pipeline Inventory 23
Seasonal Inventory 24
Cycle Inventory 24
Decoupling Inventory/Buffers 25
Safety Inventory 26
2.6 The Product–Process Matrix 27
Chapter 3 Understanding the Supply Process: Evaluating Process Capacity 32
3.1 How to Draw a Process Flow Diagram 33
3.2 Process Capacity, Bottleneck, and Flow Rate (Throughput) 38
3.3 How Long Does It Take to Produce a Certain Amount of Supply? 40
3.4 Process Utilization and Capacity Utilization 41
3.5 Workload and Implied Utilization 43
3.6 Multiple Types of Flow Units 44
Chapter 4 Estimating and Reducing Labor Costs 56
4.1 Analyzing an Assembly Operation 56
4.2 Time to Process a Quantity X Starting with an Empty Process 58
4.3 Labor Content and Idle Time 60
4.4 Increasing Capacity by Line Balancing 63
 4.5 Scale Up to Higher Volume 66
Increasing Capacity by Replicating the Line 67
Increasing Capacity by Selectively Adding Workers 68
Increasing Capacity by Further Specializing Tasks 69
Chapter 5 Batching and Other Flow Interruptions: Setup Times and the Economic
Order Quantity Model 81
5.1 The Impact of Setups on Capacity 82
5.2 Interaction between Batching and Inventory 85
5.3 Choosing a Batch Size in the Presence of Setup Times 88
5.4 Setup Times and Product Variety 91
5.5 Setup Time Reduction 94
5.6 Balancing Setup Costs with Inventory Costs: The EOQ Model 95
5.7 Observations Related to the Economic Order Quantity 99
Chapter 6 The Link between Operations and Finance 111
6.1 Paul Downs Cabinetmakers 112
6.2 Building an ROIC Tree 113
6.3 Valuing Operational Improvements 118
6.4 Analyzing Operations Based on Financial Data 121
Chapter 7 Quality and Statistical Process Control 128
7.1 The Statistical Process Control Framework 129
7.2 Capability Analysis 131
Determining a Capability Index 132
Predicting the Probability of a Defect 135
Setting a Variance Reduction Target 137
Process Capability Summary and Extensions 138
7.3 Conformance Analysis 138
7.4 Investigating Assignable Causes 142
7.5 Defects with Binary Outcomes: p-Charts 144
7.6 Impact of Yields and Defects on Process Flow 144
Rework 146
Eliminating Flow Units from the Process 146
 Cost Economics and Location of Test Points 147
Defects and Variability 148
Chapter 8 Lean Operations and the Toyota Production System 152 Page xvi

8.1 The History of Toyota 152

8.2 TPS Framework 153
8.3 The Seven Sources of Waste 154
8.4 JIT: Matching Supply with Demand 158
Achieve One-Unit-at-a-Time Flow 158
Produce at the Rate of Customer Demand 158
Implement Pull Systems 159
8.5 Quality Management 161
8.6 Exposing Problems through Inventory Reduction 162
8.7 Flexibility 163
8.8 Standardization of Work and Reduction of Variability 166
8.9 Human Resource Practices 166
8.10 Lean Transformation 167
Chapter 9 Variability and Its Impact on Process Performance: Waiting Time
Problems 171
9.1 Why Variability Cannot Be Ignored 172
9.2 Variability: Where It Comes from and How to Measure It 174
9.3 Analyzing an Arrival Process 176
Stationary Arrivals 177
Exponential Interarrival Times 179
Nonexponential Interarrival Times 181
Summary: Analyzing an Arrival Process 181
9.4 Processing Time Variability 181
9.5 Predicting the Average Waiting Time for the Case of One Resource 183
9.6 Predicting the Average Waiting Time for the Case of Multiple Resources
187
9.7 The Service Level Metric 190
9.8 Generate a Staffing Plan 191
9.9 Impact of Pooling: Economies of Scale 194
 9.10 Reducing Variability 198
Ways to Reduce Arrival Variability 198
Ways to Reduce Processing Time Variability 199
Chapter 10 The Impact of Variability on Process Performance: Throughput Losses
208
10.1 Why Averages Do Not Work 208
10.2 Throughput Loss for a Simple Process 209
10.3 Customer Impatience and Throughput Loss 213
10.4 Several Resources with Variability in Sequence 216
The Role of Buffers 216
Chapter 11 Scheduling to Prioritize Demand 223
11.1 Scheduling Timeline and Applications 224
11.2 Resource Scheduling—Shortest Processing Time 225
Performance Measures 226
First-Come-First-Served versus Shortest Processing Time 227
Limitations of Shortest Processing Time 231
11.3 Resource Scheduling with Priorities—Weighted Shortest Processing Time
233
11.4 Resource Scheduling with Due Dates—Earliest Due Date 235
11.5 Theory of Constraints 237
11.6 Reservations and Appointments 239
Scheduling Appointments with Uncertain Processing Times 240
No-Shows 242
Chapter 12 Project Management 248
12.1 Understanding the Dependencies among Activities in a Project 248
12.2 Critical Path Method 250
12.3 Computing Project Completion Time 251
12.4 Finding the Critical Path and Creating a Gantt Chart 252
12.5 Computing Slack Time 253
12.6 Dealing with Uncertainty 256
 Random Activity Times 256
Potential Iteration/Rework Loops 259
Decision Tree/Milestones/Exit Option 259
Unknown Unknowns 260
Chapter 13 Forecasting 264 Page xvii

13.1 Forecasting Framework 265

13.2 Evaluating the Quality of a Forecast 269
13.3 Eliminating Noise from Old Data 272
Naïve Model 272
Moving Averages 273
Exponential Smoothing Method 274
Comparison of Methods 276
13.4 Time Series Analysis—Trends 277
13.5 Time Series Analysis—Seasonality 282
13.6 Expert Panels and Subjective Forecasting 287
Common Forecasting Biases 289
Sources of Forecasting Biases 290
Chapter 14 Betting on Uncertain Demand: The Newsvendor Model 293
14.1 O’Neill Inc. 294
14.2 The Newsvendor Model: Structure and Inputs 296
14.3 How to Choose an Order Quantity 299
14.4 Performance Measures 302
Expected Leftover Inventory 302
Expected Sales 303
Expected Lost Sales 304
Expected Profit 305
In-Stock Probability and Stockout Probability 306
14.5 How to Achieve a Service Objective 307
14.6 How to Construct a Demand Forecast 307
14.7 Managerial Lessons 312
 Chapter 15 Assemble-to-Order, Make-to-Order, and Quick Response with Reactive
Capacity 326
15.1 Evaluating and Minimizing the Newsvendor’s Demand–Supply Mismatch
Cost 327
15.2 When Is the Mismatch Cost High? 329
15.3 Reducing Mismatch Costs with Make-to-Order 331
15.4 Quick Response with Reactive Capacity 333
Chapter 16 Service Levels and Lead Times in Supply Chains: The Order-up-to
Inventory Model 344
16.1 Medtronic’s Supply Chain 345
16.2 The Order-up-to Model Design and Implementation 347
16.3 The End-of-Period Inventory Level 350
16.4 Choosing Demand Distributions 352
16.5 Performance Measures 355
In-Stock and Stockout Probability 355
Expected On-Hand Inventory 357
Pipeline Inventory/Expected On-Order Inventory 358
Expected Back Order 358
16.6 Choosing an Order-up-to Level to Meet a Service Target 360
16.7 Choosing an Appropriate Service Level 361
16.8 Controlling Ordering Costs 364
16.9 Managerial Insights 368
Chapter 17 Risk-Pooling Strategies to Reduce and Hedge Uncertainty 376
17.1 Location Pooling 376
Pooling Medtronic’s Field Inventory 377
Medtronic’s Distribution Center(s) 381
Electronic Commerce 382
17.2 Product Pooling 383
17.3 Lead Time Pooling: Consolidated Distribution and Delayed Differentiation
389
Consolidated Distribution 389
 Delayed Differentiation 395
17.4 Capacity Pooling with Flexible Manufacturing 397
Chapter 18 Revenue Management with Capacity Controls 411
18.1 Revenue Management and Margin Arithmetic 411
18.2 Protection Levels and Booking Limits 413
18.3 Overbooking 418
18.4 Implementation of Revenue Management 421
Demand Forecasting 421
Dynamic Decisions 421
Variability in Available Capacity 421
Reservations Coming in Groups 421
Effective Segmenting of Customers 421
Multiple Fare Classes 422
Software Implementation 422
Variation in Capacity Purchase: Not All Customers Purchase One Unit of
Capacity 422
Chapter 19 Supply Chain Coordination 432 Page xviii

19.1 The Bullwhip Effect: Causes and Consequences 432

Order Synchronization 435
Order Batching 436
Trade Promotions and Forward Buying 437
Reactive and Overreactive Ordering 441
Shortage Gaming 442
19.2 The Bullwhip Effect: Mitigating Strategies 443
Sharing Information 443
Smoothing the Flow of Product 444
Eliminating Pathological Incentives 444
Using Vendor-Managed Inventory 445
The Countereffect to the Bullwhip Effect: Production Smoothing
446
19.3 Incentive Conflicts in a Sunglasses Supply Chain 448
19.4 Buy-Back Contracts 451
19.5 More Supply Chain Contracts 454
Quantity Discounts 454
Options Contracts 454
Revenue Sharing 455
Quantity Flexibility Contracts 455
Price Protection 455
Appendix A Statistics Tutorial 460
Appendix B Tables 467
Appendix C Evaluation of the Expected Inventory and Loss Functions 483
Appendix D Equations and Approximations 485
Glossary 493
References 501
Index of Key “How to” Exhibits 505
Summary of Key Notation and Equations 507
Index 511
 Page 1
CHAPTER 1
Introduction
A central premise in economics is that prices adjust to match supply with demand: If there is
excess demand, prices rise; if there is excess supply, prices fall. But while an economist may find
comfort with this theory, managers in practice often do not. To them, excess demand means lost
revenue and excess supply means wasted resources. They fully understand that matching supply
with demand is extremely difficult and requires more tools than just price adjustments.

Consider the following examples:

When in the Spring of 2020 hospitals experienced a rapid increase in patient care as a result of the Covid-19
pandemic, they were not only struggling to find enough doctors, nurses, and hospital beds. They also experienced a
dramatic shortage in the supply of personal protective equipment (PPE) including gowns, masks, and gloves. Much
of this supply was no longer available in Europe or in the United States as most of its production had been moved
to Asia. Supply shortages were even more visible when the first Covid vaccines were launched. Millions and
millions around the world were eagerly awaiting a vaccine appointment. However, the sophisticated and complex
production processes that companies like Moderna and Pfizer/BioNTech had designed took several months to
ramp up to the large-scale production required to meet demand.

In addition to the videoconferencing platform Zoom, some of the big winners of the Covid-19 pandemic have been
food delivery services such as DoorDash, Uber Eats, and Delivery Hero. These companies have been able to
respond to customer orders (demand) by quickly and inexpensively delivering food from many sources of supply.
Restaurants that relied entirely on in-person service suffered major losses. Similarly, 20 years after the bankruptcy
of grocery delivery retailer Webvan, ordering our groceries has become a part of our daily routine during the
pandemic.

On April 20 in 2020, the price of oil for the May 2020 contract futures price for West Texas Intermediate (WTI)
turned negative. Oil producers were struggling to find storage space for incoming tankers. A little over a year later,
oil prices reached new high points in many areas of the world, and energy supply shortages are seen as one of the
major inflation drivers at the beginning of 2022.

The Airbus 380 is the largest passenger airliner in the world. Airbus started working on the technology for the 380
in the late 1990s. The official product development began in 2000 and the first plane was delivered in 2007. The
plane has a maximum certified capacity of over 800 passengers, and, in the eyes of the Airbus executives, promised
to be the perfect workhorse for the global travel market. Only 12 years later, Airbus announced that customer
demand for air travel no longer supports the strategy of flying big planes and so the last model of the 380 was
produced in 2021.
 Sony launched its PlayStation PS5 in November 2020. However, shortages in semiconductor supply Page 2
severely limited sales, and the demand for the PS5 still exceeds supply at the beginning of 2022. Shortages
for semiconductors have also forced manufacturers of phones, computers, and automotive vehicles to reduce the
utilization of their production lines, leading to stranded assets for the manufacturers and frustrated customers
waiting to see their orders filled.

LO 1-1
Discuss the reasons why matching supply with demand is important.

This book is about how firms can design their operations to better match supply with demand.
Our motivation is simply stated: By better matching supply with demand, a firm gains a significant
competitive advantage over its rivals. A firm can achieve this better match through the
implementation of the rigorous models and the operational strategies we outline in this book.

To somewhat soften our challenge to economic theory, we do acknowledge it is possible to

mitigate demand–supply mismatches by adjusting prices. For example, the effective market price
for the Sony PlayStation 5 did rise, as became visible in the product’s preowned price exceeding
the list price. But, this price adjustment was not under Sony’s control, nor did Sony collect the
extra surplus from it. In other words, we view that price adjustment as a symptom of a problem,
rather than evidence of a healthy system. Moreover, in many other cases, price adjustments are
impossible. The time period between the initiation of demand and the fulfillment through supply
is too short or there are too few buyers and sellers in the market. There simply is no market for
emergency care in operating rooms or waiting times in call centers.

Why is matching supply with demand difficult? The short answer is that demand can vary, in
either predictable or unpredictable ways, and supply is inflexible. On average, an organization
might have the correct amount of resources (people, product, and/or equipment), but most
organizations find themselves frequently in situations with resources in the wrong place, at the
wrong time, and/or in the wrong quantity. Furthermore, shifting resources across locations or
time is costly, hence the inflexibility in supply. For example, physicians are not willing to rush
back and forth to the hospital as they are needed and retailers cannot afford to immediately move
products from one location to another. While it is essentially impossible to always achieve a
perfect match between supply and demand, successful firms continually strive for that goal.

Table 1.1 provides a sample of industries that we will discuss in this book and describes their
challenge to match supply with demand. Take the airline industry (last column in Table 1.1).
Over the last two decades, most large airlines operating in the United States were able to increase
their aircraft load factor (the percentage of seats on a plane that are utilized by a paying customer)
from about 70–75 percent to over 80 percent. What might be annoying to us as consumers
because of more congested boarding processes, a packed cabin, and an increased likelihood of
being bumped on a flight is critical to the financial success of the airlines. Transporting one more
passenger on a flight increases the costs of operating the flight only by a very small number.
Revenue, in contrast, grows significantly, and, given this combination, profits can double or triple
by increasing the load factor by a few percentage points.

TABLE 1.1 Examples of Supply–Demand Mismatches

Emergency
Retailing Iron Ore Plant Room Pacemakers Air Travel
Supply Consumer Iron ore Medical service Medical Seats on a
electronics equipment specific flight
Demand Consumers Steel mills Urgent need for Heart Travel for a
buying a new medical service surgeon specific time
video system requiring and destination
pacemaker at
exact time
and location
Supply High inventory Prices fall Doctors, nurses, Pacemaker Empty seat
exceeds costs; few and sits in
demand inventory turns infrastructure inventory
are
underutilized
Demand Forgone profit Prices rise Crowding and Forgone Overbooking;
exceeds opportunity; delays in the profit customer has
supply consumer ER; potential (typically not to take
dissatisfaction diversion of associated different flight
ambulances with medical (profit loss)
risk)
Actions to Forecasting; If prices fall too Staffing to Distribution Dynamic
match quick response low, the predicted system pricing;
supply and production demand; holding booking
demand facility is shut priorities pacemakers policies
down at various
locations
 Emergency
Retailing Iron Ore Plant Room Pacemakers Air Travel
Managerial Per-unit inventory Prices are so Delays in Most About 30% of
importance costs for competitive that treatment or products all seats fly
consumer the primary transfer have (valued $20k) empty; a 1–2%
electronics emphasis is on been linked to spend 4–5 increase in
retailing all too reducing the death months seat utilization
often exceed net cost of supply waiting in a makes the
profits trunk of a difference
salesperson between
before being profits and
used losses
Reference Chapter 2, Chapter 3, Chapter 9, Chapter 1 Chapter 18,
The Process View Understanding Variability and 6, Service Revenue
of the the Supply Its Impact on Levels and Management
Organization; Process: Process Lead Times in with Capacity
Chapter 14, Evaluating Performance: Supply Controls
Betting on Process Waiting Time Chains: The
Uncertain Capacity; Cha Problems; Ch Order-up-to
Demand: The pter 4, apter 10, The Inventory
Newsvendor Estimating and Impact of Model
Model; Chapte Reducing Labor Variability on
r 15, Assemble- Costs Process
to-Order, Make- Performance:
to-Order, and Throughput
Quick Response Losses
with Reactive
Capacity

This illustrates a critical lesson: Even a seemingly small improvement in operations can Page 3
have a significant effect on a firm’s profitability precisely because, for most firms, their
profit (if they have a profit) is a relatively small percentage of their revenue. Hence, improving the
match between supply and demand is a critically important responsibility for a firm’s
management.

The other examples in Table 1.1 are drawn from a wide range of settings: health care delivery
and devices, retailing, and heavy industry. Each suffers significant consequences due to demand–
supply mismatches, and each requires specialized tools to improve and manage its operations.
To conclude our introduction, we strongly believe that effective operations management is about
effectively matching supply with demand. Organizations that take the design of their operations
seriously and aggressively implement the tools of operations management will enjoy a significant
performance advantage over their competitors. This lesson is especially relevant for senior
management given the razor-thin profit margins firms must deal with in modern competitive
industries.
 Page 4

1.1 Learning Objectives and Framework

LO 1-2
Understand the tools of operations management and how they can be applied to
improve performance.

In this book, we look at organizations as entities that must match the supply of what they
produce with the demand for their product. In this process, we will introduce a number of
quantitative models and qualitative strategies, which we collectively refer to as the “tools of
operations management.” By “quantitative model,” we mean some mathematical procedure
or equation that takes inputs (such as a demand forecast, a processing rate) and outputs a
number that either instructs a manager on what to do (how much inventory to buy, how
many nurses to have on call) or informs a manager about a relevant performance measure
(e.g., the average time a customer waits for service, the average number of patients in the
emergency room). By “qualitative strategy,” we mean a guiding principle: for example,
increase the flexibility of your production facilities, decrease the variety of products offered,
serve customers in priority order, and so forth. The next section gives a brief description of
the key models and strategies we cover. Our learning objective for this book, put as
succinctly as we can, is to teach students how and when to implement the tools of
operations management.

Just as the tools of operations management come in different forms, they can be applied in
different ways:
1. Operations management tools can be applied to ensure that resources are used as
efficiently as possible; that is, the most is achieved with what we have.
2. Operations management tools can be used to make desirable trade-offs between
competing objectives.
3. Operations management tools can be used to redesign or restructure our operations so
that we can improve performance along multiple dimensions simultaneously.
We view our diverse set of tools as complementary to each other. In other words, our focus
is neither exclusively on the quantitative models nor exclusively on the qualitative strategies.
Without analytical models, it is difficult to move beyond the “blah-blah” of strategies and
without strategies, it is easy to get lost in the minutia of tactical models. Put another way, we
have designed this book to provide a rigorous operations management education for a
strategic, high-level manager or consultant.

We will apply operations tools to firms that produce services and goods in a variety of
environments—from apparel to health care, from call centers to pacemakers, and from kick
scooters to iron ore fines. We present many diverse settings precisely because there does not
exist a “standard” operational environment. Hence, there does not exist a single tool that
applies to all firms. By presenting a variety of tools and explaining their pros and cons,
students will gain the capability to apply this knowledge no matter what operational setting
they encounter.

Consider how operations tools can be applied to a call center. A common problem in this
industry is to find an appropriate number of customer service representatives to answer
incoming calls. The more representatives we hire, the less likely incoming calls will have to
wait; thus, the higher will be the level of service we provide. However, labor is the single
largest driver of costs in a call center, so, obviously, having more representatives on duty
also will increase the costs we incur per call.

The first use of operations management tools is to ensure that resources are used as
effectively as possible. Assume we engage in a benchmarking initiative with three other call
centers and find that the performance of our competitors behaves according to
Figure 1.1: Competitor A is providing faster response times but also has higher costs.
Competitor B has longer response times but has lower costs. Surprisingly, we find that
competitor C outperforms us on both cost and service level. How can this be?
 FIGURE 1.1 Local Improvement of Operations by Eliminating
Inefficiencies

It must be that there is something that competitor C does in the operation of the call center
that is smarter than what we do. Or, in other words, there is something that we do in our
operations that is inefficient or wasteful. In this setting, we need to use our tools to move the
firm toward the frontier illustrated in Figure 1.1. The frontier is the line that includes all
benchmarks to the lower left; that is, no firm is outside the current frontier. For example, a
premium service might be an important element of our business strategy, so we may choose
not to compromise on service. And we could have a target that at least 90 percent of the
incoming calls will be served within 10 seconds or less. But given that target, we should use
our quantitative tools to ensure that our labor costs are as low as possible, that is, that we
are at least on the efficiency frontier.

The second use of operations management tools is to find the right balance between Page 5
our competing objectives, high service and low cost. This is similar to what is shown in
Figure 1.2. In such a situation, we need to quantify the costs of waiting as well as the
costs of labor and then recommend the most profitable compromise between these two
objectives.
 FIGURE 1.2 Trade-Off between Labor Productivity and
Responsiveness

Moving to the frontier of efficiency and finding the right spot on the frontier are surely
important. But outstanding companies do not stop there. The third use for our operations
management tools is to fundamentally question the design of the current system itself. For
example, a call center might consider merging with or acquiring another call center to gain
scale economies. Alternatively, a call center might consider an investment in the
development of a new technology leading to shorter call durations.

In such cases, a firm pushes the envelope, that is, moves the frontier of what previously was
infeasible (see Figure 1.3). Hence, a firm is able to achieve faster responsiveness and
higher labor productivity. But, unfortunately, there are few free lunches: While we have
improved both customer service and labor productivity, pushing out the frontier generally
requires some investments in time and effort. Hence, we need to use our tools to quantify
the improvements we can achieve so that we can decide whether the effort is justifiable. It is
easy to tell a firm that investing in technology can lead to shorter call durations, faster
service, and higher labor productivity, but is that investment worthwhile? Our objective is to
educate managers so that they can provide “big ideas” and can back them up with rigorous
analysis.
FIGURE 1.3 Redesigning the Process to Operate at an Improved
Frontier
 Page 6

1.2 Road Map of the Book

This book can be roughly divided into six clusters of closely related chapters.

The first cluster, Chapters 2–5, analyzes the processes that create the products and services
a firm supplies. For the most part, the view taken in those chapters is one of the processes
without variability in service times, production times, demand arrival, quality, and so forth.
Hence, the objective is to organize the process to maximize supply given the resources
available to the firm.

Chapter 6 discusses how the performance of a process impacts the financial results of the
firm that runs the process.

Chapters 7 and 8 focus on quality, either through specific quantitative methods for
managing quality (Chapter 7) or through general principles for maximizing quality (Chapter
8).

Chapters 9 and 10 introduce variability into business process analysis. Chapter 9 Page 7

discusses how variability can lead to waiting and Chapter 10 demonstrates how variability
can lead to lost demand.

Chapters 11 and 12 discuss scheduling. Chapter 11 covers different methods for sequencing
work and Chapter 12 focuses on the complexities of scheduling the activities for a single
large project.

Chapters 13–16 discuss inventory control, information management, and process flexibility.
Issues include demand forecasting, stocking quantities, performance measures, and response
times.

Chapters 17–19 conclude the book with several strategic topics, including ways to mitigate
risks, trying to influence demand through pricing, and coordinating the supply chain.

The following provides a more detailed summary of the contents of each chapter:
Chapter 2 defines a process, introduces the basic process performance metrics, and provides a
framework for characterizing processes (the product–process matrix). Little’s Law is introduced, an
essential formula for understanding business processes and the link between operations management and
financial accounting.
 Chapter 3 introduces process analysis tools from the perspective of a manager (as opposed to an
engineer): how to determine the capacity of a process and how to compute process utilization.

Chapter 4 looks at assembly operations with a specific focus on labor costs, an extremely important
performance metric. It frequently drives location decisions (consider the current debate related to
offshoring) and has—especially in service operations—a major impact on the bottom line. We define
measures such as labor content, labor utilization, and idle time. We also introduce the concept of line
balancing.

Chapter 5 studies production in the presence of setup times and setup costs (the EOQ model). A key
issue is the impact of product variety on production performance.

Chapter 6 connects the operational details of process analysis with key financial performance measures
for a firm, such as return on invested capital. Through this chapter we discover how to make process
improvement translate into enhanced financial performance for the organization.

Chapter 7 details the tools of quality management, including statistical process control, six-sigma, and
robust design.

Chapter 8 describes how Toyota, via its world-famous collection of production strategies called the
Toyota Production System, achieves high quality and low cost.

Chapter 9 explores the consequences of variability on a process. As we will discuss in the context of a
call center, variability can lead to long customer waiting times and thereby is a key enemy in all service
organizations. We discuss how an organization should handle the trade-off between a desire for minimizing
the investment into capacity (e.g., customer service representatives) while achieving a good service
experience for the customer.

Chapter 10 continues the discussion of variability and its impact on service quality. As we will discuss in
the context of emergency medicine, variability frequently can lead to situations in which demand has to be
turned away because of insufficient capacity. This has substantial implications, especially in the health care
environment.

Chapter 11 continues the theme of waiting times by discussing decisions related to sequencing (In which
order should waiting units of demand be served?) and scheduling (Should we promise units of supply to our
customers ahead of time?).

Chapter 12 investigates project management, a process that is designed for a single, somewhat unique,
project such as a ship, a new building, or a satellite.

Chapter 13 introduces ways to plan for future demand based on forecasting techniques. While Page 8
we cannot predict the future, we should try to learn as much as possible from demand realizations
 of the past.

Chapter 14 focuses on the management of seasonal goods with only one supply opportunity. The
newsvendor model allows a manager to strike the correct balance between too much supply and too little
supply.

Chapter 15 expands upon the setting of the previous chapter by allowing additional supply to occur in
the middle of the selling season. This “reactive capacity” allows a firm to better respond to early-season
sales information.

Chapter 16 continues the discussion of inventory management with the introduction of lead times. The
order-up-to model is used to choose replenishment quantities that achieve target availability levels (such as
an in-stock probability).

Chapter 17 highlights numerous risk-pooling strategies to improve inventory management within the
supply chain: for example, location pooling, product pooling, universal design, delayed differentiation (also
known as postponement), and capacity pooling.

Chapter 18 covers revenue management. In particular, the focus is on the use of booking limits and
overbooking to better match demand to supply when supply is fixed.

Chapter 19 identifies the bullwhip effect as a key issue in the effective operation of a supply chain and
offers coordination strategies for firms to improve the performance of their supply chain.

Some of the chapters are designed to be “entry-level” chapters, that is, chapters that can be
read independently from the rest of the text. Other chapters are more advanced, so they at
least require some working knowledge of the material in another chapter. Table 1.2
summarizes the contents of the chapters and indicates prerequisite chapters.
Page 9

TABLE 1.2 Chapter Summaries and Prerequisites

Key Qualitative Key Quantitative Prerequisite

Chapter Managerial Issue Framework Tool Chapters
2: The Process Understanding Product–process Little’s Law None
View of the business matrix; focus on Inventory turns and
Organization processes at a process flows inventory costs
high level;
process
performance
 Key Qualitative Key Quantitative Prerequisite
Chapter Managerial Issue Framework Tool Chapters
measures,
inventory, flow
time, and flow
rate
3: Understanding Process flow Computing process Chapter 2
Understanding the details of a diagram; finding capacity and
the Supply process and removing a utilization
Process: bottleneck
Evaluating
Process
Capacity
4: Estimating Labor costs Line balancing; Computing labor Chapters
and Reducing division of labor costs, labor 2 and 3
Labor Costs utilization
Minimizing idle time
5: Batching and Setup time and Achieving a EOQ model Chapters
Other Flow setup costs; smooth process Determining batch 2 and 3
Interruptions: managing flow; deciding sizes
Setup Times and product variety about setups
the Economic and ordering
Order Quantity frequency
Model
6: The Link Process Return on Computing ROIC Chapters
between improvement to invested capital 2 and 3
Operations and enhance (ROIC) tree
Finance corporate
performance
7: Quality and Defining and Statistical Computing process None
Statistical improving quality process control; capability; creating a
Process Control six-sigma control chart
8: Lean Process Lean operations; — None
Operations and improvement for Toyota
the Toyota
Another random document with
no related content on Scribd:
 This manner of asceticism is not particularly common nowadays,
and we need not fear that it will be too generally practiced. I am
calling attention to it in order to show that selfishness may take on
the mask of purity or of respectability, a selfishness that springs from
pure moral motives and a longing for the elevation of character.
But there is another type of respectable selfishness that is far
more common, possibly more common in America than in any other
country. It is not usually recognised as selfishness, but regarded as
one of the greatest—perhaps the greatest—of the virtues. It is seen
chiefly among earnest and ambitious young men, who assume that
life is not a holiday, but a serious affair, a struggle, a strictly
competitive race, where if you stop a moment, even for reflexion, you
are left behind.
We are bound to respect these men. They have at all events
found out half the secret of life. They have set before themselves
some goal, in politics, in business, in literature, and they are
determined to reach it. They are equally determined to gain the prize
by no dishonourable means. Their minds are full of the lessons
learned from their predecessors, men who by the sacrifice of
temporary pleasures, by the refusal to indulge in recreation or
relaxation, have surpassed their competitors and reached the top.
We are constantly told that it is only by intense concentration, by
terrific efforts day and night, and by keeping the end constantly in
view that one can attain success. Surely these young men are to be
admired, surely they are models, examples worthy of emulation?
Well, they are better than criminals, they are better than
parasites, they are better than drones. But their driving motive is
selfishness. Tennyson wrote The Palace of Art, Browning wrote
Paracelsus, because each of these poets knew that his individual
danger was not what is usually known as “temptation.” They knew
that they would never go to hell by the crowded highway of
dissipation, for they were above the mere call of the blood. Their
danger lay in a high and noble ambition, which has wrecked many
first-rate minds.
 Modern life tends to encourage this respectable selfishness. The
central law of the so-called science of Economics is selfishness. A
whole science is built on one foundation—that every man in the
world will get all he can for himself. The subject is naturally studied
not from an ethical, but from a scientific standpoint. Life is a race.
Now I believe that Efficiency—mere practical success in the
world—is as false an ideal as asceticism. If the morality of
withdrawal is not good enough, neither is the morality of success.
Those deserve the highest admiration and the most profound
respect who have actually aided their human brethren, who have left
the world better than they found it.
This is by no means a hopeless ideal of character. It is not
necessary to crush a tyrant or to organise a revolution or to
reconstruct society or to be a professional reformer. There are plenty
of professional reformers who have tremendous enthusiasm for
humanity and who have never helped an individual. Those who by
unselfish lives and consideration for others elevate the tone of the
community in which they live and who by their presence make others
happier, these are the salt of the earth. Their daily existence is more
eloquent than a sermon.
American young men and women in our High Schools and
universities are not often face to face with the mystery of life. They
have no conception of the amount of suffering in the world. Their
own lives are comparatively free from it, in many cases free even
from anxiety. These boys and girls are for the most part sensible,
alert, quick-witted, and practical; what I should like to see would be a
change in their ideals from mere Success to something nobler. I
should like to see them devoting their intelligence and energy to the
alleviation of suffering and to the elevation of human thought and life.
If one still believes that the highest happiness and satisfaction
come from the attainment of any selfish ambition, no matter how
worthy in itself, it is well to remember the significance of the fact that
Goethe, acknowledged to be one of the wisest of men, made Faust
happy only when he was unselfishly interested in the welfare of
others; and to remember that Benjamin Franklin, perhaps the
shrewdest of all shrewd Americans, found the greatest pleasure of
his long life in two things—public service and individual acts of
kindness.
 XX
BIRDS AND STATESMEN

When, in the Spring of 1910, Theodore Roosevelt was on his

way to England from his African explorations, he wrote a strange
letter to the British Foreign Office in London. I call it a strange letter,
because it is the kind of epistle one would not expect to be sent by
an ex-executive of one country to the Foreign Office of another. He
wrote that during his stay in England he would like to make an
excursion into the woods, hear the English songbirds and learn their
names; in order that he might do this satisfactorily and intelligently,
would the Foreign Office please select some naturalist who knew the
note of every bird in England and request him to accompany Mr.
Roosevelt on this expedition?
Well, the head of the British Foreign Office was Sir Edward Grey
and he himself knew the note of every singing bird in England—a
remarkable accomplishment for one of the busiest statesmen in the
world. He therefore appointed himself as bird-guide for the ex-
President of the United States.
The two distinguished men stood on a railway platform one day
in May and were surrounded by reporters, who supposed that a new
world-problem of the first magnitude was on the carpet. But the two
men told the reporters that they were going away into the country for
two days, did not wish to be disturbed, and asked the journalists to
leave them alone. Accordingly, it was generally believed that
Roosevelt and Grey were absorbed in the discussion of international
affairs, and as the great war broke out a few years later, some went
so far as to believe then that it had its origin in this sinister interview.
 Now, as a matter of fact, the two men did not mention either war
or politics; they went a-walking in the New Forest and every time
they heard the voice of a bird, Grey told Roosevelt the singer’s
name. They both agreed (and so do I) that the English blackbird is
the best soloist in Great Britain.
It is a curious fact that the four most famous birds in English
literature are none of them native in America. The Big Four are the
Nightingale, the Skylark, the Blackbird and the Cuckoo. From
Chaucer to Kipling the British poets have chanted the praise of the
Nightingale. And of all the verses in his honour, it is perhaps the
tribute by Keats that is most worthy of the theme.

Thou was not born for death, immortal Bird!

No hungry generations tread thee down;
The voice I hear this passing night was heard
In ancient days by emperor and clown:
Perhaps the self-same song that found a path
Through the sad heart of Ruth, when, sick for home,
She stood in tears amid the alien corn;
The same that oftimes hath
Charmed magic casements, opening on the foam
Of perilous seas, in faery lands forlorn.

We never had nightingales in the United States until Edward W.

Bok imported them into his Bird Paradise in Florida. Previous
attempts to bring them over had failed; the birds invariably died.
Some investigators declared that this tragedy was owing to the
change of diet; but of course the real reason for their death was
American poetry. After the nightingales had listened for centuries to
Chaucer, Shakespeare, Milton, Wordsworth, Keats, etc., the change
to the level of American verse was too much for them, and they died
of shock.
The English skylark leaves the grass and soars aloft, singing his
heart out, so that after he has disappeared in the sky, we hear his
voice coming down out of the blue, like a revelation. One of the
poets calls it a “sightless song.”
Shakespeare sends the skylark to the gate of heaven.
And Shelley’s poem on the skylark expresses the ethereal nature
of the soaring voice of this bird:

Higher still and higher

From the earth thou springest,
Like a cloud of fire;
The blue deep thou wingest,
And singing still dost soar, and
Soaring ever singest.

American blackbirds do not sing well; the so-called crow-

blackbird, so common in flocks in autumn, makes a noise like
tonsillitis, or as if he had a boy’s voice in process of changing, or as
if he were a hinge that needed oiling. Our redwing blackbird, with his
scarlet epaulets, has a good-natured and perky wheeze, which can
hardly be called singing. But the English and Continental blackbird
pours out of his throat the most heavenly melody. One Winter day in
Munich, in the midst of a snowstorm, I saw a blackbird perched on a
tree directly in front of the University building. He was “hove to,” that
is, he had his beak turned directly into the wind, and as the
snowflakes beat against his little face, he sent straight into the gale
the loveliest music. Tennyson has observed how the voice of the
blackbird loses its beauty in the hot Summer days.

A golden bill! the silver tongue,

Cold February loved, is dry:
Plenty corrupts the melody
That made thee famous once, when young;
 And in the sultry garden-squares,
Now thy flute-notes are changed to coarse,
I hear thee not at all, or hoarse
As when a hawker hawks his wares.

The nearest we Americans can get to the English cuckoo is the

abominable cuckoo clock. The voice of the English cuckoo sounds
exactly like the clock, only of course you can’t train him to strike
right. In addition to his regular accomplishment, he is a ventriloquist
and can throw his voice a tremendous distance. One day, crossing a
field in Sussex, I heard the loud double note of the cuckoo,
apparently directly behind me. He was in reality a furlong away.
Wordsworth says:

O blithe New-comer! I have heard,

I hear thee and rejoice.
O Cuckoo! shall I call thee Bird,
Or but a wandering Voice?

While I am lying on the grass

Thy twofold shout I hear,
From hill to hill it seems to pass,
At once far off and near.

Concerning the all too common crimes of shooting, snaring, and

eating little singing birds, the English poet, Ralph Hodgson, has
expressed himself in words that ought to be everywhere read:

I saw with open eyes

Singing birds sweet
Sold in the shops
For the people to eat,
Sold in the shops of
Stupidity Street.

I saw in a vision
The worm in the wheat
And in the shops nothing
For people to eat:
Nothing for sale in
Stupidity Street.
 XXI
RUSSIA BEFORE THE REVOLUTION

The best way to invade Russia is by sea; and I advise those who
plan to visit the Soviet Republic to go via Stockholm. Copenhagen,
Christiania, Stockholm are three interesting cities and should be
seen in that order. Stockholm, the “Venice of the North,” is one of the
most beautiful, most picturesque, and most attractive places in the
world.
It is surprising that the short sea voyage from Stockholm to Saint
Petersburg (now Leningrad) is not better known; it is enchantingly
beautiful. We left Stockholm at six o’clock in the evening of a fine
September day, and as our tiny steamer drew away, the sunset light
over the fair city hung a new picture on the walls of my mind. It took
some five hours to reach the Baltic, five hours of constantly changing
scenery, one view melting into another like a succession of
dissolving panoramas. Hundreds of miniature islands dotted with
châteaux and country houses; winking lighthouse towers; “the grey
sea and the long black land.”
An impossible half-moon lent the last touch of glory to the scene.
We stood on the top deck and beheld the spacious firmament on
high, thick inlaid with patines of bright gold; while the long level light
of the crazy moon fell across the darkening water and the myriad
islands.
In the middle of the night we crossed the Baltic, and in the
whitening dawn entered the gulf of Finland. The air was nipping and
eager, but the sun rose in a cloudless sky. All day long the steamer
nosed her way through the blue sea, twisting and turning among the
countless points of the earth’s surface that were just able to keep
their heads above water. A few of these were covered with green
grass, and supported white farm buildings where laughing children
accompanied by dignified dogs ran out to see our transit; but for the
most part these elevations were bald, with a tall lighthouse as sole
decoration.
At five in the afternoon we reached Helsingfors (still my farthest
north) and stepped ashore to spend six hours in seeing the town, the
boat not proceeding toward Russia until late in the night. The
clouded sky was low and harsh the next morning, and the sea was
surly. Toward noon it cleared, and early in the afternoon we saw the
gilded domes and spires of Holy Russia. After a long delay with
passports, we drove across one of the bridges over the Neva to our
hotel at a corner of the Nevski Prospekt. Although it was only
September, the temperature was under fifty, and seemed colder.
I had a severe cold, which had its origin in a chill I had caught in
rashly touching a piece of toast that a waiter brought me in a London
hotel. But I was right in style. Accustomed as I was to see on the
streets of any American city the healthy, cheerful, well-clad and well-
shod men and women, I was appalled by the faces and the clothes
of the Russians. What they look like today I know not, but a more
unhappy looking crowd than I saw every day on the streets of
Russian cities I have never seen outside of pictures of Hell. Many of
the people had their ears and mouths bandaged and on their feet
were (if they could afford it) enormous knee-boots. All seemed to be
suffering from the foot and mouth disease.
Never shall I forget the boots and overcoats and uniforms on the
Nevski Prospekt. The question of leg-clothes would have interested
the author of Sartor Resartus. In Edinburgh all the men and some of
the women wore knickers, with stockings that seemed an inch thick.
Compared with Europeans, Americans are tropically clad. In order to
avoid the glare of publicity, I bought in Scotland a homespun golf
suit.
I tried these abbreviated trousers just once on the Nevski
Prospekt. Everybody stopped to stare. Had I worn a flowing purple
robe, I should not have attracted such attention. Military officers
gazed at me in cold amazement, as though I had leprosy; while the
more naïve passers made audible comment, which fortunately I
could not translate. Then I tried the experiment of conventional
clothing, but wore low shoes. Everyone gazed at my feet, some in
wonder, some in admiration, some in terror. I felt as I did many years
ago when I wore a striped cap in Brussels. A stranger looked at me
earnestly and then said in an almost reverent tone, and he said it
three times: Nom de Dieu!
In America our citizens show much the same interest in strange
clothing. Professor E. B. Wilson, a distinguished mathematician,
bought a suit of clothes in Paris. He wore it only once in America. A
citizen gazed at him steadfastly, and said “J——!”
The faces of the common people in Russian cities were sad to
behold, whether one saw them on the street or in church. Not only
was there no hilarity, such as one sees everywhere in American
towns; those faces indicated a total lack of illuminating intelligence.
They were blank, dull, apathetic, helpless. Gorki said that the people
in Russia had so little to look forward to that they were glad when
their own houses burned down, as it made a break in the dull routine
of life.
One afternoon I walked the entire length of the Nevski Prospekt,
no mean achievement in a heavy overcoat. I began at the banks of
the restless, blustering Neva, passed the extraordinary statue of
Peter the Great, came through the garden by the statue of Gogol,
and with the thin gold spire of the Admiralty at my back, entered the
long avenue.
I followed the immense extension of the Nevski, clear to the
cemetery, and stood reverently before the tomb of Dostoevski. Here
in January, 1881, the body of the great novelist was laid in the grave,
in the presence of forty thousand mourners.
In a corner of the enclosure I found the tomb of the composer
Chaikovski; I gazed on the last resting-place of Glinka, father of
Russian music. On account of the marshy soil, the graves are built
above instead of below the surface of the ground, exactly as they are
in New Orleans. It is in reality a city of the dead, the only place
where a Russian finds peace. I passed out on the other side of the
cemetery, walked through the grounds of the convent, and found
myself abruptly clear from the city, on the edge of a vast plain.
 XXII
THE DEVIL

It is rather a pity that the Devil has vanished with Santa Claus
and other delectable myths; the universe is more theatrical with a
“personal devil” roaming at large, seeking whom he may devour. In
the book of Job the Devil played the part of the return of the native,
coming along in the best society in the cosmos to appear before the
Presence. And when he was asked where he came from, he replied
in a devilishly debonair manner, “From going to and fro in the earth,
and from walking up and down in it.”
There are so many things in this world that seem to be the
Devil’s handiwork, and there are so many people who look like the
devil, that it seems as if he could not be extinct. His chief service to
the universal scene was to keep virtue from becoming monotonous;
to warn even saints that they must mind their step; to prove that
eternal vigilance is the price of safety. The Enemy of Mankind never
took a holiday. Homer might nod, but not he. In fact, on human
holidays he was, if possible, unusually efficient. The idleness of man
was the opportunity of Satan.
The principle of evil is so active, so tireless, so penetrating that
the simplest way to account for it is to suppose that men and things
receive constantly the personal attention of the Devil. Weeds, and
not vegetables, grow naturally; illness, not health, is contagious;
children and day-labourers are not instinctively industrious;
champagne tastes better than cocoa.
Throughout the Middle Ages, although every one believed
steadfastly in the reality of the Devil and that he was the most
unscrupulous of all foes, there was a certain friendliness with him,
born, I suppose, of daily intimacy. It was like the way in which hostile
sentries will hobnob with one another, swap tobacco, etc., in the less
tense moments of war. The Devil was always just around the corner
and would be glad of an invitation to drop in.
Thus in the mediæval mystery plays, the forerunners of our
modern theatres, the Devil was always the Clown. He supplied
“comic relief” and was usually the most popular personage in the
performance. He appeared in the conventional makeup, a horrible
mask, horns, cloven hoofs and prehensile tail, with smoke issuing
from mouth, ears and posterior. He did all kinds of acrobatic feats,
and his appearance was greeted with shouts of joy. In front of that
part of the stage representing Hellmouth he was sometimes
accompanied with “damned souls,” persons wearing black tights with
yellow stripes. On an examination at Yale I set the question,
“Describe the costume of the characters in the mystery plays.” One
of the students wrote: “The damned souls wore Princeton colours.”
The modern circus clown comes straight from the Devil. When
you see him stumble and fall all over himself, whirl his cap aloft and
catch it on his head, distract the attention of the spectators away
from the gymnasts to his own antics, he is doing exactly what his
ancestor the Devil did in the mediæval plays.
It is at first thought singular that those audiences, who believed
implicitly in a literal hell of burning flame, should have taken the Devil
as the chief comic character. I suppose the only way to account for
this is to remember how essential a feature of romantic art is the
element of the grotesque, which is a mingling of horror and humour,
like our modern spook plays. If you pretend that you are a hobgoblin
and chase a child, the child will flee in real terror, but the moment
you stop, the child will say, “Do that again.”
There are many legends of compacts with the Devil, where some
individual has sold his soul to gain the whole world. The most
famous of these stories is, of course, Faust, but there are
innumerable others. Here is a story I read in an American magazine
some fifty years ago.
 A man, threatened with financial ruin, was sitting in his library
when the maid brought in a visiting card and announced that a
gentleman would like to be admitted. On the card was engraved
Mr. Apollo Lyon.
As the man looked at it his eyes blurred, the two words ran
together, so they seemed to form the one word
Apollyon.
The gentleman was shown in; he was exquisitely dressed and
was evidently a suave man of the world. He proposed that the one
receiving him should have prosperity and happiness for twenty
years. Then Mr. Lyon would call again and be asked three questions.
If he failed to answer any of the three the man should keep his
wealth and prosperity. If all three were correctly answered the man
must accompany Mr. Lyon.
The terms were accepted; all went well for twenty years. At the
appointed time appeared Mr. Lyon, who had not aged in the least; he
was the same smiling, polished gentleman. He was asked a question
that had floored all the theologians. Mr. Lyon answered it without
hesitation. The second question had stumped all the philosophers,
but it had no difficulties for Mr. Lyon.
Then there was a pause, and the sweat stood out on the
questioner’s face. At that moment his wife came in from shopping.
She was rosy and cheerful. After being introduced to Mr. Lyon she
noticed her husband was nervous. He denied this, but said that he
and Mr. Lyon were playing a little game of three questions and he did
not want to lose. She asked permission to put the third question and
in desperation her husband consented. She held out her new hat
and asked: “Mr. Lyon, which is the front end of this hat?” Mr. Lyon
turned it around and around, and then with a strange exclamation
went straight through the ceiling, leaving behind him a strong smell
of sulphur.
 XXIII
THE FORSYTE SAGA

It is impossible to say what books of our time will be read at the

close of this century; it is probable that many of the poems and tales
of Kipling, the lyrics of Housman, dramatic narratives by Masefield,
some plays by Shaw and Barrie, will for a long time survive their
authors.
Among the novels, I do not know of any that has or ought to
have a better chance for the future than the books written about the
family of the Forsytes by John Galsworthy. They at present hold
about the same place in contemporary English literature as is held in
France by Romain Rolland’s Jean Christophe. Both are works of
great length which reflect with remarkable accuracy the political,
social, commercial, artistic life and activity of the twentieth century,
the one in England, the other on the Continent.
Entirely apart from their appeal as good novels, that is to say,
apart from one’s natural interest in the plot and in the characters,
both are social documents of great value. If the future historian
wishes to know English and Continental society in the first quarter of
the twentieth century, he will do well to give attention and reflexion to
these two works of “fiction.”
John Galsworthy was just under forty when in 1906 he published
a novel called The Man of Property. He had produced very little
before this, but it took no especial critical penetration to discover that
the new book was a masterpiece. The family of the Forsytes bore a
striking resemblance to one another in basic traits and ways of
thinking, yet each was sharply individualised. A new group of
persons had been added to British fiction. The word “Property,” as in
Tennyson’s Northern Farmer, was the keynote, and before long it
began to appear that one of the most dramatic of contrasts was to be
used as the subject. This is the struggle between the idea of
Property and the idea of Beauty—between the commercial,
acquisitive temperament and the more detached, but equally
passionate artistic temperament.
Even in the pursuit of beauty Mr. Soames Forsyte never forgot
the idea of property. He was a first-class business man in the city,
but he was also an expert judge of paintings, which he added to his
collection. Oil and canvas do not completely satisfy any healthy
business man; so Soames added to his collection, as the
masterpiece in his gallery, an exquisitely beautiful woman whom he
made his wife.
The philosophy of love comes in here. What is love? Is it
exclusively the idea of possession, which often is no more dignified
than the predatory instinct or is it the unalloyed wish that the object
of one’s love should be as happy and secure as possible? No one
can truly and sincerely love Beauty either in the abstract or in the
concrete if one’s eyes are clouded by predatory desire. One must
look at beauty without the wish to possess it if one is really to
appreciate beauty. A first-class French chef would look into the big
front window of a confectioner’s shop and fully appreciate the art and
taste that created those delectable edibles; but a hungry boy who
looked at the same objects would not appreciate them critically at all.
The wife of Soames finds him odious, so odious that we cannot
altogether acquit her of guilt in marrying him; and Soames, who as a
Man of Property expected her to fulfill her contract, did not make
himself more physically attractive by insisting on his rights. She left
him for a man of exactly the opposite temperament.
When Mr. Galsworthy finished this fine novel, he had no intention
of going on with the history of the family. He wrote many other novels
and some remarkable plays, but nothing made the impression on
readers that had been produced by the Forsyte family. Nearly twenty
years later he returned to the theme, and at once his power as a
novelist seemed to rise; there is something in this family that calls
out his highest powers. When he discovered that he had written five
works of fiction on the Forsytes, three long novels and two short
stories, of which the brief interlude called Indian Summer of a
Forsyte is an impeccable and I hope imperishable work of art, he hit
upon the happy idea of assembling them into one prose epic, and
calling the whole thing by the ironical title of The Forsyte Saga. It is
my belief that for many years to come the name of John Galsworthy
will be associated with this work, in what I fervently hope will be its
expanded form.
For since the assembling of the five pieces Mr. Galsworthy has
published several other novels dealing with the family—The White
Monkey, The Silver Spoon and in 1928 he wrote FINIS with Swan
Song. Here he kills Soames, and while he probably does not feel
quite so sad as Thackeray felt when he killed Colonel Newcome, I
venture to say that he does not gaze on the corpse of Soames with
indifferent eyes. For to my mind the most interesting single feature of
this whole mighty epic is the development of the character of this
man.
Clyde Fitch used to say something that is no doubt true of many
works of the imagination; he said that he would carefully plan a play,
write his first act, and definitely decide what the leading characters
should say and do in the subsequent portions of the work. Then
these provokingly independent characters seemed to acquire, not
only an independent existence, but a power of will so strong that
they insisted on doing and saying all kinds of things which he tried in
vain to prevent.
In The Man of Property Soames Forsyte is a repulsive character;
he is hated by his wife, by the reader, and by the author. But in these
later books Soames becomes almost an admirable person, and we
may say of him at the end in reviewing his life, that nothing became
him like the leaving of it—for he died nobly. Long before this
catastrophe, however, we have learned to admire, respect, and
almost to love Soames. Is it possible that Mr. Galsworthy had any
notion of this spiritual progress when he wrote The Man of Property,
or is it that in living so long with Soames he began to see his good
points?
 Dickens was a master in this kind of development. When we first
meet Mr. Pickwick, he seems like the president of a service club as
conceived by Sinclair Lewis; he is the butt of the whole company.
Later Mr. Pickwick develops into a noble and magnanimous
gentleman, whom every right-minded person loves. Look at Dick
Swiveller—when we first see him, he is no more than a guttersnipe.
He develops into a true knight.
 XXIV
PROFESSION AND PRACTICE

Beautiful lines which show that the man who wrote them had a
clear conception of true religion are these:

Thus to relieve the wretched was his pride,

And even his failings leaned to virtue’s side;
But in his duty prompt at every call,
He watched and wept, he prayed and felt for all;
And, as a bird each fond endearment tries
To tempt its new-fledged offspring to the skies,
He tried each art, reproved each dull delay,
Allured to brighter worlds, and led the way.

The man who wrote them is thus described by James Boswell:

“Those who were in any way distinguished excited envy in him to so
ridiculous an excess that the instances of it are hardly credible.
When accompanying two beautiful young ladies with their mother on
a tour of France, he was seriously angry that more attention was
paid to them than to him.” Goldsmith wrote of virtue, modesty, sweet
unselfishness in the most convincing manner; his words were more
convincing than his behaviour. He allured to brighter worlds, but did
not lead the way.
Schopenhauer, the great philosopher of pessimism, taught that
absolute asceticism was the only true religion and method of escape
from the ills of life; but he never practiced it, and told his disciples to
mind his precepts and not his example. Unfortunately, whenever any
one gives advice in the field of morality or religion, the first person on