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Lecture Notes for Operations Management, 2nd Edition

Lecture Notes for Operations Management, 2nd Edition captures key lecture discussions, ensuring you don�t miss important concepts and insights.

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    1-1 Chapter 1 – Teaching Plan Introduction to Operations Management Specific Learning objectives LO1 - 1: Identify the drivers of customer utility LO1 - 2: Explain inefficiencies and determine if a firm is on the efficient frontier LO1 - 3: Explain the three system inhibitors LO1 - 4: Explain what work in o perations m anagement looks like LO1 - 5: Articulate the key operational decisions a firm needs to make to match supply with demand What Students Learn in this Chapter This chapter is the beginning of the book, and most likely the corresponding session is the first session in the student’s first exposure to o perations m anagement. The goal of the session is for students to gain some appreciation of the type of operational decisions that a business has to make and to provide them some idea of what it will take to make these decisions well. To achieve this goal, we like to start with a perspective the student is familiar with. In most undergraduate settings, students will have little or no work experience. So, rather than starting with the perspective of the business, we find it more engaging to start with the perspective of the consumer. Faculty and students alike, all of us have been in the role of the customer in consumer - facing industries, such as restaurants, travel, healthcare, entertainment, or education. We suggest to use the example of restaurants. Even if students have work experience, a common experience/example is helpful for discussion and all of us have been in some form of restaurant. The book chapter takes the example of “where do you want to go for lunch today?” to establish the different dimensions driving customer utility. Once we understand what consumers value, we can start talking about the dimensions of operational performance. Students will see that there are multiple dimensions of operational performance. Some operations focus on responsiveness, some on quality, some on efficiency, etc. Unlike the case of finance, where we all agree that more profits are better than less profits, students will appreciate that there exist trade - offs among the operational dimensions of performance. Subway is operationally not better or worse than a five star restaurant. It simply has a different strategy. The presence of trade - off then sets up the efficient frontier framework. Some firms are better at multiple things, others are worse. Typically, students have services that they like a lot (e.g. Starbucks or

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    1-2 Chipotle) and often times, those are services that are also financially successful. This allows for a discussion of what makes these services successful, which allows the faculty to introduce concepts such as waste, variability, and inflexibility. Relationship to other Chapters This chapter is related to: Since this is the first chapter, it obviously does not build on other chapters. This chapter is the foundation for: The idea of the efficient frontier and the three system inhibitors is coming up throughout the book/the course. Introducing them on the first day of class is helpful, though not required. Proposed Time Line Any time line will depend on the context of teaching, including the class size, the choice of exercise or case, the level of prior knowledge of the students, and the teaching style of the faculty. We have used the following time line for various audiences. This includes academic settings (business students), but also pro fessional development settings with participants that learnt this material not to prepare for a test but to advance their careers. 0:00 Opening exercise (Mortga ge exercise ) 0:20 Dimensions of performance 0:30 The efficient frontier/ P areto dominance 0:40 The three system inhibitors 1:00 Course overview and course logistics Preparation before class Set up exercise if you plan to use one . If mortgage exercise is used, s end out an email to students ahead of time, announcing that (a) on time arrival is critical for the exercise (b) they should not touch any paper on the tables . If you plan to discuss the restaurant example, it might be helpful to do a quick Google news search on the big restaurant chains to have some current updates/example s .

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    1-3 Detailed Session Plan Opening Exercise The opening exercise is optional. The first 10 minutes can be critical in shaping the attitude of the students towards the course. So, playing a game can help break the ice. Alternatively, the discussion of “Where will you go/did you go for lunch today?” also breaks the ice. You can share personal experiences at places on/around campus and likely share many experiences/frustrations with the students. Run the mortgage exercise for 10 to 15 minutes (all teams should have at least 3 mortgages completed, either rejected or approved). Go around the room and ask the underwriters to report how many mortgages they processed (approved or rejected). Joke about the low performing teams if you feel comfortable. Ask students “If this were your bank, what dimensions of performance would you track?” Answers should include: - Some measures of efficiency: number of loans processed, costs per loan - Responsiveness: how long the customer ha s to wait for the loan - Accuracy: percentage of loans processed correctly Display the correct decisions; ask underwriters to audit their work; then fill out slide #Mortgage1 displaying the performance of each team on the dimensions of efficiency and accuracy. Announce that the goal of this course is to improve businesses by helping them to improve on multiple dimensions of performance. It is not about trading off efficiency vs quality, but about building better processes. Say something like “In the next sessions, you will learn how to analyze and improve business processes . ” Dimensions of performance: Where will you have lunch today? Students understand the operations of a restaurant from a customer perspective. Ask them about where they go for lunch and what they like about the places. Don’t be too quick in showing the slide #utility ; collect ing comments from the students until you have the dimensions together is probably the more engaging teaching style. Then, ask students about the goal of running a restaurant. Divide student responses up into: - Financial goals: profits, returns, value, getting rich, growth, etc . - Operational goals: happy customers, good food, fast response times, et c. Keep on asking, potentially with some leading questions, until you have the dimensions of: - Efficiency

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    1-4 - Quality (good food, fresh) - Responsiveness - Variety/choice (menu items, opportunity to customize) Point out that these dimensions are “universal , ” i.e., we can also use these dimensions to run a bank, a hospital, or a tutoring service . The efficient frontier/ P areto dominance Pick two dimensions of performance. This could either be quality and cost (price) or responsiveness and cost (price) . Alternatively, aggregate all dimensions other than price in a utility/willingness to pay score. Then, draw a two dimensional graph: - X - axis: price to the student - Y - axis: quality of food/willingness to pay Go through a number of the lunch places that came up during the discussion and ask students to place them in this space (you will not get agreement, and sometimes just have to make an executive decision). This should help establish the concept of the efficient frontier. Ask students “in which restaurant would you invest your money?” or “who do you think does the best job running the restaurant?” Draw the frontier and point to the restaurants that are off the frontier and show “inefficiency” as the gap between the restaurant and its frontier. Time permitting, the concept of the efficient frontier can be further illustrated with the slides from the airline industry (#airline1 and #airline2) . The three system inhibitors Now that students have seen what inefficiency looks like in abstract terms, they should see what these inefficiencies look/feel like in practice. Common reasons for restaurants to be off the frontier are: - Poor menu choices (a form of waste) - Long wait times (often driven by the inflexibility to adjust capacity to demand) - Poor experience (waste in the case when everybody has them, otherwise a form of variability) - Etc. As before, it might be helpful to collect ideas from students before then showing the slides #waste, #variability, and #inflexibility . Course overview and course logistics We find it better to end the first day of class with a discussion of course logistics as opposed to starting the class with this topic. Either way, at some point, make sure to address items such as: - Grading scheme - Attendance policy/seating chart

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    1-5 - Exam: format/timing/policies - Text book - Preview of content/syllabus - Access to media such as course website, eBooks , Connect, etc . Potential cases/Exercises/Props Faculty who like using HBS cases/have the budget to do so might want to consider the HBS classic “Benim Hama , ” which describes the operation of a restaurant. We found that students have enough personal experiences to draw from that an assigned reading is not necessary. There are many exercises/games one can play. We like the mortgage exercise, as it allows students to experience the concept of an efficient frontier. Teaching suggestions for the case This chapter does not have a case.

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    2-1 Chapter 2 – Teaching Plan Introduction to Processes Specific Learning objectives LO2 - 1: Identify an appropriate flow unit for a process LO2 - 2: Distinguish among the three key process metrics (flow rate, flow time , and inventory) and evaluate average flow rate and flow time from departure and arrival data LO2 - 3: Use Little’s L aw to evaluate the three key process metrics What Students Learn in this Chapter Operations management is largely about managing processes. Hence, the goal of this chapter is to start students thinking in terms of processes. We begin with the basic definitions of a process and its components (e.g., a resource, a flow unit, etc.). Next, we introduce three key process metrics: inventory, flow rate , and flow time. Not only will we use these metrics in this chapter, they will appear in many of the subsequent chapters. Finally, we explain how these three metrics are linked, via Little’s Law. The relationship I = R × T is relatively simple to understand but very powerful for understanding processes. In particular, it emphasizes that operations is often about tradeoffs. For example, if inventory is increased (to give better availability to customers) then flow time will also increase . Many examples are used in the chapter. In one, students are shown a table of departure and arrival times for patients to the Interventional Radiology unit. With those data we are able to demonstrate several of the key process metrics, thereby linking plausible and realistic data to actual process analysis. Relationship to other Chapters The chapter is the foundation for the other chapters th at directly deal with processes: Process Analysis (Chapter 3), Process Improvement (Chapter 4), Process Analysis with Multiple Flow Units (Chapter 5), and Process Interruptions (Chapter 7). The issues and methods in this chapter are also relevant for Introduction to Inventory Management (Chapter 10), Supply Chain Management (Chapter 11 ), Inventory Management with Steady Demand (Chapter 12), Inventory Management with Frequent Orders (Chapter 1 4 ), Service Systems with Patient Customers (Chapter 16) , and Service Systems with Impatient Customers (Chapter 17).

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    2-2 Proposed Time Line A lecture can be used to introduce this material to students , but then it is probably best to have them do some hands on exercises to become comfortable with the ideas. Better yet would be to intersperse these exercises between sections of the lecture. For instance, give students the example of a process and ask them to define an appropriate flow unit, or to evaluate average inventory, etc. Through a series of examples (which could also be taken from the solved problems in the chapter), students begin to see the power of a process view and especially of Little’s Law. The class can close (say 20 minutes) with a discussion of the chapter’s case. The case is seemingly simple when in fact it isn’t – the “answer” is not intuitive to most students. Students should be able to master this material over a single 80 min session. If you have advanced students, this session could be combined with the material in the Introduction to Inventory Management chapter. Potential cases/Exercises/Props Besides the mini - case in this chapter, most cases and exercises will cover more material than in this chapter. For example, the “snowflake” exercise allows students to use the material in this chapter plus the Process Analysis (Chapter 3) and Process Improvement (Chapter 4) chapters. Teaching suggestions for the case This case: - Requires students to apply Little’s Law - Tests their understanding of the difference between processing time and process rate. - Reinforces the concept that the average output of a process must equal its average input. Although the analysis of the case is relatively simple, the intuition is not always easy to grasp – many students will intuitively believe that the capacity of the faster lift should be greater than the capacity of the slower lift. The main lesson in this case is to get students to understand why that intuition is not correct. To begin the case discussion, ask the students their opinion as to who is correct, Mark (unloading capacity should be twice as high on the detachable lift) or Doug (the unloading capacity should be the same on the two lifts). Hopefully there are students who support each opinion. To resolve the question, begin with the simple process flow diagram:

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    2-3 Ask the question “Do all of the skiers that get on the lift at the bottom get off the lift at the top?” Of course, the answer is “We would hope so!” So “What does that mean about how the rate of skiers getting on the lift, R on , is related to the rate of skiers getting off the lift, R off ?” And the answer there must be that they are equal! If the rate on were faster than the rate off, the number of people on the lift would grow and grow and grow. We know that can’t happen. Similarly, if the rate off exceeded the rate on, then the number of people on the lift would shrink and shrink and shrink, leaving the lift eventually with nobody. Which also doesn’t happen. So we can add to our process flow diagram: Now it is time to compare the two lifts. We can draw the process flow for each of them, emphasizing that the rate on for each must equal the rate off: Lift Skiers Skiers Lift Skiers Skiers R on R off = Slow Lift R s R s Fast Lift R f R f

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    2-4 w ask students “How can we compare the rates across the two types of lifts?” The answer is given in the case – we are told that the rate skiers load onto the slow (fixed grip) lift is the same as the rate they load onto the fast (detachable) lift. That means that R s = R f . And that means that the rates that they unload skiers at the top must be the same! Thus, Doug is correct – both lifts have the same capacity to unload skiers at the top even though one is faster than the other. And this brings us to Jessica’s question – so what is the difference between the two lifts? If you ask students this question, the likely first response is that skiers spend less time on the faster lift. And that is correct. But are there other differences? Actually, there are two additional differences worth mentioning. The first comes from Little’s Law and the second requires a deeper understanding of this process. T he first obvious difference is the number of skiers on the lift. According to Little’s Law, I = R × T. So if the two lifts have the same R, but the faster lift has a smaller T, then the faster lift must have a smaller I as well: Slow Lift R s R s Fast Lift R f R f = = Fast Lift T f = seconds on lift I f = # of skiers R R T f < T s I f = R x T f < R x T s = I s

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    2-5 So fewer people are on the faster lift and they spend less time on the lift but the faster lift and the slower lift bring skiers to the top at the same rate. If students can’t get the next difference between the two lifts, then you can prompt them with the following question “If the faster lift has fewer skiers than the slower lift, then where are the additional skiers?” Or put another way: “If the ski area attracts a certain number of skiers but the faster lift has fewer skiers on it, then where are the other skiers?” The answer is that they are on the slopes! That means that adding a faster lift takes skiers off the lift but they don’t disappear. Instead, they are on the only other place they can be, the slopes. Which means, somewhat counter - intuitively, that adding a faster lift makes the slopes more crowded (holding the total number of skiers fixed).

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    3-1 Chapter 3 – Teaching Plan Process Analysis Specific Learning objectives LO3 - 1: Draw a process flow diagram LO3 - 2: Determine the capacity for a one - step process LO3 - 3: Determine the flow rate, the utilization, and the cycle time of a process LO3 - 4: Find the bottleneck of a multistep process and determine its capacity LO3 - 5: Determine how long it takes to produce a certain order quantity What Students Learn in this Chapter This chapter introduces the framework of process analysis. Instead of looking at the process as a black box, merely tracking inventory, flow rate, and flow time (as we do in chapter 2), this chapter explains how a process works. The chapter starts by introducing the process flow diagram as a useful tool to visually describe the flow. The process flow diagram is like a map of the process, using triangles for inventory locations, arrows for the movement of flow units, and boxes for resources. But the process flow diagram only tells parts of the story. Just like a street map will not provide you with any information about how many cars are actually traveling on the road or where to expect a traffic jam, a process flow diagram will not tell you how many units flow through the process. The chapter defines the capacity of the process. The capacity of the process is determined by the resource with the smallest capacity, the bottleneck. Next, the chapter introduces flow rate. The flow rate determines how many flow units are flowing through the process per unit of time. Flow rate is defined by looking at the minimum between demand and capacity. The ratio between flow rate and capacity captures the utilization of the process. Finally, the chapter introduces the concept of cycle time. The cycle time of the process is defined as 1/Flow Rate. The cycle time is like the “rhythm” of the operation. If the cycle time is 46 seconds/customer, then every 46 seconds, the cash register rings and a flow unit is completed . Cycle time will also be an important starting point for several calculations in the next chapter on process improvement.

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    3-2 Relationship to other Chapters This chapter is related to: Chapter 1: this chapter picks up the example of fast food restaurants started in chapter 1. However, chapter 3 can be taught without using chapter 1. Chapter 2: this chapter looks “inside the black box” of the process, which is the view taken in chapter 2. However, chapter 3 can be taught without using chapter 2. This chapter is the foundation for: Chapter 4: chapter 4 directly builds on the analysis started in this chapter by talking about process improvement. So, this chapter is about analyzing a process, chapter 4 is about improving it. One should not use one without the other. Other chapters: the concept of processing times and capacity are fundamental to many other chapters in the book. This certainly includes chapters 5 (process interruptions) and 6 (multiple flow units). Proposed Time Line Any time line will depend on the context of teaching, including the class size, the choice of exercise or case, the level of prior knowledge of the students, and the teaching style of the faculty. We have used the following time line for various audiences. This includes academic settings (business students), but also pro fessional development settings with participants that learnt this material not to prepare for a test but to advance their careers. 0:00 Opening exercise (Mortgage exercise, snow flake exercise) 0:20 Process lecture; example calculations 0:40 Subway qualitative discussion 0:50 Subway process analysis 1:20 Summary and Conclusion Ways to customize this time line: - Include a 30 - 40 minute case discussion on a process analysis case - Use a different exercise (or, if a case is used, drop the exercise) - Use the Tesla case from this chapter during class time Preparation before class Set up exercise

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    3-3 Empty Excel spread sheet and lecture slides ready Video “I love Lucy” Detailed Session Plan Opening Exercise Run the mortgage exercise for 10 to 15 minutes (all teams should have at least 3 mortgages completed, either rejected or approved). Go around the room and ask the underwriters to report how many mortgages they processed (approved or rejected). Joke about the low performing teams if you feel comfortable. Ask students “If this would be your bank, what dimensions of performance would you track?” Answers should include: - Some measures of efficiency: number of loans processed, costs per loan - Responsiveness: how long does the customer have to wait for the loan - Accuracy: percentage of loans processed correctly Display the correct decisions; ask underwriters to audit their work; then fill out slide #Mortgage1 displaying the performance of each team on the dimensions of efficiency and accuracy. Announce that the goal of this course is to improve businesses by helping them to improve on multiple dimensions of performance. It is not about trading off efficiency vs quality, but about building better processes. Say something like “In the next sessions, you will learn how to analyze and improve business processes . ” Process Lecture Motivate lecture on process analysis: “if we want to be able to improve processes, we first have to be able to analyze them. We will now discuss some basic vocabulary about a process . ” Introduce the concepts of resources, flow units, and process flow diagrams (Slide #ProcessAnalysis1 ) . Explain that in a process flow diagram, resources are captured by boxes, inventories are triangles, and arrows capture the flow of the flow units . Define processing time, capacity, bottleneck, and process capacity ( Slide #ProcessAnalysis2 ) . Ask students for processing times in the mortgage exercise (or make up some numbers). Typical numbers might be Preparation: 15 sec/loan, Analysis 1: 40 sec/loan, Analysis 2: 80 sec/loan, Underwriting 10 sec/loan (Slide #ProcessAnalysis3) .

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    3-4 Calculate the process capacity as illustrated in Excel file; ask students for the bottleneck : “ How do you find the bottleneck?” Emphasize that the bottleneck is the resource with the lowest capacity (sometimes, students will argue that it is the longest processing time, which is not always the case). Then, ask “how could we have found the bottleneck without doing these calculations?” Review other process measures; talk about matching supply with demand (slides #ProcessAnalysis4 and #ProcessAnalysis5 ) . Subway Qualitative Discussion Ask students who regularly goes to a Subway restaurant. Ask them for their favorite sandwich. Then ask, “how many people are involved in making your sandwich?” The answer to this might vary from 1 to 6. Give students some background about Subway (slides #Subway1 and #Subway2 ). Go to a recent news article about Subway for current numbers. Ask students what measures of performance they would track in a Subway restaurant. Emphasize dimensions such as: - Efficiency - Responsiveness - Variety/customization - Quality: fresh, good taste Then, ask students about the difference between Subway and McDonald’s. This sets up a discussion around trade - offs and different strategy. If appropriate, introduce the term “make to order . ” Emphasize that such strategies are not right or wrong, they simply capture different market segments. Potentially compare Apple with McDonald’s and Dell with Subway to show that the make - to - order strategy is not just about sandwiches. Subway Process Analysis Show slide #Subway3 . Give students 5 minutes to work on their own. Say something like “Here is the official way to make a Subway sandwich. I want you to spend 5 minutes on your own to (a) draw a process flow diagram (b) compute the process capacity . Draw the process flow diagram (sl ide #Subway 4 ). Some discussions around the toaster will typically come up (note: the toaster is not included in the book chapter, but it makes for a fun discussion; not e further that the toaster is NOT the bottleneck) . Discuss other process flow diagrams (shown on slides #Subway5 and #Subway6 ) .

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    3-5 Go through calculations shown in Excel. Note that these calculations do NOT includ e the toaster. Also see slide #Subway8 . Note: in general, we find that students learn better when such calculations are done on the projector/white board/black board/tablet in class as opposed to just being displayed as a solution. Introduce cycle time as 1/Flow Rate (the process makes a sandwich every 46 seconds) (Slide #Cycle Time). Explain that the word cycle time is often used very differently across industry. Ask students how long it would take to produce 20 sandwiches. Then, ask how long it would take, assuming the process starts empty. Summarize calculations showing slide #TimeToProduce . Summary and Conclusion Summarize for today (slide #Summary ) . Say something like “Today, by analyzing the process, we laid the foundation for improving the process . ” Conclude by introducing the “I love Lucy Video”: “We talked a lot about processes today. So let us watch a real process in action . ” Show video ( https://www.youtube.com/watch?v=8NPzLBSBzPI or other links that you can find via YouTube) . Potential cases/Exercises/Props There are many games and exercises out there that help students understand the concept of a bottleneck. It might be helpful to break those up into two groups: - Hands - on exercises: exercises in which all students engage in doing some work. This includes the mortgage exercise (see separate document for instructions). This also includes exercises in which students build something out of paper (see our snowflake exercise), Lego, our electronics components . - On stage exercises: for really large audiences, it might be logistically difficult to have all students engage in the work hands - on. In this case, it is possible to invite a small group of students to the front of the class ‘on stage’ and have them demonstrate the work. We found the snow - flake exercise to work really well for this , as students observing the work can easily see the differences in capacity and the accumulation of inventory in front of the bottleneck. The HBS case Toshiba: Ome Works is a great case to illustrate the contents of chapter 3 and 4. The case is somewhat dated, though the mechanics of electronics assembly have not changed much since the writing of the case. Suggested assignment questions for the Toshiba case are:

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