Production and operations Management

Lecture 3 Introduction to operations management continued

Production and operations ManagementLearning ObjectivesOM Introduction continued...The four dimensions of operations performance

Responsibilities of OM

Hard rock cafeWhat OM responsibilities at the hard rock caf did you see in the video? Mismatch between supply and demandOM is necessary because there is always, always, always, a mismatch between supply and demand.So in a nutshell, challenge is to match supply with demand.

Supply Does Not Naturally Match DemandFor economists if there is excess demand: prices rise.if there is excess supply:prices fall.For managers excess demand means: lost revenue. and excess supply means: wasted resources.

Supply Does Not Naturally Match DemandInventory results from a mismatch between supply and demand.Mismatch can take one of the following two forms:Supply exceeds DemandInventory = Finished goods and resources. Demand exceeds SupplyInventory= Waiting customers Mismatch happens becauseThe demand variesThe capacity is rigid and finiteIf the capacity is infinite, products (or services) can be provided at an infinite rate and instantaneously as the demand happens. Then there is no mismatch. Impossible!!!

Consequences of the Mismatch are Severe

More Examples of Demand-Supply MismatchCompaq estimated that it lost $0.5 B to $1 B in sales in 1995 because laptops were not available when and where neededIn 02-03 flu season, 12 M of 95 M doses of flu vaccines were not used in the US. For 03-04 season, 83=95-12 M doses were produced. In 03-04 season, there were widespread vaccine shortages causing flu-related deaths.British Airways had seat utilization of 70.3% in the early 2000s. If it could increase utilization by 0.33% (by flying one more person on a 300 seat aircraft), it would create additional revenues equal to quarter 2 profits of 2001, which was $65 M. In 2000, Playstation 2 of Sony were backordered by several weeks due to high demand. But X-Box of Microsoft did not sell well and was discounted by $100 per unit. Discounting is a symptom of a problem in operations rather than being a usual practice.In 2009, AT&Ts telecommunication network capacity does not suffice for 3G phone data flow demands. Calls cannot be made or dropped.

Four dimensions of operations performance

Operations in a Restaurant/sandwich store

TimeVarietyQualityPriceOperations in an Emergency Room

TimeRightQualityCharges/consultation feesFour dimensions of performanceCostEfficiencyTimeResponsiveness to demandQualityProduct quality (how good?)

Process quality (as good as promised?)

VarietyCustomer heterogeneityImportance of the four dimensionsThose four dimensions are important for two reasons:First of all, they are the goals that we strive for in an operation and so they will guide what type of performance measures we track. Secondly they're really also at the heart of defining the business strategy. These four dimensions give us opportunity to differentiate our operations, thereby potentially providing us with a competitive advantage.Four dimensions of performance at the restaurant/sandwich storeCostEfficiencyLabor productivityCustomers served per employeeMinute per sandwichCustomers per restaurant

TimeResponsiveness to demandMinutes it takes for customer from entering and leaving. QualityProduct quality (how good?)Customer surveyCourtesy of the staffAmbience of the restaurant. Process quality (as good as promised?)Freshness Weight of cheese

VarietyCustomer heterogeneityNumber of items on the menuNext Class: How Can OM help?