RSM270: Operations Management

Operations Management

❖ Lecture 1
❖ Introduction and Overview

❖ Nasser Barjesteh
❖ Rotman School of Management
❖ University of Toronto
❖ Fall 2022

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 Administrative Issues (Instructor)

❖ Nasser Barjesteh (Instructor)

❖ E-mail: nasser.barjesteh@rotman.utoronto.ca
Please start the subject line with RSM270
❖ Of ce hours: Fridays 11:30am-1:30pm
❖ On Zoom and in-person (Rotman North Building Room 415)
❖ Administrative issues, questions about the material, and feedback on the course.
❖ Please check the Quercus page frequently.

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 Administrative Issues (TA’s)
❖ Hamid Khajeh Arzani
❖ Email: hamid.arzani@rotman.utoronto.ca

❖ Contact for Assignments.

❖ Zhoupeng (Jack) Zhang

❖ Email: zhoupeng.zhang@rotman.utoronto.ca

❖ Contact for Group Formation and Case 1.

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 Administrative Issues (TA’s)
❖ Jimmy Zhou
❖ Email: jh.zhou@rotman.utoronto.ca
❖ Contact for Case 2.

❖ Selena Sun
❖ Email: selena.sun@mail.utoronto.ca
❖ Contact if you have a question on the sample midterm/
nal exam questions.

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 Administrative Issues (TA’s)
❖ Arisa Akiyama
❖ Email: amy.akiyama@mail.utoronto.ca
❖ Contact if you have a question on the sample midterm/
nal exam questions.

❖ Gloria Yang
❖ Email: gloria.yang@mail.utoronto.ca
❖ Contact if you have a question on the sample midterm/
nal exam questions.

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 Administrative Issues

❖ Getting to know you:

❖ Please keep your video ON if possible.
❖ Please submit a one-page summary of yourself, including your name,
student number, email address, your major, a picture of yourself, your
interests, and your expectations of the course. Also, please specify what other
courses you are taking.
❖ The one-page summary should be submitted through utorsubmit: https://
submit.utm.utoronto.ca/utorsubmit/ 

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 Email Correspondence
Syllabus
Readings Individual Group
❖ Please
Session be Date
professional in all email correspondences.
Topics
(Jacobs & Chase) Assignments Assignments
❖ Start
1 the subject
September 14 lineIntroduction
of all andemails
Overviewwith RSM270 (and your section number).
Chapters 1-2

❖ We
2 will try to21respond within
September two business days.
Process Analysis Chapter 11 1-page intro
Process Analysis
3 September 28 Little’s Law and Inventory Build-up Chapter 11 Assignment 1 Finalize Groups

4 October 5 Queueing I Chapter 10 Assignment 2

Queueing Analysis
❖ Emails
5 sent to the instructor
October 12 Queueing II or the TAChapter
should
10 use the3 UTmail+ email address. You are
Assignment

responsible for ensuring that your

Midterm (on Lectures 1-5)
UTmail+
Tentative date: Oct 21, 2022 (7pm-9pm)
email address
Notes Sheet &is set up AND properly entered into
Case 1
Calculator Allowed
the ROSI system. No class this week
6 October 26 Demand Forecasting Chapter 18 Forecasting
❖ For
7 more information,
November 2 Inventoryplease visit
Management I http://help.ic.utoronto.ca/category/3/utmail.html
Chapter 20

Reading Week

8 November 16 Inventory Management II Chapter 20 Assignment 4 Inventory Management

❖ Meetings
9
outside ofInventory
November 23
of Management
ce hours
III
by appointment:
Chapter 20
❖ More
10 than 1030minutesLinear
November late,Programming I
the appointment Chapter
may19S be canceled
Assignment 5
Revenue Management &
❖ If11you cannot
December 7attend aLinear
scheduled appointment,
Programming II please
Chapter 19S notify me.6
Assignment Case 2 Linear Programming
Notes Sheet &
Final Exam TBA by FAS Final Exam (on Lectures 6-11) - 2 hours
8 Calculator Allowed
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 Course Materials
❖ Required materials:
❖ Syllabus (posted on the course website: q.utoronto.ca)
❖ Lecture Slides (posted on the course website)
❖ Before-class slides: Do not have the answers to some questions on the slides.
❖ After-class slides: Before-class slides plus the missing answers.
❖ Recommended Material:
❖ Operations Management, RSM270, by McGraw-Hill/Irwin.
❖ ISBN-13: 9781260068115, ISBN-10 :1260068110
❖ A tailored textbook to our needs, based on Operations and Supply Chain Management,
15th Edition by Jacobs, Chase, 2018, McGraw-Hill Irwin

❖ The class notes have the highest priority.

❖ They are even more important than the textbook!

❖ Optional readings:
❖ Managing Business Process Flows: Principles of Operations Management by Anupindi, Chopra, Deshmukh, Van Mieghem, and Zemel (2nd edition,
Pearson Prentice Hall).

❖ Suggested readings:
❖ The Goal: A Process of Ongoing Improvement by Goldratt and Cox
❖ Articles from newspapers, etc. (posted on the course website)
 Grading
❖ Midterm Exam 35%
❖ Final Examination 35%
❖ 6 Individual Online Assignments 12% (6 × 2%)
❖ 2 Group Case Studies 16% (2 × 8%)
❖ Two group case studies (4 members per group)

❖ Must be submitted online in PDF format (alongside your spreadsheet)

❖ Class Participation 2%

❖ There may be a bonus assignment of 1% due on the last week of classes.

❖ Midterm Exam: October 21st, 7:00pm(sharp)-9:00pm (2 hrs) (Tentative date)
❖ Final Examination: TBA (2 hrs)
❖ Allowed Aids in Midterm and Final:
1 double-sided “notes sheet” and non-programmable calculator


 Additional Help

❖ In addition, to help you master the course better, I will post on QUERCUS
❖ Summary notes: These notes are supposed to help you quickly review the
material to refresh your memory.
❖ Tutorials (not mandatory to attend): In total up to 2 additional tutorials.
❖ The instructor will review the topics and solve additional problems (time to be announced
later).
❖ Sample problems: Sample problems (with solutions in a separate le) will be
posted weekly to help your understanding and problem-solving skills.

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 Where Can You Find the Material?
❖ Assignments (individual work) will be posted on utorsubmit (https://
submit.utm.utoronto.ca/utorsubmit/). You will submit your solutions through
utorsubmit, as well.
❖ Before submitting your assignment solutions to utorsubmit, please double-check to
ensure the output text le is not empty and your answers are recorded.

❖ Case statements (group work) will be posted on Quercus. You will submit your
solutions through Quercus, as well.

❖ Lectures, recordings, summaries, case statements, sample midterms and nals, and
practice problems will be posted on Quercus .
❖ Please check Quercus (particularly, the announcements) frequently.
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 Goals for the Course
❖ Understand key operations management concepts.

❖ Articulate the importance and applicability of these concepts in different

operational environments.

❖ Learn new quantitative and qualitative tools and models as well as the OM
terminology.

❖ Practice the application of these concepts and tools to improve the

performance of any business.

❖ Enjoy the course!!!!!

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 We learn in this lecture:

❖ What is “Operations”?

❖ What is “operations management”?

❖ What is “good” operations management?

❖ Why study operations management (OM)?

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 What is “Operations”?

Inputs Buy Make/create Sell Outputs

Move Move

❖ The Transformation of Inputs into Outputs.

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 Introductory Exercise
❖ Your friend decides to start running a coffee shop and asks you for help to start
the business.
❖ What are the different things that she should think about to manage her coffee
shop successfully?
❖ Make a list – the more detailed, the better!
❖ Remember that different scenarios can occur.
❖ Get in groups of 4-5 with the people around you.
❖ Take 5 minutes to write down a comprehensive list.

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Examples

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Examples

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 Inputs and Outputs
Inputs Buy Make/create Sell Outputs
Move Move

INPUTS TRANSFORMATION OUTPUTS

Capital
Buy
Materials Goods (Products)
Make/create
Equipment Services
Sell
Facilities
Move
Labor
Knowledge
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 Transformation Processes: Examples
Production Primary Inputs Transformation Primary Outputs
System

Automobile Purchased parts Fabrication and Automobiles

Factory raw materials, tools, assembly
equipment, workers

Restaurant Hungry customers, Transforming raw Satis ed (and

raw materials, materials into food full) customers
workers, equipment and serving the
customers

University Students, teachers, Transmitting information, Educated

staff, books, supplies, developing knowledge individuals
buildings and skills
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Service-Commodity Goods Continuum

A restaurant provides a
physical good (the food)
but also provides services
in the form of ambiance,
the setting, the cleaning of
the table, etc

Product-service bundling: Refers to a company building

service activities into its product offerings for its current users.
 Operations Management & Service
❖ Traditionally, “operations management” 0.68
has been associated with physical goods.

Service Share of the

0.668

Canadian GDP
❖ But, services constitute a larger share of the 0.655

economy. 0.643
❖ Services moved from about 60% of the Canadian
GDP to about 65% from 1970 to 1991. 0.63
❖ GDP composition by sector: 2009 2011 2013 2015 2017

2008 2013 2018

Source: https://
Agriculture: 1.6% 1.9% 1.7% www.statista.com/statistics/
271248/distribution-of-gross-
Manufacturing: 29.4% 26.6% 24.6% domestic-product-gdp-across-
Services: 62.5% 65.2% 66.9% economic-sectors-in-canada

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 Services versus Goods
❖ A service is an economic activity where an immaterial exchange of value occurs. A service is
1. Intangible: They can not be touched, gripped, tasted, looked at, etc. Services have neither the
potential nor the need for transport or storage.
2. Perishable: For example, an empty seat on a plane can never be utilized and charged after
departure.
3. Inseparable: Service requires some degree of interaction with the customer. For example, the
hairdresser or the pilot must be in the same location as the customer to deliver the service.
4. Heterogeneous: Each service is unique. It is one-time generated, rendered, and consumed
and can never be exactly repeated.
5. Evaluated as a package: Evaluated considering (a) supporting facilities, (b) facilitating goods,
and (c) implicit and explicit services.
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 Poll

❖ Which of the following statements regarding services and products is

accurate?
A. They are both tangible.

B. They can both be inventoried.

C. They are both inseparable from the customer.

D. They can both be perishable.

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 We learn in this lecture:

❖ What is “Operations”?

❖ What is “operations management”?

❖ What is “good” operations management?

❖ Why study operations management (OM)?

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What is Operations Management?
Operations
Management

Transformation
Process
Inputs Outputs

Operations Management: The management (design,

operation, and improvement) of the transformation
processes that create value (= quality / price).
 The “Process View” of Organizations
❖ What is a “process”?
❖ A set of tasks that transform inputs into outputs.

❖ Every organization has several processes that work to transform

inputs into outputs.

❖ These processes can be analyzed at different levels of detail.

❖ Their management can be different depending on the overall objective
or strategy of the business.
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 Levels of Detail in Process Analysis

Inputs Buy Make/create Sell Outputs

Move Move

❖ Each process consists of several sub-processes.

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 Which Processes Are We Interested in?

❖ Planning: Processes that need to operate an existing supply chain process.

❖ Sourcing: Selection of suppliers that deliver goods and services required to
create the rm’s product.
❖ Make/create: Manufacturing/Production.
❖ Delivering: Logistics and selling.
❖ Returning: Processes for receiving defective products from customers.

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 We learn in this lecture:

❖ What is “Operations”?

❖ What is “operations management”?

❖ What is “good” operations management?

❖ Why study operations management (OM)?

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 How Do We Measure Process Performance?

❖ How do you a know a process is performing well?

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 Efficiency vs. Effectiveness
❖ Ef ciency:
❖ Doing something at the lowest possible cost.
How well are inputs transformed into outputs?

❖ Effectiveness:
❖ Doing the right thing to create most value.
How far is a stated objective achieved?

Example: TD Bank
- Ef cient: Use the fewest possible employees
- Effective: Minimize the time customers need to wait
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 More Examples of: Efficiency vs. Effectiveness

Ef ciency Effectiveness

Washing Energy consumption Cleanliness of clothes

Machine per cycle Do they smell so bad?
Car Fuel consumption Satisfaction of the riders

Managers need to nd the right balance!

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 How to Measure Efficiency?

❖ Productivity is a common measure of how well resources are being used.

❖ In the broadest sense, it is de ned as the following ratio:

Outputs

Inputs

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 Productivity Measures
❖ Partial measure of productivity (PMP):
❖ For example, Labor productivity = Output/Labor
(Ex: Car Manufacturer: vehicles per man shift)

❖ Multi-factor measures of productivity (MFP):

❖ Output/(Labor + Capital + Material)

❖ Total Factor Productivity (TFP):

❖ Includes all factors of production
❖ Output/(All Input)

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 Productivity: Example
❖ A company that makes candles has two workers. Each worker produces an average of 20 candles
per hour. Labor cost is $10 per worker per hour, and machine cost is $20 per hour.
❖ Calculate labor productivity. Use candles per worker per hour as the measure of labor productivity.

❖ Calculate the multi-factor productivity. Use candles per dollar (labor plus machine) as the measure.

❖ The company has hired two additional workers. The workers still produce 20 candles per hour.
❖ Has labor productivity changed?

❖ Has the multi-factor productivity changed?

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 How to Tell a Process is Effective?
❖ Performance objectives:
❖ Low cost
❖ High quality
❖ Fast delivery

❖ Change in volume

❖ Flexibility

❖ Support:
❖ Technical support

❖ After sale support

❖ Environmental impact
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 What is a Good Process?
❖ The Ef ciency View
❖ Productivity
❖ Maximize the output for a given amount of input

❖ Ef ciency
❖ Minimize the cost for a given amount of input

❖ The Strategic View

❖ Effectiveness

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What is a Good Process?
Business
Strategy

Compatible ?

Process

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What is “Good” OM? Trade-offs and Innovation
High
Trade-off
Innovation

Quality

Improvement Trade-off

Low
Low Productivity High

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 What Can Go Wrong?
❖ Processes can be poorly designed & ineffective
❖ The process might not t the strategic business objective.
❖ Example: Waiting 30 minutes for your coffee.

❖ Processes can be inef cient

❖ There is a mismatch between supply and demand.
❖ Example: How many people need to make a latte?

❖ Ideally, processes should be designed and managed to meet the demands

placed on them ef ciently.
❖ Processes should also be run so that the overall business objectives are met.
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 Poll
❖ Your friend wants to serve the best coffee drinks in Toronto. Her coffee shop makes
delicious coffee drinks. However, the machine she uses is too expensive, and she is
losing money on each drink. Which of the following statements is correct?

A. Her business is effective and ef cient.

B. Her business is effective and inef cient.
C. Her business is ineffective and ef cient.
D. Her business is ineffective and inef cient.

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 Examples

❖ In 2006, when Nintendo launched the Wii console, many customers had to
wait several weeks to purchase the product. Many units were resold online
for several hundred dollars over the retail price.

❖ In the 2002-2003 u season, 95 million doses of u vaccine were produced,

but demand was much lower, and excess vaccines had to be destroyed. In the
following season, insuf cient vaccines were available, and there were
widespread shortages.

Source: Matching supply with demand, by G. Cachon and C. Terwiesch, McGraw-Hill.

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 Why Do These Problems Occur?
❖ Making sure that your processes work perfectly is NOT EASY!

❖ The business world is full of uncertainties.

❖ But…

❖ Some companies manage their processes much better than their competitors giving
them a noticeable advantage in the marketplace.

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General Motors versus Toyota

GM, Toyota,
Framingham Takaoka
Assembly hours per auto 31 16
Assembly space per auto 8.1 4.8
Average inventory of parts 2 weeks 2 hours
Source: International Motor Vehicle Program, MIT, 1990

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 General Motors versus Toyota (2005)

Toyota GM
Revenue (billion $) 179.1 192.6
Net income (billion $) 16 -1.2
Number of employees 285,977 335,000
Revenue per employee $626,274 $574,925
Income per employee $55,945 -$3,582
Market capitalization (in billion $) $176.79 $17.23
Days of inventory 35 71
Source: nance.yahoo.com

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 Airline Industry
❖ In 2005, Southwest Airlines posted a pro t for its 33rd consecutive year (or the
132nd consecutive quarter).
❖ In the rst half of 2005, the ten largest airlines lost a combined US$10 billion
(CDN $11 billion).
❖ Some airlines even led for bankruptcy protection.
❖ Many airlines underwent massive efforts to restructure their entire
business model!
Source: http://biz.yahoo.com/
See also: http://www.cbsnews.com/stories/2007/08/30/sunday/main3221531.shtml
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 Airline Industry – Continued

What did airlines do to survive?

❖ They now charge to check-in baggage.

❖ What is your strategy in response?

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Airline Industry – Continued

Date: May 2008

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 Airline Industry – Continued

Source: IdeaWorksCompany.com
Source: MoodieDavittReport.com

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 Airline Industry – Continued

“Southwest claims that if its

boarding times increased by 10
minutes per ight, it would
need 40 more planes at the
cost of $40 million each to run
the same number of ights it
does currently.”

Can they do better?

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 Airline Industry – Continued
What are airlines doing to survive?

❖ They now charge for check-in baggage.

❖ What is your strategy in response?

❖ You board the plane in a speci ed order.

❖ Dynamic pricing: The price you pay for a ticket depends on when you buy it!

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 Dynamic Pricing (Time)
Let’s compare the price of each ticket that is sold:
❖ An airline ticket 1 year from departure

❖ An airline ticket 1 week from departure

Round trip ight from Toronto to Calgary:

❖ $450/ticket 1 year from departure

❖ $503/ticket 1 week from departure

Round trip ight from Toronto to Rome:

❖ $1115/ticket 1 year from departure

❖ $1991/ticket 1 week from departure

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 We learn in this lecture:

❖ What is “Operations”?

❖ What is “operations management”?

❖ What is “good” operations management?

❖ Why study operations management (OM)?

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 Why Study Operations?

❖ Managing the core process is essential for all rms.

❖ Companies with good operations are doing much better than others.

❖ Operations management principles are being applied to other areas such as

marketing & nance.

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 Career Paths
❖ “Routinely in large organizations, the COO will be the heir apparent to the CEO.” – wiki
Functional Role Before Becoming CEO (SP 500)

Background/Experience of CEOs (SP 500)

Source: SpencerStuart 2008

 Lessons & Summary
❖ OM is the management of the core activity of any company (i.e., the creation of goods and
services) and is critical to the performance of an organization.

❖ More visible performance measures (e.g., pro ts, return-on-assets, customer satisfaction)
directly depend on how well the system and each individual process is managed.

❖ Management of the underlying processes that create the goods and services is critical to an
organization's performance and long-term sustainability

❖ What is a good process?

Ef ciency vs. Effectiveness
(Productivity vs. Quality)

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 Upcoming Deadlines and Reminders
❖ Personal Bio: September 25th, 11:59 PM sharp.
❖ Submit to utorsubmit https://submit.utm.utoronto.ca/utorsubmit/

❖ Please try to form groups of 4 and submit your group list to Jack (Due
October 2nd). He will soon post the instructions on how to submit your lists
on Quercus.

❖ Please let me know if you have a time con ict with the midterm.
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 Readings & More…
❖ For a better grasp of the key concepts, the following is only recommended:
❖ Chapters 1-2 of the tailored textbook or Chapters 1-2 of Jacobs & Chase (only

some parts of these chapters are covered).

❖ For the next class, please:

❖ Take a good look at the Quercus page

❖ Next Class: Process analysis

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