This is a 6-week long course, and today is the first session.

What I thought we would do in this first session is, instead of me bombarding you

with the logistics for this course, including the homework assignments, the

format of the course, the exam, the course book and all these other good things, we

just get started. I promise I make up for the logistics

later on. So, what is operations management about?

The purpose of this first session is to think a little bit about what operations

management does and how it relates to the business strategy of a firm.

This will also help us think about what type of goals management might set for an

operation, and that, in turn, guides what performance measures that we're gonna

track. So let's get started.

Let's start with two various specific examples.

It's soon lunch time. And so consumers are thinking about where

shall we go for lunch today? So we have our consumer here who is

heading to a restaurant. And now ask yourself what does the

consumer want out of the operations of this restaurant?

But first of all they want to get. Their sandwich quickly.

Lunch break is short, people are hungry. And so the time that they have to wait in

order to get the sandwich is a pretty important variable for the consumer.

Second, consumers differ in what type of sandwiches that they like.

And so the ability of the restaurant to really make sandwiches that are appealing

to customers is important. They have to be able to provide a variety

of sandwiches. Which means either having a big menu, or

being able to make these sandwiches to very specific customer instructions.

Third, the customer cares about quality. Now, quality, that could be the ambiance

of the restaurant, the friendliness of the staff.

It could be the hygiene of the place. It could be making sure that the cheese

weighs exactly what it says on the recipe. Quality will have a number of dimensions

that we will [inaudible] later on in this course.

And then finally, of course, price matters.

And so the consumer doesn't want to spend too much money for this lunch.

Now. Let's go from the restaurant here, and

let's look at the operations of a hospital.

Same thing, we have a consumer arriving to, for example, the emergency room of, of

a hospital. So we have our unhappy consumer here who's

coming to the hospital. And we're now asking ourselves, "Well,

what does the consumer want the operations of this hospital to do?" Again time is

critical. Wait times in emergency rooms in this

country can often take as long as five hours.

And so, the peo, person want to be seen quickly.

They want to make sure that they get the care that is right for them, instead of

the care that is right for the person in the bed next to them.

They want to receive this care in a high quality manner, making sure that it is in

accordance to the latest evidence-based medicine.

That the doctors and nurses have washed their hands.

That the place is clean and everything else.

And then finally there are the charges, and the co pay that the consumer and, or

his insurance will have to pay for the service.

So sandwich store or emergency room. We see that an operation has to be able to

perform well along four dimensions. The first one is the, the cost dimension.

That's probably what most of us associate with operations management.

It's just providing a high efficient operation.

The second dimension is variety. Now to be fair, consumers don't care about

variety per se. They just want something that they like.

So really variety measures the flexibility of an operation to provide goods and

services to a heterogeneous customer base. The third dimension is quality.

The quality dimension is broken up into two sub-dimensions.

The first one is called performance quality, the second one is called

conformance quality. Performance quality measures how good of a

product or service we provide. Most of us would agree that a BMW is a

high-performing car. Not because how it is built, but primarily

because how it has been designed. The second dimension then is conformance

quality. It really captures to what extent we're

able to deliver on the promise that we have made to the customer.

And then finally there's timeliness. Our ability to provide a quick response to

demand. Those 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. And then, they're really also at the heart

of defining the business strategy. These four dimensions give us opportunity

to differentiate our operations from other, thereby potentially providing us

with a competitive advantage. Now imagine you get hired to consult to

Subway. And you would be asked to come up with a

performance measurement system that tracks these four dimensions that we just

discussed. What would you measure?

Well, on the plus side, you would start potentially looking at the labor

productivity. You could imagine measures such as the

sandwiches per employees, or the customers served per employee, or the minutes it

takes you to make a sandwich or other measures like that.

You could also look at the customers per restaurant to measure.

To what extent your gonna efficiently use the real estate investment, that you have

by renting the, the restaurant. Now, how about the variety?

On the variety side, again, our idea of varieties that we will look at.

Are we be able to meet the heterogenous customer preferences?

Well, a simple measure for that would simply be looking at the number of items

that we have on the menu. Beyond that, if we're making the c-,

sandwiches to order, we could imagine looking at the percentage of customer

requests that we're able to fill. So customers come in, they want extra

lettuce, extra tomato, and the percentage of customer requests that we meet would be

another good measure of variety. How about quality?

Remember on the quality side, we had the two dimensions, conformance quality and

performance quality. So performance quality we will probably

have to do some customer research. Some survey looking for things about to

what extent they like the ambiance of the restaurant, to what ex-, extent they found

the courtesy of the staff in line with their expectations or other things.

On the conformance side we would probably look are we really delivering what we

promised? And so that means we could look at the

freshness of the ingredients of the sandwiches.

We could in extreme case even go as far as putting the sandwiches on the scale and

just measure whether we put the exact appropriate amount of grams of cheese on

the, the subway ham and cheese sandwich and so that would give us Good measure of

conformance quality. And then timing this is relatively easy to

measure. Customers care about the time that it

would takes them to get to the sandwich. And so, we could go and measure how many

minutes a customer has to wait between entering the store and leaving the store

with a sandwich in their hand. So finally let's talk about strategy.

Strategy guru, Michael Porter, suggested there are two ways in which an

organization can get a competitive advantage.

Either through cost leadership or through differentiation.

The dimensions that we discussed -- variety, quality and timeliness -- are

three ways in which your operation can differentiate itself from others.

Thereby, by coming up with a great operation, you are really creating your

firm competitive advantage.