UIC
BUSINESS
Introduction to Operations
Management
IDS 532
Instructor: Selva Nadarajah
Discussion Plan
UIC
BUSINESS
1. What is operations management?
2. Corporate strategy and operations management
3. What can OM (this course) do to help?
Selva Nadarajah
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UIC
BUSINESS
What is Operations Management?
Selva Nadarajah
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What is Operations Management? (Your thoughts)
Selva Nadarajah
UIC
BUSINESS
4
What is Operations Management?
Traditional OM
 Production planning & scheduling
 Inventory management
 Warehouse & transportation
UIC
BUSINESS
Modern OM
 Today OM refers more generally to
the study of business processes. OM
concerns both manufacturing and
service industries.
 Operations Management is the study and practice of making things better,
faster, and cheaper.
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UIC
BUSINESS
US GDP By Sector
Agriculture
1.12%
Manufacturing
19.18%
Service Sector
79.70%
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The Operating System of the Firm: Assets +
UIC
Processes BUSINESS
Capital markets
FINANCE
Input
product
markets
P
U
R
C
H
A
S
I
N
G
Asset 1
4
1
3
2
6
5
Asset 2
M
A
R
K
E
T
I
N
G
Output
product
markets
HUMAN RESOURCES
Labor markets
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Matching Supply with Demand
UIC
BUSINESS
• Central economic premise: Prices adjust to match supply with
demand
 Excess supply is followed by falling prices
 Excess demand is followed by rising prices
• Operations manager’s perspective:
 Excess demand is lost revenue and excess supply means wasted
resources
 Matching supply with demand is not automatic and requires
more tools than price adjustment
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Matching Supply with Demand is Difficult
UIC
BUSINESS
• 2001: Microsoft launched Xbox, but it had to discount prices
by over $100 a year later due to 100,000 units excess
supply
• 2005: Microsoft launched Xbox 360, but 4.5M of units on
backorder
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History Repeats Itself
UIC
BUSINESS
• 2006: Sony delayed launch of PlayStation 3 in Europe, Russia,
and Australia until Mar. 2007, due to production delays
• 2007: Nintendo lost an estimated $1.3 billion in sales in
Christmas season by failing to meet soaring global demand for
its Wii video game console
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What about during the pandemic?
UIC
BUSINESS
• Mismatches between supply and demand are expected
• We have seen both positive and negative demand spikes
• What about supply?
• How can you plan for such “rare” events?
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Supply Demand Mismatch in Services
UIC
BUSINESS
• A customer calling into most call centers is likely to
spend a significant time waiting.
• The same call center, at another moment in the day, is
likely to have numerous reps waiting unproductively
for consumers to call.
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Supply Demand Mismatch in Services
UIC
BUSINESS
• Inventory affects the overall time
customers spend in the system
• Inventory may not show up in
financial records in a service
setting!
Selva Nadarajah
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Airplane Boarding Strategies
UIC
BUSINESS
• What airplane boarding strategies have you seen?
 Back to front (Air Canada, American, Alaska, British Airways,…)
 Outside in (Delta and United)
 Reverse pyramid (US Airways)
 No seat assignment (Southwest)
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Airplane Boarding Strategies
UIC
BUSINESS
• Airline Boarding
• 2003: America West Airlines (now part of US Airways)
introduced an innovative boarding strategy
• Cutting minutes off boarding time saves millions $’s per year
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UIC
BUSINESS
Corporate Strategy and Operations Management
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Strategic Role of OM
UIC
BUSINESS
A company’s “operations” function is
either
a competitive weapon
or
a corporate millstone.
It is seldom neutral.
–– C. Wickham Skinner
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Southwest Airlines
UIC
BUSINESS
• The mission of Southwest Airlines is dedication to the highest quality of customer
service delivered with a sense of warmth, friendliness, individual pride, and company
spirit.
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UIC
BUSINESS
Southwest: Strategic Fit
• Corporate strategy: Serve price- and convenience-sensitive
travelers.
• Operational activities: Tailored for strategic fit.
Selva Nadarajah
Full Service Airlines
Southwest
Route structure
First-class service
Meal service
Hub and spoke
Available
Available
Point to point
N/A
N/A
Seat assignment
Fleet of aircrafts
Ticketing
Available
Full fleet
Through agents
N/A (for the most part)
Boeing 737
No agents
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Southwest: Competitive advantage
UIC
BUSINESS
• Low price: (from www.southwest.com)
• $49 one-way within California.
$49 or $99 one-way to/from Texas
$49 one-way for selected Midwest cities
• Made possible by the lowest cost in industry:
9.1 cents per seat per mile (industry average: 13 cents)
• Quality service: (from Department of Transportation)
• Best on time performance
• Fewest complaints, delays, lost/mishandled bags
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UIC
BUSINESS
Rewards for Good OM
• Market Capitalization (Dec 11):









American
US Airways
United
Continental
JetBlue Airways
SkyWest
AirTran
Northwest
Delta
• Southwest:
Selva Nadarajah
$7.1 B
$5.3 B
$4.8 B
$3.8 B
$2.4 B
$1.6 B
$1.1 B
$0.4 B
$0.3 B
The only US
airline that is
consistently
profitable!
$12.4 B
21
Walmart
UIC
BUSINESS
Sam Walton's formula:
Buy cheap, sell for less than the
other guy, and make your profit
on high volume and fast turnover.
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Paris Hilton on Walmart
UIC
BUSINESS
"I went to Wal-Mart for the first time. I always
thought they sold wallpaper. I didn’t realize it has
everything. You can get anything you want there
for really, really cheap."
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Walmart: Strategic Fit
UIC
BUSINESS
• Corporate Strategy
• Provide customers access to quality goods, when and where needed, at competitive
prices
• Operational Activities
• “As an efficiency machine, Wal-Mart has just done better than any other U.S
retailer or perhaps other company in history.” – Gary Gereffi
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UIC
BUSINESS
Walmart: Competitive Advantage
$16.82
$24.96
Selva Nadarajah
Operations Strategy
meets
Corporate Strategy
$9.94
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UIC
BUSINESS
What Can OM (This Course) Do to Help?
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What Can OM (This Course) Do to Help?
Step 1: Help Making Operational Trade-Offs
UIC
BUSINESS
High Quality
• Trade off between quality and
price
Trade-off
World class
• OM helps: Provides tools to
support strategic trade-offs
Trade-off
World class
Low Price
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What Can OM (This Course) Do to Help?
Step 2: Overcome Inefficiencies
High Quality
UIC
BUSINESS
Example:
• Benchmarking shows the pattern
• Don’t just manage the current
system… Change it!
• OM helps: Provides tools to identify
and eliminate inefficiency
Improvement
Low Price
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What Can OM (This Course) Do to Help?
Step 3: Evaluate Proposed Redesigns/Technologies
UIC
BUSINESS
Example:
• What will happen if we
develop/purchase technology X?
High Quality
• Better technologies are always (?) nice
to have, but will they pay?
• OM helps: Evaluates system designs
before they occur
Improvement
Low Price
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UIC
BUSINESS
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UIC
BUSINESS
The break-up
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