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Operations 430

Professor Lin

COURSE OUTLINE FOR SPRING 2006


SECTIONS 71 & 72
PROFESSOR LIN
Session
1

Section 71
March 29

Section 72
March 30

April 5

April 6

April 12

April 13

Module and Description


Operations Strategy
Introduction to Operations Management
Matching Products and Processes
Process Analysis I
Process Measures & Littles Law
Process Flow Analysis & Targeting Improvement
Flow Time & Capacity Analysis

Lean Operations I
House Building Game
4

April 19

April 20

April 26

April 27

Process Analysis II
With Peak Loads
Lean Operations II
Paradigm of Lean Ops
Lean Ops for Product Variety

Required Readings
Read: MBPF: Chapters 1 & 2
Case: Shouldice Hospital Limited
Case: Wriston Manufacturing

Assignments
Start reading The Goal

Read : MBPF: Chapter 3 & 4


Case: CRU Computer Rentals

Case write-up for CRU


Computer Rentals

Read: MBPF: Chapter 5


Read: The Goal (up to p 161)
Case: Pizza Pazza
Case: The House Game at
HouseBuilding.Com
Case: National Cranberry
Cooperative
Read: MBPF: Chapters 10 (Section 14)
Case: Toyota Motor Manufacturing
Exercise: The Dice Game from The
Goal

National Cranberry
Cooperative

Case write-up for


Toyota Motor
Manufacturing

Midterm passed out

*There are optional readings not listed here. See detailed syllabus and course web site.

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Operations 430

Session
6

Professor Lin

Section 71
May 3

Section 72
May 4

May 10

May 11

May 17

May 18

10

May 24

May 31

May 25

June 1

Module and Description


Supply Chain Management I:
Inventory Basics & Economies of scale
Dealing with uncertainty
Supply Chain Management II:
Pooling: Centralization & Postponement
Bullwhip effect & coordination
Supply Chain III:
Managing Short Life Cycle Products
Capacity Management in Service Ops I
Capacity Analysis & Queuing
Capacity Management in Service Ops II
Evaluating Financials of a Call Center
Quality I
Quality & Voice of the Customer

Quality II
Process Capability & Statistical Process Control
The Value of 6-Sigma

Required Readings
Read: MBPF: Chapter 6 & 7
Case: Pal Gear
Finish: The Goal

Assignments
Midterm due

Read: MBPF: Chapter 10 (Section 5)


Case: Benetton

The Goal write-up.

Inventory Problem Set


Read: MBPF: Chapter 8
Case: Queuing Experimentation
Case: Sof-Optics

Case write-up for SofOptics (A)

Read: MBPF: Chapter 9: Sections 9.1


9.2
Read: Why Improving Quality ...
Read: MBPF: finish Chapter 9
Case: Quality Wireless (A), (B)
Case: 6-Sigma Quality at Flyrock Tires.

Take Home Final


passed out

*There are optional readings not listed here. See detailed syllabus and course web site.

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Operations 430
Professor Wuqin Lin

OPERATIONS 430
Instructor:
Office:
Email:
Office hours:

1.

Wuqin Lin
Phone: (847) 491-2535
Leverone 594 (MEDS Dept)
Fax: (847) 467-1220
wuqin-lin@kellogg.northwestern.edu
60 minutes before class or call/email me.

Course description and objectives

This course provides a general introduction to operations management. Operations


management is the management of business processes, that is, the recurring activities of a
firm. Along with finance and marketing, operations is one of the three primary functions of
a firm. At the risk of being simplistic, one may say that marketing generates the demand for
products and services, finance provides the capital, and operations produces the product.
More generally, operations spans the entire organization: COOs are in charge of R&D,
design/engineering, production operations, marketing, sales, support and service.
This course aims to (1) familiarize you with the major operational problems and issues that
confront managers, and (2) provide you with language, concepts, insights and tools to deal
with these issues in order to gain competitive advantage through operations.
This course should be of particular interest to people aspiring a career in designing and
managing business processes, either directly (V.P. of Ops, COO) or indirectly (e.g.,
management consulting). The course should also be of interest to people who manage
interfaces between operations and other business functions such as finance, marketing,
managerial accounting and human resources. Finally, a working knowledge of operations,
which typically employs the greatest number of employees and requires the largest
investment in assets, is indispensable for general managers and entrepreneurs.
We will see how different business strategies require different business processes, and vice
versa, how different operational capabilities allow and support different strategies to gain
competitive advantage. A process view of operations will be used to analyze different key
operational dimensions such as capacity management, flow time management, supply chain
and logistics management, and quality management. Finally, we will connect to recent
developments such as lean or world-class manufacturing, just-in-time operations, time-based
competition and business re-engineering.

Operations 430

2.

Professor Lin

Required texts

Required materials available at the bookstore


1. Coursepack. Contains cases, readings, and overhead slides.
2. The Goal by Goldratt and Cox. Publisher: North River Press, 2nd edition, 1992 (or later).
3. Managing Business Process Flows (MBPF) by Anupindi, Chopra, Deshmukh, Van
Mieghem and Zemel. Prentice Hall, 2nd edition, 2005.
As a novel, The Goal is light reading and some sections are quite entertaining.
Nevertheless, it has 337 pages, so you are encouraged to start reading now. We will draw
on it during the entire course. As you read the book, jot down the three or four main ideas
that you find striking with respect of the book. You will need this list for the assignment
due later in the term.

3.

Grading

The grade you receive for the course is intended to certify your demonstrated proficiency in
the course material. Proficiency will be estimated by measuring your performance on (1)
class contribution, (2) homeworks and (3) exams. The midterm will be a take-home exam
with a time limit. It will be passed out during class 5 and due back the following week. The
final will be a take-home exam with a time limit. It will be comprehensive. Your course
grade will be based on a weighted evaluation of the following categories:
1.
2.
3.
4.

4.

Class contribution
Case write-ups
Midterm examination
Comprehensive final examination

10%
20%
30%
40%

Assignments and class preparation

The course assignments are designed to engage you in the issues, to teach you ways to think
about and analyze operational problems, and to prepare you to be effective managers. The
enclosed course outline and detailed schedule provides you, class by class, with a brief
description of the class, the readings and questions (if any) for the case preparation.
As part of your preparation for class, please consider how you would answer each of the
discussion questions. The readings and assignments should require an average of about
three hours of preparation per class meeting. If you find yourself averaging more than three
hours of preparation per session, please let me know. (Typically, students find the class
load high in the first three weeks. As you become more comfortable with the material, this
subjective assessment will change for the better.) Some case preparations, notably National
Cranberry and Sof-Optics, may take considerably more than three hours. This will,
however, be made up by some other classes that ask for less preparation.
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Operations 430

5.

Professor Lin

Case write-ups

Each case presentation should address the question in italics that goes with the case
assignment. In preparing your presentation, please adhere to the following guidelines:
Be concise and well-structured: Recommendations should be summarized on 1 page
(you may add exhibits).
Be to the point: Know that you write to someone who knows the facts of the case; focus
on your explaining, and making a clear case for, your recommendations.
Be punctual: Late submissions will be penalized by a drop of one grade (which is still to
be preferable to no credit).
All case write-ups may be done in groups that ideally have five personsto strike a
balance between benefits derived from teamwork and cost due to increased logistical
complexity. The honor code stipulates that you may put your name on the hardcopy
only if you contributed to the group discussion.

6.

Class contribution and etiquette

In-class contribution will consist mainly of voluntary contributions, although I may call
upon students, usually to answer opening questions. (Although cold calling may increase
anxiety, the GMA suggests that supportive cold calling encourages you to be better
prepared for class and as a result improves the overall class discussion.) A thorough
preparation of the assigned materials is all that is necessary for such leadoff questions. If
you feel uncomfortable with being called on in class please let me know in advance.

7.

Use of the Web

The course web site http://www.kellogg.northwestern.edu/faculty/lin/ftp/430/ will be used


to facilitate course progression. It contains information on:
 Exercises and solutions.
 Software downloads for cases.
 Discussion groups.
As the course progresses and before any case assignment is due, please check your email
and the course web page for files (spreadsheets, etc.) and any announcements.
I would like to encourage you to make use of electronic communication tools. My preferred
mode of communication outside of class is e-mail, which I check at least twice a day. To
encourage shared communication I have set-up a class newsgroup on the web. (Go to the
class home page and click on Class Discussion Board.) I will post any comments I have on

Operations 430

Professor Lin

the case currently under study on the newsgroup. Students should also post any items they feel
will be of common interest on the newsgroup or questions they may have. I will post answers
to such questions on the newsgroup so they are accessible to all. Electronic communication
provides us with a new vehicle for exchange of experiences and for raising questions on
issues that were discussed in class.

8.

Suggested Readings

None of these readings are a requirement for the course. Nonetheless, you may find them
interesting. The books are non-technical in nature.
1. The Machine that Changed the World: The Story of Lean Production by James P.
Womack, Daniel T. Jones and Daniel Roos, Harper Perennial, 1991.
2. The Discipline of Market Leaders by Treacy and Wiersema, Addison Wesley, 1997.
3. Plant and Service Tours in Operations Management by Roger W. Schmenner, Fourth
edition, Macmillan Publishing Company, 1994.

If you would like to have additional information, you can consult the following operations
management textbook, which is on reserve in the library:

Production and Operations Management by Richard Chase and Nicholas Aquilano, 7th
edition, Irwin.

Operations 430

Professor Lin

Part 1 The Strategic Role of Operations


Class 1: Introduction to operations and operations strategy
Objective:

Characterize operations management and its link to corporate strategy to gain


competitive advantage. Illustrate how to do a strategic operational audit.
Introduce the concept of focus and the link between processes and strategy.
Discuss process types and their characteristics and the product process matrix.
MBPF: Chapters 1 & 2.

Required Reading:

The Goal (There will be an assignment in Class 7).


Optional Reading:

What is Strategy?
The Focused Factory

Preparation Questions:
1. In a business context, what is meant by operations?
2. What are the competitive priorities faced by a typical business (service or
manufacturing)?
3. What role does operations play in achieving these?

Case: Shouldice Hospital Case


Consider the case a reading; we will discuss the following questions in class:
1. Model Shouldice Hospital as a processing operation with products, attributes and
resources.
2. What are Shouldice's competitive priorities? What kind of market have they chosen to
focus on? How does their operations strategy support their business strategy?
Case: Wriston Manufacturing Case
Consider the case a reading; we will discuss the following questions in class:
1. Why do overhead costs (Exhibit 2) vary so greatly from plant to plant in Wristons
manufacturing network?
2. Why have managers in the Heavy Equipment Division under-invested in the Detroit
Plant?
3. What should Richard Sullivan do with the Detroit Plant? Justify your recommendation.

Operations 430

Professor Lin

Part 2 The Process View of Operations


Class 2: Process Flow Analysis, Process Measures & Littles Law
Objective:

Introduce basic process measures: Throughput, Inventory and Flow time and
the relation between them. Discuss process flow charts and the fundamental
process performance measures such as flow time, inventory and throughput.
We will use CRU Computer Rentals to discuss the measures and
improvements.

Required Reading:

MBPF: Chapters 3 & 4.

Optional Reading:

Time - The Next Source of Competitive Advantage.

Written Assignment: CRU Computer Rentals. A set of questions come with the case; we
will address those questions in class together. To prepare yourselves, address the following
questions in the write-up:
1. What is the process at CRU? Make a flow chart clearly identifying activities, routes and
any other data given in the case. Bring a transparency of your flow chart to class.
2. What do you think about the decision to launch a sales drive this year? What actions
would you suggest Richard focus on to improve performance at CRU: give concrete
plan with anticipated benefits.
3. What are the key performance measures Richard should focus on?
Recommended problems: 3.1, 3.5, 3.6, and 3.8.
Class 3: Process Flow Analysis & Improvements (Cont.)
Note:

This class and the next interweave two topics. Here we have process analysis
(with the Pizza Pazza case) and an introduction to lean operations (with The
House Game). In our next class, well wrap up process analysis with the
National Cranberry case and then debrief the House Game and talk more about
lean operations.

Objective:

Discuss various factors that affect flow time and capacity. We will do this in
the context of Pizza Pazza. To reinforce the concepts we will look at how they
should be applied when making decisions on capacity investments.

Required Reading:

MBPF: Chapter 5.
The Goal (at least until p. 161).

Case: Pizza Pazza.


Prepare questions attached to case. There is no assignment due for this case.
Recommended problems: 4.1, 4.2, 4.4, 4.6 (flow time); 5.1, 5.2, 5.4 (capacity).

Operations 430

Professor Lin

Part 3 Lean Operations


Class 3: HouseBuilding.com Game: The Paradigm of Lean Ops
Objective:

Demonstrate by playing a simulation game how different operational structures


yield different performance (cost, quality and time). Introduce, using the house
game, the paradigm of lean operations with a focus on waste reduction to arrive
at a rationalized production system.

Required Reading:
Case:

MBPF: Chapter 10 Sections 10.1 10.4.

The House Game at HouseBuilding.Com


Game played in class.

Class 4: Process Analysis II


Objective:

Reinforce the concepts discussed in Classes 2 & 3 and show how they should
be applied when making decisions on capacity investments.

Written Assignment: National Cranberry. This is a challenging case, please allocate


sufficient amount of time. Consider the following questions for discussion. Write-up
should address the italicized question:
1. Draw a detailed process flow map of the current process at Receiving Plant #1. What is
the capacity of each operation in the process?
2. What is the maximum long-term achievable throughput rate of Receiving Plant #1?
What factors affect this throughput rate?
3. Currently what is (are) the major reason(s) for trucks waiting and excessive overtime?
4. On average, how long will the trucks have to wait on a busy day? Assume a 7am start
of processing of berries and a continuous arrival rate of berries of 1,500bbls/hr.
5. What benefits would you expect if processing time was moved up from 11:00a.m. to
7:00a.m. during the peak period? Should this be done for the entire season?
6. What are your recommendations to NCC on how to deal with their problems? Assume
that drivers are paid $5 per hour and that an average busy day has a continuous arrival
rate of berries of 1,500bbs/hr.
You may use the Excel workbook NCC.xls to analyze this case, although the analysis can
be done without it.

Operations 430

Professor Lin

Class 4: Lean Operations II


Objective:

Building on the lessons of the House Game, introduce the paradigm of lean
operations with a focus on waste reduction to arrive at a rationalized
production system.

Required Reading:

MBPF: Chapter 10 Sections 10.1 10.4.

Optional Reading:

Jean Therapy: Levis Factory Workers Are Assigned to Teams, and


Morale Takes a Hit.

Class 5: Lean Ops for Product Variety


Objective:

Exercise:

Study the major components of the Toyota Production System and critically
assess the costs and benefits. Discuss its application to an environment with
product variety.
The Dice Game from The Goal.

Using Internet Explorer, go to the following web site:


www.kellogg.northwestern.edu/faculty/chopra/ftp/omd30/leanoperations/dicegame/pageone.htm

Optional exercise:

Value of Setup Time Reduction.

The case is the in the course pack. A spreadsheet to do the exercise is available here:
www.kellogg.northwestern.edu/faculty/chopra/ftp/omd30/leanoperations/changeover.xls

Optional Reading:

Twenty Years Down the Road.

Written Assignment: Toyota Motor Manufacturing USA. Prepare the following questions
for discussion. Write-up should address the italicized question:
1. Identify if, and if so where, Toyota carries inventory and excess capacity.
2. a) What is the cost of an average chord pull resulting in a stoppage of 1 minute, 30
minutes, or 60 minutes? b) Based on your financial estimate, what is your qualitative
assessment of the practice of letting employees stop the line? c) Now, focusing on seats
only: Do you think the line should be stopped when the station identifies a defective
seat? Note: only part a) is quantitative; both parts a) & b) relate to an average
chord pull at any station; only part c) deals with the seat problem only.
3. What is the value of a cord pull? What actions does Toyota take to lower the cost of a
line stoppage?
NOTE: Take-home midterm will be passed out. It will be due in the next class.

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Operations 430

Professor Lin

Part 4 Supply Chain Management


Class 6: Inventory: Economies of Scale & Dealing with Uncertainty.
Objective:

Introduce inventory and its role in business. Focus on economies of scale as


inventorys first reason of existence. Discuss forecasting characteristics and
demonstrate how to manage inventory in the presence of uncertainty in demand
and/or supply lead times.

Required Reading:

MBPF Chapters 6 & 7.


Finish The Goal (you can stop at page 246).

Case: Pal Gear.


Consider question 1. There is no assignment due.
Recommended problems: 6.2, 6.4, 6.5, 6.10, (cycle stocks) and 7.1, 7.2 (safety stock).
NOTE: Take-home midterm is due in Class 6.

Class 7: Pooling: Centralization and Postponement


Objective:

Discuss the concept of postponement and its application in supply chain


design. Introduce the bullwhip effect which adversely affects the
performance of decentralized supply chains; discuss causes and coordinating
counter measures.

Required Reading:

Finish MBPF: Chapter 10.

Optional Reading:

Shape Up, Ship Out

Case: Benetton
Prep questions:
1.
2.
3.

How does Benetton organize/operate its supply chain to better match supply and
demand?
What is the role of information in Benettons supply chain? What impact does
information have on how Benetton organizes its production planning?
How is Benetton sharing risk with its retailers?

Written Assignment: The Goal. Write-up should summarize your main take-aways
(what is worthwhile remembering 5 years from now?) and critically assessing their value
and usefulness. (Note: This is a team assignment.)
Recommended problems: 7.3, 7.8, 7.9

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Operations 430

Professor Lin

Class 8: Concluding supply chain management


Note:

This class straddles two topics: completing supply chain management and
introduction to service operations and queuing.

Objective:

Discuss the newsvendor model, a simple but important methodology for


determining the optimal order quantity and level of product availability, in the
context of short-life cycle products, e.g., fashion goods, whose value quickly
decay over time.

Written Assignment: Due the first two problems of the inventory problem set included in
the case pack. (Note: This is a team assignment.)
Recommended problems: 7.4, 7.5

Part 5 Capacity Management in Service Operations


Class 8: Capacity Analysis & Queuing
Objective:

Introduce queuing phenomena and discuss managerial actions that mitigate


queuings negative impact on operational performance.

Required Reading:

MBPF: Chapter 8.

Optional Reading:

The Psychology of Waiting Lines.


A Drive-Through Lane to the Next Time Zone.

Exercise:

Queuing Experiment.

The exercise is an Excel spreadsheet available from the course website under Capacity
Management in Services. Point your web browser (Internet Explorer) to:
www.kellogg.northwestern.edu/faculty/VanMieghem/ftp/430/q_exper.xls

Recommended problems: 8.1, 8.4, 8.5, and 8.8.


Class 9: Applications in Services
Note:

This class straddles two topics: Management of services and an introduction to


quality management.

Objective:

Show how queuing theory can be used as an aid in managerial decision making
in a time-sensitive economic environment.

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Operations 430

Professor Lin

Written Assignment: Sof-Optics (A). Submit a brief write-up answering the italicized
questions:
1. What are the major problems being encountered in the Customer Service Department?
What is their strategic significance?
2. What are the key performance measures for the Computer Service Department? What
level of service represents an appropriate object for the department?
3. Conduct a capacity analysis of the CS department. How many calls per hour can they
handle and need to handle on an average day, and under peak load conditions?
4. Estimate the annual opportunity costs due to poor service. You should identify (in
English) the main sources of losses and how to calculate them. For each
source: discuss how you estimate relevant data and show your financial estimate.
Specifically: limit your analysis to lost margin on an annual basis for poor service
between 10am and 2pm. Assume that callers abandoning or receiving a busy signal are
all lost and do not call back. Clearly state any other assumptions that you use.
5. Briefly discuss the "so-what" and your insights and recommendations for improvement.
Note: For the case analysis you will want to use the spreadsheet queue-performance.xls,
which is available here:
www.kellogg.northwestern.edu/faculty/VanMieghem/ftp/430/queue-performance.xls

In using the spreadsheet, keep in mind that both the number of servers and the buffer
size must be integers. Also, the buffer size K is the number of calls that can be put on
hold, and does not include calls that are being served. Finally, you will need to use
your judgment and detective work to distill spreadsheet inputs from the case data.

Part 6 Quality Management


Class 9: Quality & The Voice of the Customer
Objective:

Discuss the different connotations of quality. The first step in strategic


quality management is to map the voice of the customer into design and
operational specifications.

Required Reading:

MBPF: Chapter 9 Sections 9.1 - 9.2.


Why Improving Quality Doesnt Improve Quality.

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Operations 430

Professor Lin

Class 10: Process Capability & Statistical Process Control, and the Value of 6-Sigma
Objective:

The second step in strategic quality management is to determine the current


process capability and plans for improvement. Once the plans are implemented,
a manager needs to check that improvement has actually taken place. Finally,
a manager needs mechanisms to verify that the process continues to provide
improved performance. In this context we introduce statistical process control.
Discuss the benefits from continuous process improvement.

Required Reading:

MBPF, Chapter 9: Finish.

Case: Quality Wireless (A) and (B).


Prepare the questions attached to case. There is no assignment due.
Case: 6-Sigma Quality at Flyrock Tires.
Prepare the questions attached to case. There is no assignment due. Use Internet Explorer
to step through the web version of the case:
www.kellogg.northwestern.edu/faculty/chopra/ftp/omd30/quality/flyrock/story0.htm
Suggestion: Experiment with Greasex Inc workbook. Using Internet Explorer, go to:
www.kellogg.northwestern.edu/faculty/chopra/ftp/omd30/quality/greasex/frameset1.htm
Recommended problems: 9.1, 9.2, 9.7, 9.9.
NOTE: Take-home final will be passed out.

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