OPERATIONS MANAGEMENT

PROFESSOR
Svenja SOMMER Assistant: Marie MILEVSKY
[email protected] [email protected]

Building V, Rm 216 Building V, Rm 214

Ext. 7431 Ext. 7055

OVERVIEW
Operations management is a central field in virtually every modern business organization.
An understanding of the mechanisms that enable firms to achieve operational excellence is essential
to improve performance both in the manufacturing and service sectors. It is also a key competence
for consulting companies that are called to analyze and streamline the processes of their clients.
Finally, understanding operations is also important in the financial sector, since operations is an
important criterion to assess the value of a business. Accordingly, operations management is a
fundamental discipline both for students who envisage a career in industry, and for those who have
interests in the consulting or in the financial sectors.
This course will provide a general introduction to the field and demonstrate how excellence in
designing and managing operations is a primary driver of business success. Students will develop an
awareness of the principal operational issues that arise in all businesses, and they will learn a set of
instruments that will enable them to successfully address these issues.
The course will provide the basic terminology, concepts and quantitative tools for describing,
analyzing and improving business processes, and basic knowledge about operations strategy and
supply chain management.

LEARNING OUTCOMES
When you complete this course, you should be able to:
 Understand how operational excellence may become a source of sustained competitive advantage in
both manufacturing and service operations, for instance through process innovation and process
execution.
 Use the product-process matrix to discuss the link between business strategy and product and process
choices.
 Analyze business processes, identify appropriate performance metrics and use these metrics to
improve process performance in terms of output, processing times and productivity.
 Understand why variability has a detrimental impact on both manufacturing and services operations
and apply queuing theory to estimate its impact and evaluate alternatives to reduce it.
 Understand the characteristics, advantages and limits of the most representative manufacturing
models such as push and pull.
  Identify the pillars of lean manufacturing, such as just-in-time and total quality management, and
understand how and when they can be applied to service operations.
 Understand why supply-demand mismatches are a constraint to profitability in industries with volatile
demand. Examine the sources of these mismatches, and identify structural remedies and analytical
techniques to hedge against demand uncertainty.
 Apply basic inventory management models to trade off different cost factors such as setup costs,
holding costs and cost of shortages.
 Understand how the lack of coordination among multiple decision makers affects the performance of
supply chains by creating a bull-whip effect, and identify its causes and potential remedies.

KEY TOPICS
The course is organized in two parts and covers the following topics:
 Part I: Focus on Internal Processes
o Operations strategy and product-process-matrix
o Process analysis
o Impact of variability on manufacturing and service operations (queuing)
o JIT and lean operations

 Part II: Focus on Matching Supply with Demand

o Inventory management and process innovation in apparel industry
o Supply chain coordination
o Sustainable operations

COURSE MATERIALS
Required Readings
All required and optional readings will be posted on Blackboard.
You are not required to complete optional readings before coming to class. However, you are advised
to review this material after each session to improve your understanding of the topics addressed and
to develop additional insights.

Online Resources
We will make extensive use of our course web site on Blackboard to post slides, exercises,
assignments and additional material, or just to discuss interesting news from the press that may
pertain to the course topic, so please consult it regularly.

Additional Reading Material

For a more detailed analysis of some topics (going beyond the material covered in class) you can also
consult the following textbooks (available in the library). Some of the chapters are specified in the
session details below.
Jacobs, Chase and Aquilano: Operations and Supply Management. 12th edition. Mc Graw Hill.
Cachon and Terwiesch: Matching Supply With Demand. 2nd edition. McGraw Hill.
Hopp and Spearman: Factory Physics. 2nd edition. Irwin / McGraw-Hill.
TEACHING METHODS
The majority of classes will consist of a combination of lectures and case discussions. In addition,
we will make use of simulation exercises.

PREREQUISITES
For this class, you need to have a good understanding of the basic concepts of Statistics.

GRADING
The learning occurred in the course will be assessed through the following means:
- Quality of classroom participation: 15%
- 3 quantitative homework exercises: 15% (5% each)
- Global Supply Chain Simulation and analysis (group; presence required): 20%
- Final Exam: 50%

ATTENDANCE
Attendance is mandatory. As per the MBA program regulations, you may miss one 3 our session without
penalty, by notifying both me and the MBA office at least 3 days before the absence. Note, if you miss
the group work session, you will be given a make-up assignment to be done individually.

SCHEDULE
Session 1: Operations Strategy

Frameworks or Concepts covered:

After discussing what operations management is, why it is important for organizations in the 21st
century and how we will study it, we will also introduce some fundamental concepts in operations
such as the link between Business Strategy and Process Choice. With the Rittenhouse Medical Center
case, we will look at different process choices within one organization and discuss the merits of each
of them.

Preparation:
Required reading:
- Case: Managing Orthopaedics at Rittenhouse Medical Center  (HBS 9-607-152)
Questions:
- What is your assessment of the 3B Orthopaedics model relative to that used for typical
procedures performed by the faculty practice surgeons? Which is better? What are the key
criteria for your assessment?
- What are the possible sources of conflict between the two models of care? How might they be
reduced?

Session 2: Introduction to Managing Processes: Process Design

Frameworks or Concepts covered:

We will introduce the process view as a unified framework for describing, analyzing and improving
processes. We will discuss process flow charting and how to measure and improve capacity and
processing time. We will cover fundamental process measures: inventory, throughput and flow time.
Finally, we will briefly discuss the link between process design decisions and business strategy.

Preparation:
Required reading:
 - Case: Scharffen Berger Chocolate Maker (HBS 9-606-043)
Questions:
- What are the most important competitive operational priorities for Scharffen Berger?
- How could they significantly increase capacity without affecting product quality?

Optional readings:
- Book chapter: Jacobs, Chase and Aquilano: Chapter 6 (Process Analysis)

For more details you may refer to:

- Cachon-Terwiesch Chapter 6 (Batching and Other Flow Interruptions)
- An “OM classic” about bottleneck management: The novel “The Goal: A Process of Ongoing
Improvement” by Goldratt and Cox

Session 3: Managing variability in service operations

Frameworks or Concepts covered:

In this session we will dedicate special attention to study the role of variability. We will understand
why it has a detrimental impact on both manufacturing and services operations and we will discuss
some techniques to limit this impact. Please bring your laptop in the lecture theatre (we need at least
one laptop every other student).

Preparation:
Required reading:
- Case: Benihana: A New Look at an Old Classic
- Simulation: Operations Management Simulation: Benihana V2 (HBS 7003-HTM-ENG)
Questions:
We will run a web-based simulation together. Before coming to class, please read the case and
familiarize yourselves with the simulation environment.

Optional readings:
- Note on Queuing systems

For more details you may refer to:

- Jacobs, Chase and Aquilano: Chapter 7a (Waiting Line Analysis)
- Cachon-Terwiesch Chapter 7 (Variability and Its Impact on Process Performance)

Session 4: More on Managing Processes: Process Execution & Lean Operations

Frameworks or Concepts covered:

This session compares two of the most widely used models to run operations (MRP and JIT) with the
objectives to identify their strengths, their weaknesses and their optimal domains of application. The
session will then focus on the application of Lean Operations and of the Total Quality Management
philosophy in a service setting.

Preparation:
Required reading:
- Introduction to the Toyota Production System (and links inside the file)
 - Case: Lean Process Improvements at Cleveland Clinic (W87C95-PDF-ENG)
Questions:
- Examine how Cleveland Clinic was able to apply Lean Operations tools to improve processes,
create efficiencies, and trim costs.

Optional readings:
- Book chapter: Jacobs, Chase and Aquilano: Chapter 17 (Inventory Control): Please focus on the
basic fixed order quantity model.

For more details you may refer to:

- Jacobs, Chase and Aquilano: Chapter 9 (Six-Sigma Quality and 9a Process Capability and SPC)
- Jacobs, Chase and Aquilano: Chapter 13 (Lean and Sustainable Supply Chains)
- Cachon-Terwiesch Chapter 9 (Quality Management, Statistical Process Control and Six-Sigma
Capability)

Session 5: The Bullwhip Effect in Supply Chains

Frameworks or Concepts covered:

We will play the Beer Game in this session. This exercise highlights the need for efficient information
exchange in a supply chain.

Optional Reading:
- Will be posted online after class.

For more details you may refer to:

- Cachon-Terwiesch Chapter 16 (Supply Chain Coordination)

Session 6: Process innovation in the apparel industry

Frameworks or Concepts covered:

By comparing two alternative strategies to design and operate supply chains in a highly variable
environment (the apparel industry), this session discusses how process innovation may become a
source of sustained competitive advantage. In this session, we also take a closer look at the
Newsvendor model. This model helps managers make a procurement decision when there is a single
ordering opportunity.

Preparation:
- To be announced

Optional reading:
- Book chapter: Jacobs, Chase and Aquilano: Chapter 17 (Inventory Control): Please focus on the
single-period inventory model.

For more details you may refer to:

- Cachon-Terwiesch Chapter 11 (Betting on Uncertain Demand)
- Cachon-Terwiesch Chapter 15 (Revenue Management with Capacity Controls)
Session 7: Global Supply Chain Management Simulation

Frameworks or Concepts covered:

In this session, we play an online game that simulates managing a global supply chain. The players will
have to make decisions on forecasting demand, managing capacity and inventory levels, production
flexibility and sourcing strategies. Presence in this session is required and the simulation + writeup
due in Session 8 count towards 20% of your grade. Please contact me well in advance of this Session
in case of an excused absence.

Preparation:
Familiarize yourself with the Simulation environment

Session 8: Sustainable Operations

Frameworks or Concepts covered:

This session discusses the impact of sustainability efforts on Supply Chain Management. In particular,
we will look at Walmart’s efforts to measure its environmental impacts and develop initiatives to
reduce them in a profitable manner. We will contrast three of Walmart’s sustainable value networks,
understand the conditions that are necessary for such strategies to be effective and observe how
global firms’ potential for environmental improvement mostly exists within the extended supply
chain. We will then discuss strategies that global firms can adopt when working with their suppliers so
as to realize this improvement potential.
In the second part of this class, we will debrief the Global Supply Chain Management Simulation, and
we will celebrate the winner of your MBA intake.

Preparation
All 4 years of the GSCM Simulation and Analysis due before the first Session across all sections; date
to be communicated in class.

Required reading:
- Case: Walmart’s Sustainability Strategy (Stanford OIT-71A)
Questions:
- How is Walmart deriving business value from its sustainability strategy?
- Imagine that you are Andy Ruben or Tyler Elm, evaluating the progress of the electronics,
seafood and textiles networks. Which of these networks have been most successful in
creating business value by reducing environmental impacts? What factors explain the success
(or lack of success) of these networks?
- How is Walmart motivating its suppliers to share information about and reduce the
environmental impacts of products and processes?
- As evidenced by Exhibit 12 in the case, Walmart’s sustainability strategy has generally been
profitable. However, at least one initiative described in the case benefits society and the
environment, but apparently decreases Walmart’s profits. Identify one or more such
initiatives and imagine that you are the internal champion. How would you justify pursuing
the initiative(s)?
 Optional readings:
- Article: Plambeck, Erica.L., The Greening of Walmart’s Supply Chain…Revisited (Supply Chain
Management Review, September 13th 2011)

BIOGRAPHY
Svenja Sommer is an Associate Professor in the Operations Management and Information
Technology Department at HEC Paris. She is also the Academic Director of the MSc in Innovation and
Entrepreneurship. Her research aims to improve our understanding of effective management of
innovation-related and product development projects. In particular, her research deals with issues
involving management of highly uncertain projects that are common in the domain of innovations;
idea generation and selection at the fuzzy front end of the product development process; and
collaborative product development processes within or across firms. Her research has been
published in journals such as Management Science, Organization Science and POM. She serves as a
Senior Editor for the “New Product Development, R&D, and Project Management” department of
POMS and as an Associate Editor for the “Entrepreneurship and Innovation” department at
Management Science.. She is also an ad-hoc reviewer for a number of journals, including
Management Science, MSOM, OR, Decision Sciences and POM.
At HEC Paris, Svenja teaches in the Grande École, the MBA and the EMBA program, including core
courses in Operations Management and an elective course on Supply Chain Management. She
received her PhD in Management from INSEAD, France. Prior to joining HEC, she was on the faculty
at the Krannert School of Management, Purdue University.