Competitive Advantage from Operations
Operations is concerned with the systematic design, management and improvement of the processes that
transform inputs into finished goods or services. Operations is one of the primary functions of a firm. As
marketing induces the demand for products and finance provides the capital, operations produces the product
(goods and services).
This course provides a foundation for understanding the operations of a firm. My objective by the end of the
course is to provide you with the basic skills necessary to critically analyze a firm's operating performance and
practices. Such knowledge is important for careers in a variety of areas, including general management,
entrepreneurship, investment banking (e.g. business restructurings, mergers and acquisitions), venture capital
(e.g. evaluating new business plans) and management consulting (business restructuring improvement).
Unlike many courses in the core, which tend to treat the firm as a "black box", we will be primarily concerned
with "opening up" the black box and discovering what makes a firm "tick" - or, for that matter, "stop ticking". In
contrast to your management courses, our focus is on the technological rather than human dimension of a firm's
internal operations - though there are obvious connections between the two that we will explore. In contrast to
the measurement focus of your accounting courses, our concern is understanding what elements of a firm's
operations enable it to produce quality outputs at a competitive cost structure. That is, we will focus on how the
"physics" of material, work and information flows and the design and management of a firm's processes interact
to determine a firm's cost structure and its ability to compete effectively in terms of non-cost measures such as
quality, variety and speed.
Because the operations of a firm vary widely from one industry to the next, a course like this cannot cover all
topics that are relevant to any given industry. Rather, I have selected a set of topics that are fundamental to
understanding operations in a wide range of industries. These concepts are then illustrated using cases from a
diverse set of businesses. The specific course objectives are to teach you to:
Identify the operational capabilities needed to support a business strategy; Define and characterize key
business processes; Establish clear performance objectives and process measures; Understand the impact of
demand and process variability; and Use data and tools to evaluate and improve the efficiency and
effectiveness of processes.
• Appreciate the importance of operations and its strategies, concepts and tools as a critical function of
• Create an operations strategy to support the business strategy
• Identify the operational capabilities needed to support a business strategy
• Define and characterize key business processes
• Establish clear performance objectives and process measures
• Effectively manage demand and process variability
• Use data and tools to evaluate and improve the efficiency and effectiveness of processes
Methods and Materials
The course uses a variety of teaching methods and materials. Classes will consist of lectures, discussions,
exercises and video presentations. Fundamental concepts are contained in lecture notes and readings.
Analytical tools are presented in notes, discussed in lectures and reinforced by case and homework
assignments. Cases are also used to illustrate the context and complexity of operations issues.
Text and Readings
Assigned material should be read before class to facilitate comprehension, discussion, and coverage. Readings
are contained in a customized textbook and a casebook, both available in the bookstore and in material that will
be distributed in the class. Use the syllabus as a guide for reading. You are also required to read:
The Goal: A Process of Ongoing Improvement, Second or Third Edition, Goldratt & Cox, North River Press.
The Goal is a novel about plant operations. It provides an entertaining glimpse of life within a plant and teaches
some important management concepts along the way. We will refer to it periodically throughout the first half of
You should form groups of three or four students for doing the case executive summaries.
I have made a sincere effort to keep the amount of reading for each class reasonable; in turn, however, I expect
you to read the required materials and be well prepared for each class. Cases, in particular, typically require a
detailed reading and will often require analysis of relevant data. You should bring your analyses to the class so
that we can explore various alternatives.
Goldratt, E. M., "The Goal" Second or Third Edition, North River Press, Great Barrington, MA, . Available in the
bookstore, most booksellers and online.
Optional Custom textbook with selected chapters from Operations Management for Competitive Advantage,
Chase Aquilano and Jacobs, 12th Edition, McGraw-Hill Irwin. Available in the bookstore
Online case packet for Professor Silverman containing:
Competing on Capabilities: the New Rules of Corporate Strategy
Barilla SpA Case
Toyota Motor Co. Case
National Cranberry Cooperative (Abridged) Case
Additional material to be distributed in class.
I have made a sincere effort to keep the amount of reading for each class reasonable; in turn, however, I expect
you to read the required materials and be well prepared for each class. Cases, in particular, require a detailed
reading and will often require analysis of relevant data to support your conclusions. Questions related to the
cases and The Goal may appear on the final examination.
Since class participation is part of your course grade, it is important that you strive to be a vital contributor to
such discussions. In an effort to encourage class participation, we will occasionally call on people and solicit
contributions. The quality of your participation in discussions will be judged based on the content and depth of
your comments, their relevance to the discussion, and your ability to move the class discussion forward.
We will play "The Beer Game." Your attendance during this session is required and will be counted toward your
Executive Summaries and Case Statements
Executive summaries: Specific questions and issues to be addressed are listed in the syllabus. The executive
summary should be prepared and written as a group effort and may consist of no more than three pages of text
plus 1-5 pages of attachments consisting of supporting analyses and exhibits. These must be done in groups of
three to four students. All assignments should be typed. However, attachments containing diagrams may be
(neatly) done by hand.
Case statements and homework assignments: You will prepare these but will not have a full executive
summary due. You will be required to write a one to three paragraph description of the key problem and/or issue
presented in the case. These are to be done on an individual basis. This means that these assignments are
completely your own work.
All assignments are due at the start of class, and late assignments will not be accepted.
There will be an in-class, open-book final exam.
If you have a qualified disability and will require academic accommodation during this course, please contact the
Moses Center for Students with Disabilities (CSD, 998-4980) and provide me with a letter from them verifying
your registration and outlining the accommodations they recommend. If you will need to take an exam at the
CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the
scheduled exam time to be guaranteed accommodation.
Your grade in the course will be based on your individual, as well as group efforts
and performance as follows:
Class Participation 5%
Cases Statements 25%
Executive Summaries 30%
Final Exam 40%
Class Topic Reading and Due
1 Topic 1 Read:
Course introduction and overview. Competing on
Operations strategy and business strategy. Capabilities: The New
The process perspective. Rules of Corporate
In class we will discuss the following questions:
1. What exactly are a firm's operations? What do they entail?
2. How do operations affect a firm's short-term and long-term Kristen Cookie case in
financial performance? OM Ch. 6
3. What techniques can be used to make a process efficient?
What tradeoffs are involved?
2 "Some distance below, down across the highway, is my plant. It sits in Read:
a field, a big gray steel box without windows. Inside, I know there are
about 400 people at work on day shift. Their cars are parked in the lot. The Goal, through
I watch as a truck backs between two others sitting at the unloading Chapter 10
dock. The trucks bring the materials which the machines and people
inside will use to make something. On the opposite side, more trucks
are being filled with what they have produced. In simplest terms, that's
what's happening. I'm supposed to manage what goes on down there."
[The Goal, pp. 36] Read:
Questions for class discussion on The Goal: OM Ch. 6
1. What is "the goal" according to Jonah? What are
"throughput," "operational expense" and "inventory".
2. What problems does Alex (more generally, any firm) face in XTM Bike Corporation
achieving "the goal"?
3. Think of an example of a firm that has a successful operating Individual assignment
strategy (other than those I discussed.) What do they do that for
is innovative or different? Why do they operate this way? What Kristen’s Cookies
benefit do you think they gain? 1–6 in the class outline.
Kristen’s Cookies Download:
We will continue with our analysis of Kristen’s Cookie Company. In
class we discussed Kristen’s cookie operation with her roommate
using one oven. As we discovered, one oven limits Kristen’s
production capacity. Now suppose that Kristen has obtained a second
oven (just like the first one.) Answer the following questions:
1. For orders of one dozen cookies at a time, what are the cycle
times and capacities for each operation?
2. What is the new bottleneck? What is the capacity of the
3. What is the throughput time for an order?
4. What is the maximum number of orders that can be satisfied in
one (4 hour) evening? Don’t forget the startup and shutdown
time as discussed in class.
5. How much additional profit was contributed by the second
oven assuming that Kristen sells 1 dozen cookies for $3.40?
6. Repeat the analysis for orders of two dozen cookies (of the
same type) at a time.
Types of operating processes. Product-process matching and
Questions for class discussion:
1. What are production line, batch and job-shop processes?
What advantages and disadvantages do they have?
2. What strategic challenges does a firm using each technology
3. How does a firm chose which operating technology to use?
What affects this choice? What is the consequence of
choosing the wrong technology?
Read the assigned description of XTM Bike Corp.
Cannondale is the company that XTM Bike Corp. is patterned after.
Consider the following questions for class discussion:
1. What trade-offs does XTM Bike face in the example
described in the note?
2. What is the relationship between inventory and throughput
3. What are the advantages and disadvantages of batch
3 Topic 1 Read:
Continuous Flow Process
Case: National Cranberry Cooperative (NCC)
See the Ocean Spray website showing cranberry harvesting.
Your assignment is to develop a process flow diagram for NCC and
use it to analyze the fruit processing operation at Receiving Plant #1. OM Ch.8A
The purpose of the assignment is to provide an exercise in using
process flow analysis to both diagnose an operating problem and Due:
analyze various options for solving the problem. Group Executive
Read the case and answer the questions below in an executive NCC
summary due in class. Attach a process flow diagram and supporting Answer questions 1-5
calculations to your report. in the class outline.
Draw a process flow diagram showing the major process steps, Download:
inventories and flows. Indicate the capacity at each of the process mms.xls spreadsheet
steps. You should assume:
a. 16,400 barrels per day is the average of deliveries over the 20 days
b. Each truck carries 75 barrels on average.
c. Trucks arrive uniformly over a 12-hour period starting at 7am.
d. The plant starts operating at 11am but could start earlier.
e. Trucks carry 70% wet berries and 30% dry berries.
1. Which operation (or operations) is the bottleneck?
2. How much overtime is required during this peak season?
Determine this in total man-hours over the 20 day peak period.
The receiving and processing departments each schedule
their own workers.
3. How bad is the truck delay at the loading dock during this peak
4. What are the basic options for improving the operation?
5. Which options would you recommend and why? Determine how
much overtime will be saved using your recommendations.
Then calculate the dollar savings from this reduction in
overtime over the 20 day peak period. Assume that the
average overtime pay for all workers is $7.88.
Note that you should analyze flows of berries, not amounts at discrete
points in time. For example: 16,400 berries divided by 12 yields 1367
barrels of berries arriving per hour. 70% of this means that 957 barrels
of wet berries arrive per hour. All flows are uniform throughout the day.
Consider inflow of wet berries and the capacity to process them. Also
consider the storage capacity for wet berries. There is no storage for
berries inside the plant.
In class, be prepared to discuss and defend your recommendations.
Variability in processes: Introduction to capacity planning and waiting
Questions for class discussion:
1. What are the inputs required by the queuing model described
in the note?
How can these data be obtained?
2. What are the outputs of the queuing model?
How are these used to make operating decisions?
3. What are the key insights and implications for this model?
4 Topic1 Read:
First City National Bank case FCN Bank
OM Ch. 9
Questions for class discussion:
The Goal through
chapter 31. (Reading the
remainder of the book is
1. Considering the data supplied for arrival and service times,
how would you calculate an average arrival rate and service
rate? Should you group the hours in the day into different
periods of consistent arrival rates? Due:
2. As Mr. Craig, what characteristics of this queuing system
would you be most interested in observing?
Answer questions 1-4 in
the class outline.
3. Calculate the waiting time for a customer (time in the queue
before service) for each line configuration, and determine
which of the two line configurations you would recommend.
Support your result with the appropriate quantitative queuing
analysis using data from Superpeak days in Exhibit 4. Use the
mms.xls spreadsheet. You do not need to submit all computer
output. The relevant results and the answer to the question will
4. Determine the best number of tellers to use during the
different periods of the day?
The Goal continued
Questions for class discussion:
1. What are the problems Alex's plant is facing in terms of
response time to customers?
What is the effect on his market?
2. How important is response time in the businesses that you
are familiar with?
What are the causes of the response time problems in these
3. How can a firm effectively manage response time?
4. According to Jonah, what is wrong with concept of exactly
balancing capacity and demand?
Why is excess capacity needed?
Introduction to Total Quality Management. Taguchi’s seven quality
tools. Quality implementation programs.
We will discuss the following questions.
1. How do you define quality?
2. When and why is quality important to you as a consumer?
3. What costs might poor quality impose on a firm and their
Programs for implementing TQM:
1. Six sigma
Click here to see GE’s 6 sigma program
2. Malcolm Baldrige Quality Award
Click here to go to Baldrige Award website
3. ISO 9000: 2000
Click here to go to ISO website
5 Topic 1 Read:
Hank Kolb case Hank Kolb: Director
Questions for class discussion: Quality Assurance in
OM Ch. 9
Delivering consistent quality is often an elusive goal. This case will
help us begin to understand the myriad obstacles to achieving quality Read:
in a complex operation. Consider the following questions for class OM Ch. 9A
1. What are the quality problems facing Hank Kolb? In your Individual assignment
opinion, which is the most serious? Why? for Hank Kolb case:
2. What are the causes of the problems? Focus particularly on Answer questions 1-3
what you consider to be the most serious problems. in the class outline.
3. If you were Hank, what would you do to improve quality in the
Greasex Division? What are the barriers to your plan and what Download:
can be done to overcome them? sample SPC
Statistical Process Control
We will discuss the following issues?
1. What is statistical process control and why is it important?
2. What are special and common cause variations?
3. Why is it important to distinguish between the two?
We will be doing all of the quantitative calculations and graphs using
6 Topic 1: Read:
Service Quality Ritz Carlton Hotel
Toyota Motor Company
Case: Ritz Carlton Hotel Read:
OM Ch. 12
The Excel file ritz1.xls contains a listing of a subset of all defects
reported in the DQPR (Daily Quality Problem Report) for the Ritz-
Carlton Buckhead over the period from January 1997 to November
1997. The subset contains all defects for twelve categories of defects
that directly impact the customer and are identified as causes for Due:
customer dissatisfaction. Group Executive
I suggest you look at the Ritz Carlton web site to find additional Ritz Carlton Hotel
information. Answer all 7 questions
in the course outline.
Analyze this data file and answer the following questions in an
executive summary due at the start of class: Download the
1. What is Ritz-Carlton’s business strategy? What is its
operations strategy? How does its operations strategy support
its business strategy?
2. Does the data in the ritz1.xls file indicate any significant quality
In analyzing the data you should do the following:
a. Make a p-chart for all days from January through November
for all defects
b. Make a p-chart for all days from January through November
for room clean defects
c. Create Pareto charts for:
i. all defects by keyword
ii. all defects by day of the week
iii. room clean defect by day of the week
iv. all defects as a percent of occupancy by day of the week
v. construct any other Pareto charts that will help you to
analyze the data
d. Give special attention to the 14 days that were out of
control. What days were out of control? What defects occurred
on these out of control days?
3. If you were to select a category of defect to address from the
DQPR data, which category would you address? Why?
4. Using the data and your common-sense knowledge of hotel
operations, generate hypotheses about the possible root
causes of the defect category that you selected.
5. Is there any other data that you think would be helpful to your
6. What initiatives did Ritz-Carlton take in order to make enough
further improvements to win the Malcolm Baldrige Award for
the second time?
7. What improvements does Ritz-Carlton have to make to its
operations strategy or the implementation of the strategy?
Explanation of fields in the ritz1.xls file:
The time the
Topic 1 OM Ch. 3
We will examine tools for managing projects. These tools include
Program Evaluation and Review Technique (PERT), Critical Path
Method (CPM) and project crashing. Due:
Questions for class discussion: for Toyota Motor
1. Why is it difficult to manage projects?
2. How can a project be represented in a diagram? Answer JIT questions
3. How can we use project management tools to determine the 2-3 in the class outline
earliest time that a project can be completed? How can we for class 6.
use these tools to focus management attention on the critical
tasks in the project?
4. How can tradeoffs be made between increasing costs to
reduce project completion times? Download:
network cases and
FCN project cases
8 Introduction to Supply Chain Management Read Barilla case
The Beer Distribution Game
Please arrive in class a 10 minutes before the beginning of class.
I need everyone to attend on time in order for this to work
This should be an enjoyable morning.
We will have pizza and drinks after the game.
9 Topic 2 Read:
Supply Chain Management OM Ch. 10
Tools for Managing Supply Chains: EOQ and Periodic Review HP Deskjet Supply
Inventory Models. case in OM Ch. 17
We will have a lecture with in-class exercises. Bring your calculators or Xenon Drives case
Based on the readings, think about the following questions: Individual assignment
to answer Project
1. What are the pipeline, cycle and safety stocks? Management cases:
Why do they occur?
2. What is a fill rate? Specialty Contractors
3. How is it defined and why is it important? Components
4. What is the trade-off between fill rate and inventory levels?
Effects of Centralization on Inventory Costs
Read the Xenon Drives case. We will go over the analysis is class,
Consider the following questions:
1. Why does consolidation help Xenon?
2. What other factors might you consider in doing a full-fledged
cost/benefit analysis of this situation?
10 Topic 1
The Power of Postponement OM 2A
Case: HP Deskjet Supply Chain
Click here to go to HP webpage
Read the case and answer the following questions. Submit your
analysis in the form of an executive summary due at the start of class.
HP Deskjet Supply
(You should attach 1-2 pages of calculations in exhibit form.) NOTE:
The analyses are easier if you use weeks as a unit of time in your
calculations and use a spreadsheet.
Use Data from course
1. Evaluate the various alternatives available to Brent Cartier
to address the inventory and service problem? Specifically,
consider the airfreight option by examining the cost of
Answer questions 1-4
inventory for all models in Europe (ignore Asia and North
in course outline.
America), using a 98% fill rate and the data given in Table 1.
(Each model corresponds to a unique language-power-
2. If the lead-time is 5 weeks with sea freight and 1 week by
air, and if the review period is 1 week because of production
cycles at the Vancouver plant, what savings in average
inventory are available? Assume that the product’s selling
price is $667 (from page 1 of the case) and the product’s
cost is $400. Assume airfreight adds an additional cost of
$10 per unit and that the annual inventory holding cost rate
is 12% of the unit cost. (You can assume this 12% primarily
reflects the cost of capital.)
3. The generic printer option involves redesigning the product
to make a universal voltage power supply with a detachable
power cord. Under this option, partially assembled printers
could be shipped to the European D.C. and stored in generic
form. Then, as orders come in, printers could be packaged
with the appropriate power cord and manuals as needed to
meet demand in individual countries (D.C. localization).
Evaluate the inventory savings from using a D.C. localization
4. If you were the general manager of the division, how would
you evaluate the relative strengths and weaknesses of these
options? Which, if any, would you recommend and why?
Introduction to resource allocation using Linear Programming
11 Topic 1 Re-read:
Using Excel’s Solver add-in to get linear programming solutions.
Topic 2 Individual assignment
To be assigned
12 The final exam is the full class period and is open book and notes.
It covers material from the entire semester.
Review entire course material up to this point including all cases and