PRODUCTION AND

OPERATIONS MANAGEMENT
L E C T U R E 3 I N T R O D U C T I O N T O O P E RAT I O N S M A N A G E M E N T
CONTINUED

LEARNING OBJECTIVES
OM Introduction continued...
The four dimensions of operations performance

RESPONSIBILITIES OF OM

HARD ROCK CAFE

What OM responsibilities at the hard rock caf did
you see in the video?

MISMATCH BETWEEN SUPPLY AND

DEMAND
OM is necessary because there is always, always,
always, a mismatch between supply and demand.
So in a nutshell, challenge is to match supply with
demand.

SUPPLY DOES NOT NATURALLY MATCH

DEMAND
For economists if there is excess demand:
prices rise.
if there is excess supply:
prices fall.
For managers excess demand means:
lost revenue.
and excess supply means:
wasted resources.

SUPPLY DOES NOT NATURALLY MATCH

DEMAND
Inventory results from a mismatch between supply and
demand.
Mismatch can take one of the following two forms:
Supply exceeds Demand
Inventory = Finished goods and resources.
Demand exceeds Supply
Inventory= Waiting customers
Mismatch happens because
The demand varies
The capacity is rigid and finite
If the capacity is infinite, products (or services) can be
provided at an infinite rate and instantaneously as the de
mand happens. Then there is no mismatch. Impossible!!!

CONSEQUENCES OF THE MISMATCH ARE

SEVERE

MORE EXAMPLES OF DEMAND-SUPPLY M

ISMATCH
Compaq estimated that it lost $0.5 B to $1 B in sales in 1995
because laptops were not available when and where needed
In 02-03 flu season, 12 M of 95 M doses of flu vaccines were not
used in the US. For 03-04 season, 83=95-12 M doses were produc
ed. In 03-04 season, there were widespread vaccine shortages ca
using flu-related deaths.
British Airways had seat utilization of 70.3% in the early 2000s. If
it could increase utilization by 0.33% (by flying one more person
on a 300 seat aircraft), it would create additional revenues equal
to quarter 2 profits of 2001, which was $65 M.
In 2000, Playstation 2 of Sony were backordered by several
weeks due to high demand. But X-Box of Microsoft did not sell w
ell and was discounted by $100 per unit. Discounting is a sympto
m of a problem in operations rather than being a usual practice.
In 2009, AT&Ts telecommunication network capacity does not
suffice for 3G phone data flow demands. Calls cannot be made or
dropped.

FOUR DIMENSIONS OF
OPERATIONS PERFORMANCE

OPERATIONS IN A RESTAURANT/SANDWICH
STORE

Time
Variety
Quality
Price

OPERATIONS IN AN EMERGENCY ROOM

Time
Right
Quality
Charges/consultatio
n fees

FOUR DIMENSIONS OF PERFORMANCE

Cost
Efficiency

Quality
Product quality (how
good?)

Variety
Customer heterogeneity

Process quality (as good

as promised?)

Time
Responsiveness to
demand

IMPORTANCE OF THE FOUR DIMENSIONS

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 p
erformance measures we track.
Secondly they're really also at the heart of
defining the business strategy. These four dimens
ions give us opportunity to differentiate our opera
tions, thereby potentially providing us with a com
petitive advantage.

FOUR DIMENSIONS OF PERFORMANCE AT

THE RESTAURANT/SANDWICH STORE
Cost
Efficiency
Labor productivity
Customers served per
employee
Minute per sandwich
Customers per
restaurant

Variety
Customer heterogeneity
Number of items on the
menu

Quality
Product quality (how
good?)
Customer survey
Courtesy of the staf
Ambience of the
restaurant.
Process quality (as good
as promised?)
Freshness
Weight of cheese
Time
Responsiveness to demand
Minutes it takes for
customer from entering
and leaving.

NEXT CLASS: HOW CAN OM

HELP?