About the Instructor

• Name: Hongfan(Kevin) Chen

DSME 2030 • Office: Room 936, Cheng Yu Tung Building

Operations Management
• E-mail: kevinchen@cuhk.edu.hk

Lecture 1
Introduction to Operations Management

Hongfan(Kevin) Chen

Spring 2024

Course Material Course Information

• Lecture notes will be available on blackboard. • Homework: 15%

• Supporting material (not necessary) • Midterm Test: 40%

Operations and Supply Chain Management
by F Robert Jacobs & Richard B. Chase. • Final Test: 45%
14th Global Edition, McGraw Hill Education
• Participation: (Additional) 5%

• I take the max of final and midterm in final grade

calculation

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What Do I Do?

• Manufacturing

Introduction to Operations Management

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 What Do I Do? What Do I Do?

• Manufacturing • Manufacturing and supply chain logistics

– Shein, Zara and H&M

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What Do I Do? Supply Chain Management Example: Apple

• Logistics

http://www.youtube.com/watch?v=62h3W1U6-qs

http://www.supplychain247.com/article/is_apples_supply_chain_really_the_no._1_a_case_study

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What Do I Do? What Do I Do?

• Forecasting, Pricing, and Personalization • Forecasting, Pricing, and Personalization

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 Operations Management Marketing and Operations Strategy

• Operations management is the business function that

plans, coordinates, and controls the resources needed to
produce a company's products and services.

Operational innovations have longer lasting advantages

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Operations Management Course Goals

• Why studying Operations Management?

IT Knowledge Data Analytics Knowledge Business Knowledge

Software Engineer Business Analyst Specialist

IT Consultant
Data Scientist and Consultant
• How to “think” • How to improve
Accounting operationally? efficiency?
Computer Science
Operations Management Finance
Statistics
Marketing • How does one manage a • And more…
business process?
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A Roadmap for the Quarter

Main Topics

1. Introduction to Operations Management

2. Process Flows

3. Capacity Management Process Flows

4. Waiting Lines

5. Demand Forecasting

6. Inventory Management

7. Revenue Management and Customized Pricing

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 Business Process Flows Assembly is a Process Flow

• A business process flow is a collection of recurring

economic activities that takes one or more kinds of input
and creates an output that is of value to the customer.

Inputs Activities Outputs

Resources

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Hospital is a Process Flow CUHK Business School is a Process Flow

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Process Flow Dimensions of Customer Value

Inputs Activities Outputs Output

Time

Resources Customer Value

Price

Quality

Variety
What are the good performance measures in your opinion?

Tradeoffs!

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 Pressure to Align Process Flow

Throughput Inventory Throughput

<= Capacity <= Capacity
Cycle time
✦ Time
✦ Price ✦ Cycle time: Time a job spends in a process (time)

✦ Quality ✦ Inventory: Jobs that accumulate in a process (jobs)

✦ Variety ✦ Throughput: Rate at which jobs “come and go” through the
process (jobs/time)

✦ Capacity: Maximum achievable average throughput

(jobs/time)

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How to Calculate? Mary’s Lemonade Stand

Suppose N jobs “come and go” over time duration T.

Average Throughput = λ = N/T

Average Cycle time = CT =

where CTi is the cycle time of job i. Interarrival

Service Times
times
Average Inventory = INV =
1 min 1 min
2 min 3 min
1 min 1 min

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Interarrival Service Little’s Law

times Times
1 min 1 min
2 min 3 min

INV = λ CT
3 1 min 1 min

1 2 3

N = 3 customers
✦ Relates the averages of three key metrics
T = 7 minutes
✦ Holds for a broad range of processes
Average Throughput = λ = N/T = 3/7 customers/minute Any relationships
between these
Average Cycle time = CT = = = 7/3 minutes
numbers?
Average Inventory = INV = = = 1 customer

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 Example: Mclhenny Example: Cash Flows (Accounts Receivable)

The Mclhenny Company produces Tabasco Sauce from

A firm sells $300M worth of goods per year. The average
peppers only harvested on Avery Island in LA. The bulk of
in Accounts Receivables is $45M.
the process flow of the production process is in storing the
sauce in wood barrels for 2 years. The plant ships 1000
On average how long does it take before a payment is
barrels of sauce per week.
received?
How much work in process inventory is stored in
barrels?
λ = $300M /year
λ = 1000 barrels per week INV = λ*CT = 104,000
INV = $45M
= 52,000 per year barrels
CT = 45/300 = .15 year → 1.8 months
CT = 2 years

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Emergency Room Emergency Room, cont’d

• Patients arrive to CUHK who do not enter the λbalk
Hospital Emergency at wait area). All the
an average rate of 40 per patients who have
hour. There are two entered the wait area will
types of patients: Those eventually see a doctor,
who enter the system and the average delay for Wait See Doctor
and eventually see a these patients in the wait λ=40 λeff λeff λeff
doctor, and those who area is 2 hours. There
balk immediately are always 15 doctors on INVw=50 INVD=12
without entering the staff at all times, and we
system (if they perceive can consider that they CTw=2
that the wait will be too are 80% utilized on
long). Patients who average. • Flow conservation: λ= λbalk+ λeff
enter the system first
Questions: • Little’s Law at “Wait” Process : INVw= λeff CTw
delay in a wait area
before seeing a doctor. 1. What is the average rate
• λeff = 50/2 = 25 patients/hr
The wait area has 80 at which potential patients • λbalk = 40 - 25 = 15 patients/hr
chairs. The average balk?
number of patients in the • Little’s Law at “See Doctor” Process: INVD= λeff CTD
wait area is 50 (this does 2. What is the average time
spent seeing a doctor?
• CTD = 12/25 = .48 hrs or 28.8 minutes
not include the balkers
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Bathtub Analogy

Capacity: the IN(t)

Capacity Analysis largest, long
run-sustainable
throughput

IN(t)-OUT(t)=∆INV(t)
OUT(t)

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 Capacity Bottleneck Paul’s Pizza Process

Paul
✦ Bottleneck: a resource or
resource pool that limits
Make pizza
the maximum average (dough + top)
sustainable throughput

✦ Determines the capacity CTP = 10 min

capacity = 1 pizza / 10 minutes = 6 pizzas / hr

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Two Server Serial System Starvation

Paul George

Make doughs Toppings Make dough Top

CTP= 5 min CTG= 5 min CTP= 5 min CTG= 3 min

CT = CTP + CTG = 5 + 5 = 10 minutes CT = CTP + CTG = 5 + 3 = 8 minutes

capacity = 1 pizza / 5 minutes = 12 pizzas/hr capacity = 1 pizza / 5 minutes = 12 pizzas/hr

Paul is the bottleneck! George is starved!

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Gantt Chart Blocking

100%
1 2 3
utilization

CTP= 5 min Make dough Top

60% CTP= 3 min CTG= 5 min

1 2 3
utilization

CT = CTP + CTG = 3 + 5 = 8 minutes

CTG= 3 min
capacity = 1 pizza / 5 minutes = 12 pizzas/hr
0 5 8 10 13 15 18 20

Paul is blocked! George is the bottleneck!

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 1

Gantt Chart Two Server Parallel OR System

1 2 3
60%
utilization 50% Make pizza

CTP= 10 min
CTP= 3 min OR

50% Make pizza

100%
1 2 3
utilization CTG= 10 min

CT = 0.5CTp + 0.5CTG = 5 + 5 = 10 minutes

CTG= 5 min
capacity = 2 pizza / 10 minutes = 12 pizzas/hr
0 3 5 8 10 13 15 18 20

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Two Server Parallel OR System Two Server Parallel AND System

6 pizzas/hr
Make pizza Make pizza

CTP= 10 min CTP= 10 min

OR 16 pizzas/hr AND

Make pizza Make wings

10 pizzas/hr CTG= 5 min

CTG= 6 min

CT = (6/16)CTp + (10/16)CTG = 7.5 min CT = max{5,10} = 10 minutes

capacity = 6 p / hr + 10 p/ hr = 16 pizzas/hr capacity = min{6 orders/hr, 12 orders/hr}= 6 orders/hr

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Building Blocks Process Elements

Inputs: Orders, meat, cheese, bread, etc.

Outputs: Completed orders, sandwiches

Activities: Take order, prep, load, bake,

top, rest, pack & pay

Resources: Harry, Sam, Oven, Counter

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