SMOperations_Management_Sustainabil
ity_and_Supply_Chain_Management
Operations and Productivity
Background
Operations management has created industry giants. The Ritz-Carlton Hotel Company’s mission is to
provide an outstanding customer experience through a complete focus on quality management. UPS
operates trucks that run for 20 years because their drivers care. Disney has made a science of accurate
forecasts and queuing theory. Darden Restaurants (Red Lobster, Olive Garden, and others) view operations
as their strategy for success. Frito-Lay dominates the snack market by keeping fresh snacks on the shelves
with a production process that converts raw materials into a bag of chips sitting in a grocery store in as
little as a day or two.
The importance of operations management can be highlighted early in the course with humorous videos
or stories about “operations gone wrong.” Most students can share “disaster” stories about poor
experiences that they have had dealing with companies. On a more serious note companies such as Maple
Leaf Foods, XL foods, Boeing (Dreamliner), and Johnson & Johnson (Tylenol) provide great examples that
can lead to a fascinating discussion of the operations recovery process—what to do and what not to do
when an operational failure gets media attention.
It can be useful as well to spend some class time discussing the job market for operations management
majors, comparing starting salaries and job titles to other business majors. Find an MBA program with a
strong operations focus and display the starting salaries of those graduates (such data are available on
many MBA program websites). Research shows that (1) more CEOs “learn the ropes” by coming up through
operations than any other functional area, and (2) Chief Operating Officer salaries tend to be
approximately 10% higher than the salaries of the other “Chiefs” (CFO, CMO, and CIO).
Class Discussion Ideas
,1. Choose an organization the students will be familiar with and ask them to identify and describe the
product of that organization. Direct the discussion to highlight the complex nature of the product
offerings of most organizations today where product and service elements are found to some degree
in almost all organizations.
2. Have the students choose a few different tasks or jobs and identify possible productivity measures for
these. They should describe how they would go about making the necessary measurements. Student
and faculty productivity are easy examples that can generate quite a bit of discussion. One possible
way to start the discussion is to ask whether grades or research output is an effective measure of
student and faculty productivity.
Active Classroom Learning Exercises
1. Labour productivity is sometimes perceived to be driven by employee motivation. Have the students
split up into small groups to discuss effective ways to motivate hourly employees vs. salaried
managers. If productivity of these workers is below expectation, what are good and poor ways to try
to motivate them? What methods might work well with blue collar employees but not white collar
employees, and vice-versa? What methods might work well in the short run but not in the long run,
and vice-versa? Have each student group report its ideas to the whole class. (And if any group has little
to say, ask them what could have been done to motivate them to do better!)
2. Companies often locate in other countries to take advantage of low wage rates. However, the
difference in labour costs should be adjusted to account for productivity differences among the
workers in the two locations. One way to do this is to compute a “relative wage rate,” R, of operating
in another country. Note that R is not the actual wage rate paid, but it is the hourly wage rate of
operating in another country relative to the home country, after taking productivity differences into
account. If the foreign country’s workers are more productive, R will decrease, and vice-versa.
The formula is R = (W ÷ X)(U ÷ F), where W = the foreign wage rate (in foreign currency per hour),
X = the exchange rate (in foreign currency per local currency), U = home country productivity (in units
per hour), and F = foreign country productivity (in units per hour).
A problem could be described as follows. Suppose that workers in Britain earn ₤10/hour. The exchange
rate with Canada is $1.50 per ₤1. Canadian workers can produce 40 units per hour, while British
, workers at a similar facility can produce 50 units per hour. If the Canadian wage rate is
$14 per hour, should the firm produce in Canada or in Britain?
Have the students try the exercise in class. They will probably analyze this problem by computing a
labour cost per unit in each country (35 cents vs. 30 cents). Then introduce the concept and formula
for relative wage rate (R = $12 in Britain). Both approaches are equally accurate, but using a relative
wage rate has political advantages, i.e., it seems easier to talk about one wage rate vs. another ($14
vs. $12) as opposed to comparing costs per unit (35 cents vs. 30 cents).
Company Cases (Video and Descriptive)
Video 1.1
Operations Management at Hard Rock (8:26)
Hard Rock is interesting because it’s so much more than just a restaurant. Management speaks about
its “experience strategy,” which, in addition to quality food, includes rock-and-roll memorabilia, music,
lighting, jovial staff, and a retail store. The video is sprinkled with scenes of happy employees dancing
around or volunteering in the community. Most of the video is spent covering how Hard Rock Café
approaches some of the 10 operations management decisions. For example, (1) scheduling is driven
by forecasts that are based on prior sales, seasonality, recent trends, and current local events; (2) café
layout focuses on maximizing the customer experience and driving customers toward revenue-
generating activities; and (3) inventory management goes well beyond the inventory of food and retail
items—Hard Rock has a $40 million inventory of rock-and-roll memorabilia to manage, and each
restaurant goes through a complete changeover of memorabilia every 5–7 years.
As an entertaining piece and one that covers a variety of OM decisions, this is certainly a good video to
show early in the course when discussing Chapter 1. Many students will have eaten at a Hard Rock Café
themselves, and most should enjoy seeing memorabilia from rock stars such as Madonna and KISS. This
is also a good way early in the course to show that operations management is just as important in
services as it is in manufacturing. Prior to showing the video, the instructor might ask the students to
think about the 10 OM decisions and how Hard Rock approaches them. Afterwards, a discussion might
revolve around aspects of those decisions that are unique to service businesses in general and then to
Hard Rock Café in particular. Two clear differences about Hard Rock Café itself are (1) because of and
contributing to such successful branding, the café’s retail sales (shirts, etc.) account for nearly the same
amount of revenue as the main product (the food); and (2) the management of the memorabilia around
the world represents a unique and extremely important management effort on its own.
, Video 1.2
Operations Management at Frito-Lay (7:11)
Frito-Lay, a subsidiary of PepsiCo, has over 40 product lines, seven of which have sales exceeding
$1 billion. In this video, the textbook authors review the 10 OM strategy decisions and briefly describe
how Frito-Lay addresses each one. For example, the company is constantly innovating with new
products. For quality assurance, it uses multiple inspection points both within and outside the factory,
and it utilizes statistical process control. The plant applies a product focus strategy, which is
appropriate for a high-volume, low-variety producer. As raw materials are perishable and shelf life is
relatively short, plant location decisions are driven by proximity to raw materials or markets. The plant
has low employee turnover, driven by good benefits, respect for people, and a strong concern for
safety and ergonomics. Inventory levels are quite low, and inventory is turned over 200 times per year.
Potatoes are delivered 10 times per day. Schedules are driven by demand forecasts and adjusted for
local events, such as the annual Daytona 500 auto race. All of these practices, along with excellent
layout, supply-chain, and maintenance policies, have helped to make Frito-Lay the world’s largest
snack manufacturer.
If the video is shown before the 10 OM decision are covered, the instructor could first ask the
students to list the major decisions that they think that operations managers make. Afterwards, the
10 decisions from the book can be compared to the student lists. Then the instructor can choose a
different company, perhaps a service organization, with which students might be familiar. The class
could try to identify ways in which that organization addresses the 10 decisions and perhaps
compare those to some of Frito-Lay’s tactics.
Cinematic Ticklers
1. Fawlty Towers: “Waldorf Salad” (John Cleese and Prunella Scales), CBS/FOX VIDEO, 1986 (1979)
This can actually be the first thing done in class all semester. The very start of the episode contains a
funny scene about suppertime in the dining room of a bed and breakfast in England. The owners and
staff make numerous errors. A class discussion can directly follow, listing what went well (almost
nothing) and what didn’t (many things). This clip can start a course off well because: (1) it’s a very easy
way to create an atmosphere of student participation right away in the course—identifying poor
ity_and_Supply_Chain_Management
Operations and Productivity
Background
Operations management has created industry giants. The Ritz-Carlton Hotel Company’s mission is to
provide an outstanding customer experience through a complete focus on quality management. UPS
operates trucks that run for 20 years because their drivers care. Disney has made a science of accurate
forecasts and queuing theory. Darden Restaurants (Red Lobster, Olive Garden, and others) view operations
as their strategy for success. Frito-Lay dominates the snack market by keeping fresh snacks on the shelves
with a production process that converts raw materials into a bag of chips sitting in a grocery store in as
little as a day or two.
The importance of operations management can be highlighted early in the course with humorous videos
or stories about “operations gone wrong.” Most students can share “disaster” stories about poor
experiences that they have had dealing with companies. On a more serious note companies such as Maple
Leaf Foods, XL foods, Boeing (Dreamliner), and Johnson & Johnson (Tylenol) provide great examples that
can lead to a fascinating discussion of the operations recovery process—what to do and what not to do
when an operational failure gets media attention.
It can be useful as well to spend some class time discussing the job market for operations management
majors, comparing starting salaries and job titles to other business majors. Find an MBA program with a
strong operations focus and display the starting salaries of those graduates (such data are available on
many MBA program websites). Research shows that (1) more CEOs “learn the ropes” by coming up through
operations than any other functional area, and (2) Chief Operating Officer salaries tend to be
approximately 10% higher than the salaries of the other “Chiefs” (CFO, CMO, and CIO).
Class Discussion Ideas
,1. Choose an organization the students will be familiar with and ask them to identify and describe the
product of that organization. Direct the discussion to highlight the complex nature of the product
offerings of most organizations today where product and service elements are found to some degree
in almost all organizations.
2. Have the students choose a few different tasks or jobs and identify possible productivity measures for
these. They should describe how they would go about making the necessary measurements. Student
and faculty productivity are easy examples that can generate quite a bit of discussion. One possible
way to start the discussion is to ask whether grades or research output is an effective measure of
student and faculty productivity.
Active Classroom Learning Exercises
1. Labour productivity is sometimes perceived to be driven by employee motivation. Have the students
split up into small groups to discuss effective ways to motivate hourly employees vs. salaried
managers. If productivity of these workers is below expectation, what are good and poor ways to try
to motivate them? What methods might work well with blue collar employees but not white collar
employees, and vice-versa? What methods might work well in the short run but not in the long run,
and vice-versa? Have each student group report its ideas to the whole class. (And if any group has little
to say, ask them what could have been done to motivate them to do better!)
2. Companies often locate in other countries to take advantage of low wage rates. However, the
difference in labour costs should be adjusted to account for productivity differences among the
workers in the two locations. One way to do this is to compute a “relative wage rate,” R, of operating
in another country. Note that R is not the actual wage rate paid, but it is the hourly wage rate of
operating in another country relative to the home country, after taking productivity differences into
account. If the foreign country’s workers are more productive, R will decrease, and vice-versa.
The formula is R = (W ÷ X)(U ÷ F), where W = the foreign wage rate (in foreign currency per hour),
X = the exchange rate (in foreign currency per local currency), U = home country productivity (in units
per hour), and F = foreign country productivity (in units per hour).
A problem could be described as follows. Suppose that workers in Britain earn ₤10/hour. The exchange
rate with Canada is $1.50 per ₤1. Canadian workers can produce 40 units per hour, while British
, workers at a similar facility can produce 50 units per hour. If the Canadian wage rate is
$14 per hour, should the firm produce in Canada or in Britain?
Have the students try the exercise in class. They will probably analyze this problem by computing a
labour cost per unit in each country (35 cents vs. 30 cents). Then introduce the concept and formula
for relative wage rate (R = $12 in Britain). Both approaches are equally accurate, but using a relative
wage rate has political advantages, i.e., it seems easier to talk about one wage rate vs. another ($14
vs. $12) as opposed to comparing costs per unit (35 cents vs. 30 cents).
Company Cases (Video and Descriptive)
Video 1.1
Operations Management at Hard Rock (8:26)
Hard Rock is interesting because it’s so much more than just a restaurant. Management speaks about
its “experience strategy,” which, in addition to quality food, includes rock-and-roll memorabilia, music,
lighting, jovial staff, and a retail store. The video is sprinkled with scenes of happy employees dancing
around or volunteering in the community. Most of the video is spent covering how Hard Rock Café
approaches some of the 10 operations management decisions. For example, (1) scheduling is driven
by forecasts that are based on prior sales, seasonality, recent trends, and current local events; (2) café
layout focuses on maximizing the customer experience and driving customers toward revenue-
generating activities; and (3) inventory management goes well beyond the inventory of food and retail
items—Hard Rock has a $40 million inventory of rock-and-roll memorabilia to manage, and each
restaurant goes through a complete changeover of memorabilia every 5–7 years.
As an entertaining piece and one that covers a variety of OM decisions, this is certainly a good video to
show early in the course when discussing Chapter 1. Many students will have eaten at a Hard Rock Café
themselves, and most should enjoy seeing memorabilia from rock stars such as Madonna and KISS. This
is also a good way early in the course to show that operations management is just as important in
services as it is in manufacturing. Prior to showing the video, the instructor might ask the students to
think about the 10 OM decisions and how Hard Rock approaches them. Afterwards, a discussion might
revolve around aspects of those decisions that are unique to service businesses in general and then to
Hard Rock Café in particular. Two clear differences about Hard Rock Café itself are (1) because of and
contributing to such successful branding, the café’s retail sales (shirts, etc.) account for nearly the same
amount of revenue as the main product (the food); and (2) the management of the memorabilia around
the world represents a unique and extremely important management effort on its own.
, Video 1.2
Operations Management at Frito-Lay (7:11)
Frito-Lay, a subsidiary of PepsiCo, has over 40 product lines, seven of which have sales exceeding
$1 billion. In this video, the textbook authors review the 10 OM strategy decisions and briefly describe
how Frito-Lay addresses each one. For example, the company is constantly innovating with new
products. For quality assurance, it uses multiple inspection points both within and outside the factory,
and it utilizes statistical process control. The plant applies a product focus strategy, which is
appropriate for a high-volume, low-variety producer. As raw materials are perishable and shelf life is
relatively short, plant location decisions are driven by proximity to raw materials or markets. The plant
has low employee turnover, driven by good benefits, respect for people, and a strong concern for
safety and ergonomics. Inventory levels are quite low, and inventory is turned over 200 times per year.
Potatoes are delivered 10 times per day. Schedules are driven by demand forecasts and adjusted for
local events, such as the annual Daytona 500 auto race. All of these practices, along with excellent
layout, supply-chain, and maintenance policies, have helped to make Frito-Lay the world’s largest
snack manufacturer.
If the video is shown before the 10 OM decision are covered, the instructor could first ask the
students to list the major decisions that they think that operations managers make. Afterwards, the
10 decisions from the book can be compared to the student lists. Then the instructor can choose a
different company, perhaps a service organization, with which students might be familiar. The class
could try to identify ways in which that organization addresses the 10 decisions and perhaps
compare those to some of Frito-Lay’s tactics.
Cinematic Ticklers
1. Fawlty Towers: “Waldorf Salad” (John Cleese and Prunella Scales), CBS/FOX VIDEO, 1986 (1979)
This can actually be the first thing done in class all semester. The very start of the episode contains a
funny scene about suppertime in the dining room of a bed and breakfast in England. The owners and
staff make numerous errors. A class discussion can directly follow, listing what went well (almost
nothing) and what didn’t (many things). This clip can start a course off well because: (1) it’s a very easy
way to create an atmosphere of student participation right away in the course—identifying poor
