ISOM 2700: Operations Management

Session 1. Introduction to Operations Management

Lijian Lu
Dept. of ISOM, HKUST

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 About Me

• Assistant Professor, ISOM, HKUST Business School

§ Ph. D. from Columbia Business School
§ Research: Data-driven decision making with applications in supply
chain management, pricing and revenue management, healthcare,
quantitative finance

• Industrial Experience before HKUST

§ Founder and CIO @UniQuant Capital (hedge fund @Shanghai)
§ Executive Director @China Innovation Fund (PE/VC in Beijing)
§ Vice President @Goldman Sachs Asset Management (NYC)
§ Senior Data Scientist @Knight Capital Group (NYC) on high
frequency trading, @Amazon.com (Seattle) on e-commerce and
logistic, @AppNexus.com (NYC) on online display advertising
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About You

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 Where to Find Me?

• Instructor: Prof. Lijian Lu

• Email: [email protected]
• Office hour: Wednesday 5 p.m. -- 6 p.m. & by
appointment, LSK 4068

• Teaching Assistant: Mr Ryan Yang

• Email: [email protected]
• Office hour: Monday 1 p.m. – 2 p.m. & by
appointment, LSK 4065
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 This class

• Course Outline

• Grading

• What is Operations Management?

• Why studying Operations Management?

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 Course Information

• Course Objective
To provide you with the analytical skills and
managerial insights necessary to critically analyze a
firm's operations decisions and practices.

• Course Material
• Lecture notes and readings: available on
http://canvas.ust.hk
• Recommended Textbook (optional):
• Operations & Supply Chain Management: The Core, by Jacobs
and Chase
• Matching Supply with Demand, by Cachon and Terwiesch 6
 Course Outline

1. Process analysis – measures of efficiency

Midterm
2. Capacity planning – strategic decisions
Supply-side OM 3. Quality management – diagnostics
4. Waiting time analysis – performance
5. Inventory management – planning for demand
6. Demand forecasting – prediction

Final
Demand-side OM 7. Revenue management – regulating demand
Supply chain coordination 8. Supply chain management – coordination

Best OM practice – Integrated sales & operations planning

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 Learning Methods

• Lectures
• Spreadsheet analysis Quantitative skills + Managerial insights

• Case study

1. Start with an example

• a real business problem or a simplified version
• concrete numbers and clearly-defined questions
• managerial relevance
2. Solve the problem
• rigorous data analytics with Excel
3. Discuss the managerial insights based on the analysis
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 Grading Scheme

• 6 online quizzes 20%

– Posted on Monday morning, due by 11:59pm,
Saturday
– The quiz with the lowest grade will be dropped
• Midterm Exam 40%
– Time*: March 21 (Friday) 8pm – 10pm
• Final Exam (non-cumulative) 40%
– Time and Location: TBA

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 Grading Policy

• No makeup exam will be given.

• Close-note close-book
• Re-grading policy: I will re-grade your
assessment/examination in its entirety.
• Grade distribution:

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http://qa.ust.hk/files/GuidelinesOnGrading
 My Expectations

• Come to class on time

– DO NOT enter if you are more than 10 min late

• Conduct yourself professionally and respectfully

– Refrain from using your laptop/cellphone during class
unless instructed by the professor

• Consider it not always someone’s fault if you

don’t understand: ASK QUESTIONS!

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 So…
What is Operations Management

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Briefly Speaking, …
Operations Management:
To manage how a firm creates its
products and/or services

Examples:
Intel – CPU
HSKH Medical – healthcare services
Ernst & Young – accounting services
HSBC – financial services
HKUST – education service)

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Importance of OM

Source:
The Wall Street Journal 14
 Importance of OM
ICU Beds in Shortage during COVID-19

Source:
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The New York Times
Importance of OM

Source:
The Wall Street Journal
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 Operations Management
G

Transforming process

Input Output
Materials, Goods and/or
customers, services
data, orders,
etc. Operations Management
Resources https://www.youtube.com/watch?v=EfLS6HgAJSo
(Labor and capital, etc.)
Ops in NYC
https://www.youtube.com/watch?v=8O4zdLHtmf8

Operations Management is the set of activities that

create added value in the form of goods and services
by transforming inputs into outputs.
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 Example: Tangible Goods
Coffee Beans Taking Order
Equipment Brewing
Staffs Foaming Milk
Serving

Auto parts Fabrication

(brake,seats, Assembly
windshields…) Logistics
Battery …
Operational issues include
Customer waiting times, Quality, Inventory management, Global
supply chain, etc
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 Example: Intangible Services

Information Due diligence

(business, Valuation
competitor) Investors meetings
IBD analyst Regulations

Information
Algorithm
(users,
Matching
advertisers)
Ads with Users
Engineers

Operations Management is everywhere! It is

more than just manufacturing
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 Inside the Box
retailer
distribution customers
suppliers
plants center

customer
replenishment
service
orders orders/service requests

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 Decisions for a Manager...

• Capacity
– Should we open a new factory next year? What factors
need to be considered?

• Inventory and Supply Chain

– What quantity and frequency should we order from our
supplier? How could we reduce the supply chain risk?

• Management
– Why are our customers unsatisfied with our products
and services? How should we improve their experience?
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 How OM Can Help Organizations
1. Overcome inefficiencies

High

Competitor A Current frontier of

industry

Quality Competitor B

Eliminate
inefficiency

Competitor C

Low
Cost
High Low
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 How OM Can Help Organizations
2. Operational trade-offs

Very high quality,

comes at the expense
High of high cost

Quality Low quality, yet

saves per-unit
production cost

Low Cost
High Low
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 How OM Can Help Organizations
3. Evaluate redesigns and new technologies

High
New frontier

Current frontier of
Quality industry

Low Cost
High Low
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 OM Helps You in Multiple Ways

• Stock-pitching/investment competitions:
– Understand business model and process of companies
– Improve your valuation model and/or business plan

• Case interview:
– Provide you with ideas and analytical tools for real-
world problems
– Help you interact with interviewer and interviewees

• Future study:
– Quantitative skills, multidisciplinary knowledge, etc
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Why Should You Be Excited about OM?

Functional Role Before Becoming CEO (SP 500)

*Source: SpencerStuart 2008 26

 Why Should You Be Excited about OM?
• Median Annual Pay (Base + Bonus) in USD

* Source: www.salary.com, January 2018

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 Synergy with Other Areas: Operations+
• Operations + Finance/Accounting:
– Find investment opportunities by analyzing a firm operational
status and decisions
– E.g., Goldman Sachs, Morgan Stanley, Deloitte, McKinsey

• Operations + Technology:
– Distribute products efficiently to the broad market
– Manage supply/demand on a large scale in a fast way
– E.g., Google, Facebook, Uber, Tesla

• Operations + Marketing:
– Data-driven decision making in marketing strategies
– New roles: digital marketing, marketing operations

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Career in Management Consulting

Source: The Wall Street Journal 29

Operations Expertise Needed for Investment

• Berman Capital Management in New York

A member of an emerging group of rocket-science investors
who believe that operational data, such as inventory levels,
foretell future changes in profits.
Video
https://www.youtube.com/watch?v=mdC1hGOLAaI
• Example 1
q Berman’s experience with Saucony, a shoe maker based
near Boston
q In 2003, sales were flattish
q Inventories have declined about 20% year over year;
q Berman bought shares at $14 in 2003;
q A year later, the stock had doubled.
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Operations Expertise Needed for Investment

• Example 2
qBerman’s experience with Bombay, a furniture retailer
q In Nov of 2003, the revenue had risen a healthy 19%;
q But Berman noticed that inventories had increased 50%,
year over year;
q Berman dumped his shares of Bombay;
q The stock fell 50% in just one and a half months.

Operational data can foretell the firm’s financial performance!

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 Summary

• Course Outline and Grading

• What is Operations Management?

• Why studying Operations Management?

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