CH 1

What term refers to the products or services a business offers to its customers?

Supply

The set of products and services that customers want is defined as what?

Demand

What is the primary goal of operations management regarding supply and demand?

To match supply with demand while also making a profit.

How does a firm typically gain a significant competitive advantage over its rivals in operations?

By achieving a better match between supply and demand through operational strategies.

In economic theory, what measure represents the strength of a customer's preference for a specific product or service?

Utility

What are the three main components that compose a customer's utility function?

Consumption utility, price, and inconvenience.

What is the definition of the concept "Consumption Utility"?

A measure of how much a customer likes a product or service, excluding the effects of price and the effort required to obtain it.

What subcomponent of consumption utility refers to features that most, if not all, customers agree are more desirable?

Performance

What is the definition of the term "Fit"?

A subcomponent of consumption utility capturing how well a product matches a specific consumer's unique preferences, such as flavor or color.

The fact that different consumers have different rankings for products due to varied tastes is known as what?

Heterogeneous preferences.

In the context of utility, what does the 'Price' component specifically include?

The total cost of owning the product, including expenses like shipping, financing, and any applicable discounts.

The 'Inconvenience' component of utility is often referred to by economists as what?

Transaction costs.

What are the two major subcomponents of inconvenience in operations management?

Location and Timing.

Scenario: A customer prefers a McDonald's near their house over a better restaurant three miles away. Which subcomponent of utility is driving this choice?

Location

Scenario: A customer chooses Wendy's over a gourmet burger joint because the wait time is 2 minutes instead of 20 minutes. Which subcomponent of utility is driving this choice?

Timing

What is the definition of the term "Capabilities"?

The specific dimensions of the customer's utility function that a firm is able to satisfy effectively.

What concept describes the need for a firm to sacrifice performance on one utility dimension to excel in another?

Strategic trade-off

Graphically, if a firm improves its responsiveness but increases its average costs, it is navigating what?

Strategic trade-off

A firm is considered what if its product or service is inferior to competitors on all dimensions of the customer utility function?

Pareto Dominated

What is the definition of "Efficient Frontier"?

The set of firms in an industry that are not Pareto dominated by any other firm.

If a firm is not on the efficient frontier, the gap between its current position and the frontier is defined as what?

Inefficiency

According to the text, what are the three ways operations management can improve a business?

Make trade-offs, reduce inefficiencies, and innovate to shift the efficient frontier.

What happens to the efficient frontier when a firm finds a way to decrease costs while simultaneously increasing responsiveness?

The efficient frontier shifts (innovation).

A set of customers who share similar utility functions is known as a what?

Market segment

What are the two primary types of costs a firm incurs to provide supply?

Costs for inputs and costs for resources.

What is the definition of the term "Inputs"?

The physical things a business purchases, such as raw materials, meat for a restaurant, or medications for a hospital.

What is the definition of the term "Resources"?

The assets in a business that transform inputs into outputs, including equipment, real estate, and employees.

What are the 'Three System Inhibitors' that cause inefficiencies in an operation?

Waste, Variability, and Inflexibility.

What is the definition of "Waste"?

The consumption of inputs and resources that do not add any value to the customer.

Scenario: A restaurant prepares 50 beef patties that go unsold and must be thrown away. Which inhibitor is this?

Waste (of inputs and resources).

Scenario: A retail layout requires employees to walk long distances to fetch items, adding time but no value. Which inhibitor is this?

Waste (of resource time).

What is the definition of "Variability"?

Predictable or unpredictable changes in demand or supply over time.

What are the three common forms of demand variability identified in the text?

Customer arrivals, customer requests (menu items), and customer behavior (service time variation).

What are common forms of supply variability within an operation?

Time to serve, disruptions (absences/breakdowns), and defects.

What is the definition of "Inflexibility"?

The inability of an operation to quickly and cheaply change in response to new information or variability.

Scenario: A grocery store has long lines during a holiday rush, but the manager cannot move shelf-stockers to the registers. Which inhibitor is this?

Inflexibility

What is the definition of "Sustainable Operations"?

The goal of maintaining ecological balance by not depleting finite natural resources such as clean air, water, or biodiversity.

How does sustainability impact consumption utility when a customer prefers grass-fed beef?

It increases consumption utility, potentially allowing the firm to charge a higher price.

If a firm reduces heat waste in a chemical process to save on energy costs, which operational dimension is improved?

Efficiency (reducing unit costs).

What is the Latin root of the word 'operations' and what does it mean?

The word is 'opus,' which means 'work.'

According to Toyota's philosophy, what are the two jobs every employee has?

To do their work and to improve their work.

How does the text define the professional organization's view of operations management?

"The Science for the Better."

What are the four common modules of operational problems addressed in this book?

Process Analysis/Improvement, Productivity/Quality, Anticipate Demand, and Respond to Demand.

The core of the 'Anticipate Customer Demand' module involves the management of what?

Inventory

Which module focuses on planning work for a single, unique job, such as building a specialized piece of equipment?

Project Management (within Respond to Customer Demand).

Identify the inhibitor: An ambulance fleet has "idle" vehicles during low-call hours but cannot reduce the fleet size due to potential emergencies.

Waste (idle resources) caused by the need to handle Variability.

Scenario: A fashion retailer has items that remain in the store all season without selling. This is an example of what?

Waste

Scenario: A hospital emergency room experiences a sudden surge in patients due to flu season. This is an example of what?

Variability

Scenario: A rental car agency is unable to move vehicles between centers to meet local demand. This is an example of what?

Inflexibility

What operational decision question relates to identifying the unique medical needs of each patient in an ER?

Who are the customers and what are their heterogeneous needs?

What operational decision question involves choosing the assortment of apparel for a fashion retailer?

What is the product or service?

What operational decision question involves deciding whether to prepare food ahead of a customer order?

When will the demand be fulfilled?

Quantitative Scenario: Firm A (Price: $10, Wait: 5 min). Firm B (Price: $8, Wait: 10 min). Firm C (Price: $12, Wait: 12 min). Which firm is Pareto dominated?

Firm C (It is more expensive than both and slower than both).

In the airline industry example, why does Lufthansa have higher operating costs per mile than Ryanair?

Lufthansa makes a strategic trade-off to provide higher consumption utility (luxury/service) at the expense of cost efficiency.

Which subcomponent of utility is being addressed when a hotel offers rooms in Fisherman's Wharf versus next to the airport?

Location

Which subcomponent of utility is being addressed when a software company releases a version with more 'memory' and 'efficiency'?

Performance

True or False: A firm on the efficient frontier can be improved on one dimension without sacrificing performance on another.

False (Improving one dimension on the frontier requires a trade-off unless innovation shifts the frontier).

Identify the inhibitor: A customer at a drive-thru takes 5 minutes to find their wallet, slowing down the entire line.

Variability (Customer behavior).

Identify the inhibitor: A manufacturing machine breaks down, causing a halt in the supply process.

Variability (Disruptions).

Identify the inhibitor: A bank sets employee work schedules one week in advance and cannot adjust when a surge of customers arrives.

Inflexibility

Which component of the utility function includes transaction costs?

Inconvenience

Is a company with Price = $150,000 and MPG = 60 Pareto dominated by a company with Price = $140,000 and MPG = 50?

No (The first company is more expensive but has better fuel economy; it's a trade-off).

What is the term for the reduction in utility that results from the effort of obtaining a product?

Inconvenience

In the context of a doctor's office, what would be considered a 'resource'?

The doctor, the nurse, and the stethoscope.

In the context of a soft drink manufacturer, what would be considered an 'input'?

Water, sugar, concentrate, and empty bottles.

Which operational decision focus focuses on determining staffing plans for doctors and nurses in an ER?

How efficiently are the products or services delivered?

A firm that finds a way to offer more 'fit' (customization) without increasing 'timing' (wait times) is doing what?

Innovating to shift the efficient frontier.

Why is 'waste' considered a system inhibitor?

It consumes resources/inputs but adds no value, meaning customers won't pay for it, which creates inefficiency.

What does 'matching supply with demand' mean for a firm's bottom line?

Providing what customers want while remaining profitable.

Identify the inhibitor: A fast-food restaurant offers only one type of sandwich and cannot modify it for a vegetarian customer.

Inflexibility

Quantitative Reasoning: Hotel A ($200, 3 stars), Hotel B ($150, 4 stars), Hotel C ($300, 5 stars). Which is NOT on the efficient frontier?

Hotel A (It is Pareto dominated by Hotel B, which is cheaper and higher rated).

Concept: "The Science for the Better" is defined as what?

This is the definition of operations management used by its largest professional organization.

Which utility dimension is emphasized by a 'to-go' section in an airport restaurant?

Timing (Inconvenience).

Which utility dimension is emphasized by a 'special edition' car with higher horsepower?

Performance (Consumption Utility).

Identify the inhibitor: A call center agent is idle for 20 minutes because no calls are coming in.

Waste (of resource time).

In a utility function, if you ignore price and inconvenience, what remains?

Consumption utility

What term describes the inability to adjust to changes in the supply process or changes in customer demand?

Inflexibility

How do 'market segments' relate to the 'efficient frontier'?

Different firms on the frontier typically target different market segments by making different strategic trade-offs.

What is the formula for Profit?

Profit = Revenue - Costs

If Company A is cheaper and faster than Company B, what is the status of Company B?

Company B is Pareto dominated.