What is Fortune 500?- top 500 most successful public companies, these are our focus for today

Job of Chief Operating Manager is to ensure that strategy gets done in the most efficient manner.

What is Operations Management (OM)? – Managing the transformation process of inputs to outputs (transform in a way that is in sync with overall strategy of the company)

Understand key principles:

• Processes (how things happen in an organization)
• Inventory (key driver of operations, response to a forecast)
• Variability (all uncertainty faced by business- job of operations is to protect firm against this)
• Capacity
• Measurement
• Quality

Dell Operations: How does going direct to the market affect the company?

• Days of inventory is one measure of how well an industry is doing (compare inventory at a bakery to a car manufacturer)
  
• Takes 4 days for Dell to turnover a computer, 100 days for cereal to go from factory to sale- what is the implication of this?
• What are the advantages of going directly to the market?

Examples of companies that sell direct:

• Lululemon, Clearly Contacts, Shoe Manufacturer (Nike), Financial Services (HSBC), Insurance

Advantages of Direct Business Model:

• Better information (data is valuable)
• Cut the “middle man”- not many companies actually do this
• Customization
  • Pros- increase demand, increase price/revenue

How do we deal with variance or variability? 

• “Forecast”= best guess (tells you plausible events and likelihood of those events)- forecast is NOT a number!

*Every time you make a decision under risk, need to consider revenue and cost (in forecast example, taking the average demand does not consider risk)- want to maximize long run average profit (best you could do under risk you are taking)