MANAGEMENT SCIENCE Informs ® Vol

50th Anniversary Article Five Decades of Operations Management and the Prospects Ahead

Sunil Chopra Kellogg School of Management, Northwestern University, Evanston, Illinois 60208, [email protected] William Lovejoy School of Business, University of Michigan, Ann Arbor, Michigan 48109, [email protected] Candace Yano IEOR Department and the Haas School of Business, University of California, Berkeley, California 94720, [email protected]

perations and Supply Chains is the current title for a department that has evolved through several different Otitles in recent years, reflecting its evolving mission from a focus on classical operations research at the time of ORSA’s founding 50 years ago toward an embrace of a broader body of theory. Throughout this evolution, the focus on applied problems and the goal of improving practice through the development of suitable theory has remained constant. The Operations and Supply Chains Department promotes the theory underlying the practice of operations management, which encompasses the design and management of the transformation processes in manufacturing and service organizations that create value for society. Operations is the function that is uniquely associated with the design and management of these processes. The problem domains of concern to the department have been, and remain, the marshalling of inputs, the transformation itself, and the distribution of outputs in pursuit of this value-creating end. Over the past 50 years the department has had a variety of titles, reflecting an evolving understanding of the boundaries of the operations function. In this article we celebrate past accomplishments, identify current challenges, and anticipate a future that is as exciting and opportunity-rich as any our field has seen. Key words: history; operations; supply chain management; future research

1. Celebration of History and groups largely initiated and funded by govern- Accomplishments ment and quasi-governmental organizations. These It is difficult to pinpoint the origins of our field. mission-focused mathematicians modeled classes of The search for rigorous laws governing the behaviors problems and developed the foundational theories to of physical systems and organizations has through- address them, which created the Big Bang in our dis- out history featured bursts of activity and periods of cipline. The applied problems motivating the work quiet. The classes of problems that we are most famil- were concerned with the efficient allocation and con- iar with today came into high relief after the Indus- trol of resources; these were analyzed via mathemati- trial Revolution, when managers of large, vertically- cal models. Although some papers written in this era integrated businesses faced coordination problems of focused on descriptive models of system behavior, the unprecedented scope. Treatises on organizing, mea- dominant paradigm was optimization of system per- suring, and managing production in these challeng- formance in the presence of constraints. ing settings were published by a range of profession- Management Science published its first volume in als from business and industry. The rise of “scientific 1954 and helped to promote and catalog the explosive management” is usually associated with the work of expansion of optimization theory fueled by interest Frederick Taylor, Frank and Lillien Gilbreth, and oth- in these applied problems. Indeed, the first issue of ers in the late 19th and early 20th centuries. The Ford Management Science was dominated by topics that are Harris EOQ model dates at least as far back as 1915. clearly related to important issues in operations man- During World War II these efforts continued, and agement. In the 1950s and 1960s the pages of Man- were amplified, in the form of operations research agement Science displayed seminal articles by scholars

8 Chopra, Lovejoy, and Yano: Five Decades of Operations Management Management Science 50(1), pp. 8–14, © 2004 INFORMS 9 now recognized as giants in the field. These included private foundations to make business education more contributions by G. Dantzig on the development and rigorous, and efforts by universities to prepare faculty uses of linear programming; by L. R. Ford and D. R. for this task. Fulkerson on network flow problems; by A. J. Clark, S. Karlin, H. Scarf, H. M. Wagner, T. M. Whitin, A. Veinott, and D. Iglehart on inventory theory; by 2. The Challenges of the 1970s and R. Bellman, A. Manne, C. Derman, A. Veinott, and 1980s and the Response E. Denardo on dynamic programming; by C. Derman The period from the late 1960s through the 1970s saw and S. Ross on machine maintenance; by J. Jackson on a number of changes in the landscape of scientific queueing networks; and by J. C. Harsanyi on game computing, technology transfer of operations research theory. Many of the methodological developments tools, business education, and business practice that listed above were motivated by operations manage- precipitated important changes in the field of opera- ment problems and were described in those contexts. tions management. For example, Dantzig applied linear programming Operations research faced two types of challenges to machine-job scheduling and aircraft routing. Bell- during this era. First, whereas the 1950s and 1960s man applied dynamic programming to a warehousing provided a glimpse of the promise of management problem while Manne analyzed capacity expansion science to industry, the next two decades saw less problems formulated as dynamic programs. success in delivering on this promise to indus- Most of the early research focused on develop- try. The speed and cost of computing continued to ing algorithms and methodologies to solve optimiza- improve dramatically, but data storage and compu- tion problems that arose in a broad range of func- tation remained as practical hurdles to the imple- tional areas. With a few notable exceptions such as the mentation of many algorithms. Also, in some cases, Dantzig-Wolfe decomposition and Harsanyi’s work, the models did not keep pace with the evolution much of this work involved mathematical analysis of business challenges and practice, and firms began and algorithms within the context of a single deci- to question the value of these models and method- sion maker. Most of the optimization problems also ologies. Second, academic researchers in functional involved a single objective though there were early areas such as accounting, finance, and marketing, had exceptions featuring multicriteria problems. The strik- increasingly internalized the optimization theory and ing feature of this early research is the broad range of technology developed by operations researchers in areas—including operations, finance, organizational the previous two decades and were using it as part design, economics, and marketing—from which prob- of their research. This period saw many operations lems originated. The first volume of Management Sci- researchers move into other functional areas because ence, for example, included papers on executive com- those were the sources of their problems. As a result, pensation, linear programming under uncertainty, the application of operations research ideas to mar- the impact of communication nets on task-oriented keting, for instance, began to be viewed more as mar- groups, and an axiomatization of utility. The common keting. By the 1980s, most corporate groups focused theme, however, was the use of a mathematical model on operations research had shrunk or disappeared. to identify how the status quo could be improved. At the same time, the academic research in opera- Much of the initial work within the domain of tions research cum operations management became operations management focused on tactical issues somewhat less focused on problems arising in a broad such as line balancing, scheduling, production plan- range of functional areas and more on problems that ning, inventory control, and lot sizing. In some ways were internal to the theory developed in the field. these tactical problems were ideally suited for the Simultaneously, industry was seeing the introduc- methodologies that had been developed up to that tion of material requirements planning (MRP) sys- point. For these problems, the constraints and objec- tems, then later concepts such as just-in-time (JIT), tive were usually well defined and involved a single the Toyota production system (TPS), and total qual- objective with centralized control. These early suc- ity management (TQM), which were having a signifi- cesses resulted in the birth of operations research cant impact on business practice and performance but groups at many corporations, tasked with finding were not strongly tied to the then-current academic ways of improving performance. Within the aca- research. Indeed, the ascendancy of the Toyota pro- demic community, most of the research in these duction system in business practice suggested that the areas initially took place in engineering departments. locus of creativity had shifted away from academia. Gradually, during the 1960s, researchers in business During this period, researchers began examining schools began to study more scientific and rigorous operations management issues using non-operations approaches for decision making, instigated in part by research perspectives, seeking to explain phenomena recommendations emanating from studies by various that could not be explained by the existing theory. Chopra, Lovejoy, and Yano: Five Decades of Operations Management 10 Management Science 50(1), pp. 8–14, © 2004 INFORMS

The Toyota production system provided one focus for detail) and, by so doing, refining the claims that can such research; although it contains features that are be derived. compatible with classical theory, it is also a holistic We will speculate as to the future of the supply system of physical and human processes that extends chain subliterature later in this article, but here it is its reach into the whole firm in a cross-disciplinary worthwhile to trace some broad outlines of its devel- manner. Other researchers were beginning to examine opment. First, business practice called the existing higher-level issues in manufacturing strategy using research paradigm into question. Second, addressing an empirical approach. By the end of the 1980s, the new problems in some cases required the impor- researchers and practitioners were using a broader set tation of technology developed elsewhere (e.g., eco- of methods and paradigms in their quest to improve nomics). Third, the research focus became more man- operations. agerial (e.g., focusing on system design, information, The changes and challenges of the 1970s and 1980s and incentives) and less on tactical execution. For generated a sense of identity crisis in our discipline. example, very simple inventory policies, such as base- This was felt at some level by all of the researchers stock policies, have often been used as elements of who lived through this era, but there is no consensus higher-level system-design models. The development on the totality of its causes or characteristics. Some of this subfield has been very beneficial to our dis- contributing factors included the natural maturation cipline, at least if one counts research papers, com- of the classical problem classes, and a need to reach pany sponsorships, and popular university courses. for the next higher level of complexity. There was In response, the editor-in-chief of Management Science also an evolution within business from centralized to created the Supply Chain Management Department in more decentralized organizational forms. The theory 1997 to promote the cause, rather than assuming that base for the discipline was expanding and diversi- the existing operations department would naturally fying dramatically. Whatever the causes of the iden- embrace this new research agenda. Each of these observations helped inform our tity crisis, the challenge to our field at this stage was department’s response to the challenges of the time. to return to our original mission of using theory to Some broad themes are clear. First, the field needs to inform current practice. continually check its research against evolving indus- The first literature to develop in response to this trial reality. This is sympathetic with our classical mis- challenge focused on trying to explain JIT and other sion: Our academic forefathers in war-time OR teams industry practices in the context of theory that had were very focused on reality out of mission-critical been developed earlier. This research was valuable necessity. The elegant mathematics that energized our because it brought the attention of the field back to field responded to real problems and can do so again. issues that were of concern to practicing managers. Second, and as a consequence of the first, our research This refocusing of research questions has been a cru- will likely become more explicitly interdisciplinary, cial driver of growth of the field in the 1990s. as it was in our early years, because actual business Two important developments occurred as a result practice is not cleanly divided into functional prob- of this refocusing. The first was a move back toward lems. As we do this, we need to maintain our focus interdisciplinary research. The second was an explicit on the core agenda that defines our field: the design recognition of decentralized loci of control and local and management of the transformation processes that incentives, and hence the re-emergence of economic create value for society. equilibrium in addition to sole-owner optimality as The department needs to embrace new, exciting criteria of central interest to our community. Both of research directions while protecting the brand equity these influences can be seen in the recent literature of the journal. If we are sufficiently proactive, new on supply contracts. The first papers in this area were departments will not be needed to raise the visibility motivated by contract forms actually in use by com- of new and exciting subliteratures. This requires a del- panies for sharing forecast risk, and examined the icate balance at times. Some of the classical research optimal response of a single party to a particular con- themes are relatively mature, with very clear barom- tract form. Thus, researchers focused on how capac- eters of research excellence well known to a large ity and replenishment decisions need to be modified community of scholars. This is not so with some of for different contract contexts. It was only later that the newer areas. We might anticipate a period—albeit operations management researchers asked questions short—of technology transfers from other disciplines about appropriate (or optimal) contract forms. The that will naturally raise the question of how we judge initial papers featured relatively modest refinements the novelty of a paper. This is already happening. to existing economic intuition by adding resolution to We anticipate that a focus on the issues central to some general economic models (e.g., replacing gen- operations management will soon carry us beyond eral revenue or cost functions with more operational existing technologies and provide the catalyst for Chopra, Lovejoy, and Yano: Five Decades of Operations Management Management Science 50(1), pp. 8–14, © 2004 INFORMS 11 developing new ones. The set of challenging problems end and finance begin, given that (at least in manufac- is without bounds, as is the upside potential for our turing firms) most capital investments are operations field in this new era. related and working capital has a large inventory component? Where does operations end and human resources begin, given that no good manager would 3. The Department’s History and ignore the social dimension of the operating system? Current Editorial Mission The challenge of defining workable boundaries The history of the Operations and Supply Chain between departments is an inevitable constant. Man- Department reflects a constancy of core mission and agement is a holistic exercise, and attempting to draw an evolution in its interpretation. The department definitive boundaries between its various aspects is a has consistently focused on the operations function. fool’s mission. The definition of departmental bound- The department title, editorial objectives, and imple- aries turns on the dual attractions of refining exist- mentation policies, however, have evolved with our ing knowledge via well-established subliteratures and understanding of what that mission entails. encouraging new integrative ways of thinking about The first volume of the journal in 1954 featured no management and, hence, new subliteratures. It will separate departments, but rather six editors from a always be so. range of disciplines, drawn both from academia and We offer some example punctuation points in this industry, with C. West Churchman as managing edi- evolution. In 1974 there were separate departments tor. The stated mission of the journal was to iden- for production management; Logistics; and Dynamic tify, extend, and unify scientific knowledge that con- Programming and Inventory Theory. In 1981 these tributes to the understanding and practice of manage- three departments became two: Production and Oper- ment. By 1959, the number of editors had grown to ations Management; and Logistics, Distribution, and 11 (5 from industry), and to 40 (12 from industry) by Inventory. By 1985 these two departments seemed to 1968 when Robert Thrall was editor-in-chief. Martin move closer in their missions, being titled Produc- Starr took over as editor-in-chief in 1969, and intro- tion and Operations Management; and Manufactur- duced the departmental structure. This featured sep- ing, Distribution, and Inventory. Then, in 1987, all arate departments for production management and of the above were subsumed into a single depart- logistics. Professor Starr published an interesting edi- ment: Manufacturing, Distribution, and Service Oper- torial letter in the 20th anniversary issue in 1974. ations. (For details on the evolution of the departmen- He emphasizes a consistency of purpose since Vol- tal structure of Management Science, see “Fifty Years of ume 1, yet acknowledges criticisms of the field based Management Science” in this issue.) The editorial pol- on an inability to solve very complex problems, lack icy of this large department stated that of implementation capabilities, and an overemphasis of particular interest are papers that deal with strategic on optimization. concerns such as the choice and impact of new produc- These issues remain with us today. The healthy ten- tion or information technology, and papers that may sion, preordained in the practical world of manage- provide insight or simple models for guiding manu- ment, between the purity of abstraction and the rele- facturing or service policy. The department encourages vance of detail is not new, nor can we expect it to go papers that examine the planning and coordination of away any time soon. It is part of the territory inherent activities and resources within a manufacturing, distri- in striving for a theory of management, and an inte- bution or service operation. gral driver of our cyclical attractions to theory, then With this, the department anticipated the current edi- practice, then theory again as we continually adjust torial philosophy of focusing on senior management to a changing world. This healthy tension is the cor- issues, which can be seen as a natural extension of recting force that prevents our discipline from becom- this earlier sentiment. ing too academically self-referential, or too focused on In 1997 the separate Supply Chain Management specific rather than universal insights. It is, in short, Department was added to provide a home for what what makes this business so much fun. was already a substantial and rapidly growing litera- Over the decades since its formation the depart- ture in this area. In 2002, the Manufacturing, Dis- ment has regularly changed titles and editors as it tribution, and Service Operations Department was searched for the boundaries of the operations func- renamed Design and Operations Management. There tion. Clearly, the transformation process can include were two reasons for this. First, as our understand- input and output logistics, although intermittently ing of operations matured, we no longer required one or more of these had separate departments. Does detailed articulation of its parts (manufacturing, dis- our mandate include design? What is the boundary tribution, services). Second, the substantial overlap between design and planning, the latter activity being among many design and operational issues argued central to all management? Where does operations against trying to define a boundary between the Chopra, Lovejoy, and Yano: Five Decades of Operations Management 12 Management Science 50(1), pp. 8–14, © 2004 INFORMS two. Finally, in 2003, another redistricting activ- to mount a convincing argument to defend the con- ity resulted in Supply Chains joining Operations clusions, but it is crucial to articulate the significance, to form the current Operations and Supply Chains applicability, and limitations of the results. Department, and some aspects of design included in The recent changes in how we implement the edi- another renamed department: Technological Develop- torial policy have not been without controversy. In ment, Product Development, and Entrepreneurship. the early days of our discipline we were energized by Throughout this history, regardless of its name, asking questions that needed answers in practice, and the department’s core mission has been to identify, bringing clear logic (primarily mathematically repre- extend, and unify scientific knowledge that contri- sented) to bear on those problems. Many of the prob- butes to the understanding and practice of operations lem classes forged 50 years ago are still with us and management, defined as the design and management remain important. However, as described above, the of the transformation processes that create value for natural maturation of those problem classes and the society. The current editorial policy continues a trend evolution of industrial thinking and practice suggest discernable as far back as 1987, when the (then) new that we can stand on the firm foundation of the past macrodepartment for operational and logistical issues and reach up to the next level of organizational com- adopted a mission focusing on higher-level system plexity. design issues, and encouraged the use of parsimo- We believe that there are opportunities to encour- nious models analyzed for insights. The current edi- age important new work that does not yet have its torial posture reinforces that policy. own momentum and needs a high-octane kick-start, The current philosophy differs from the past only like Management Science, to help get it off the ground. in the stringency with which we enforce these stated Lacking that, natural institutional inertia encourages aims. We specifically encourage articles addressing the maintenance of the status quo. decisions typically made by senior managers, and By pursuing this path, it is our intent to proactively retarget to other journals articles that focus primar- encourage the research community to extend its reach ily on methodological contributions or issues of tac- without devaluing the traditional strengths that made tical execution. This policy is not intended to make the discipline what it is. There are dangers. As noted, a statement about the relative value of alternative the standards of excellence are not mature in novel research missions, as some tactical issues are of inter- areas of research. The challenge before us, editors and est to upper management. Rather, we recognize the referees alike, is to protect the very high brand equity availability of other high-quality outlets under the of the journal, while using that same brand equity to INFORMS umbrella for outstanding research on clas- encourage work in new areas. sical problems, and wish to encourage new research If we do our job well, this period will be recognized directions for which the supporting academic infras- as one of great forward movement and the origination tructure may not be as complete. When revising the of important subliteratures that help define the future editorial mission and considering how to implement of our discipline. Recognizing the clear successes of it, we sought to consider Management Science not in the past, we embark upon this path with humility and isolation but rather as part of the portfolio of high- with recognition of, and respect for, contrary views. quality, operations-related INFORMS journals. One simple test of consistency with our current mission is to ask whether an upper-level manager, 4. The Way Forward rather than a scheduler or technician, would be inter- We have already mentioned several anticipated con- ested in the results presented in the paper. Although sequences as we embark on this new journey. Our we do not expect managers to read Management Sci- research will by necessity become more cross-func- ence papers (our language is too compact and arcane), tional in scope, which will require facility with the the research ideas contained in an article should, per- tools and concepts that have been developed in other haps with some translation into management vernac- research disciplines, and we hope and expect that we ular, be of high interest to a senior manager. These will pass through a stage of technology transfers to a will be predominantly issues of investment, system new period of novel synthesis. design, and operations strategy rather than of tactical Although ultimately it is the problems facing real execution. Another intuitive filter is whether one can managers that will define our objectives and tech- take the ideas in an article and prepare a one-page niques, we can already see the broad outlines of poten- summary of key take-aways that would be of interest tially new and exciting subliteratures. We provide this to senior managers. In fact, these deliverables should list not to limit the scope of innovation, but to provide be apparent early in the article, reinforced by the pre- a necessarily incomplete set of examples to demon- sentation. High levels of rigor are, as always, needed strate the challenges and potential in our discipline. Chopra, Lovejoy, and Yano: Five Decades of Operations Management Management Science 50(1), pp. 8–14, © 2004 INFORMS 13

1. Supply Chains: Supply chain management, like research in our discipline has remained largely dis- operations itself, has ill-defined boundaries. In its joint from the social sciences literature on human broadest sense, it has come to be defined as the man- resource management and organizational behavior agement of all aspects of providing goods to a con- (OB). Our heritage has emphasized constructing nor- sumer, from extraction of raw materials to end-of- mative mathematical models, and the OB literature life disposal and recycling, including manufacturing, is dominated by positive empirical findings. Opera- physical logistics, and after-sale service and warranty tions management models have historically invoked issues. With such a broad scope, combined with the oversimplified models of motivation, learning, cre- rapid rate of evolution of supply chain structures in ativity, and other such aspects of human behavior that both physical and organizational dimensions, the evo- are vital to the success of management policies in lution of legal structures that constrain the terms of practice. Models that can maintain high levels of rigor trade and pollution, and trade structures that raise while incorporating these elements will be richer and challenging issues of globalization, vast opportunities more realistic. In this area and others, high-quality remain to address unanswered and as-yet-unposed descriptive and empirical work, including experimen- questions, many of which involve broader decision tal analysis of behavior and decision making, often scope, more decision makers, inclusion of risk and precedes prescriptive models. We see this integration greater recognition of business realities that have tra- as a critical need, but recognize that its evolution will ditionally been ignored. We anticipate that waves of be slow. One initiative we have taken is to add to our interest in specific issues will come and go, just as editorial staff the ability to apply social science stan- they have in the past. The most valuable contribu- dards to empirical research. tions, however, will involve addressing real problems 5. Service Operations: Service organizations are a in real supply chains, and developing the theory to large and growing part of the world economy. Oper- support managerial decision making in those con- ations management academics have struggled with texts. a clear definition of what services are—and what 2. OM-Marketing Interface: Marketing is the key research challenges they pose—relative to more tra- information gatekeeper between operations and the ditional manufacturing contexts. Services are difficult product markets. Marketing is charged with deter- to inventory so that variability must be buffered by mining what customers value (including cost, quality, capacity or time. Also, in many cases, a service trans- and delivery characteristics) prior to product devel- action features simultaneous production and con- opment; product positioning, pricing, and forecasting sumption with the customer an integral part of this both before and after product launch; and promo- activity. This may amplify the human perceptual com- tions after product launch. Interdisciplinary research ponent of service quality relative to the consumption involving operations and marketing decisions goes of manufactured goods. The search for the distinctive back many decades, but there is ample opportunity attributes of service operations continues, but may be to develop models that are more comprehensive and taken up in specific service contexts. Financial ser- have greater fidelity than the current state of the art. vices and call centers already have their own subliter- Many of the key questions at this interface involve atures. It is clear that health-care operations will be of behavioral aspects, providing opportunities to incor- increasing economic importance with the aging of the porate results from the growing bodies of empirical post-war baby boom. There remain many opportuni- research on related topics. ties for research, not only on how to make existing 3. OM-Finance Interface: Capital equipment and service operations more effective and efficient, but on inventories constitute a sizable portion of the assets how to design, deploy, and operate systems offering of most manufacturing companies. Companies have new services, or old services via new technologies. long recognized the role and impact of these 6. Operations Strategy: There is a large literature on assets in their financial decision making, but it is firm strategies in different competitive environments. only relatively recently that operations management There is currently less literature on functional strate- researchers have begun to relate financial models and gies and how they interact with each other. There is financial instruments to the procurement and man- considerable scope for research on which mosaics of agement of these assets. Also, as secondary mar- functional (including operations) strategies are self- kets for a range of commodities and other prod- consistent and aligned with firm strategies in different ucts mature, there is increased potential for applying competitive environments. financial insights developed in the context of com- 7. Process Design and Improvements: Many qual- plete markets to more traditional operational issues. ity programs have process improvement as their 4. OM-Organizations Interface: No plant manager core theme, and the key applied tactic is managing anywhere would ignore the role of good people man- the innovation process. Where do new ideas come agement in running an efficient operation. Yet, the from, how are they encouraged, nurtured, screened, Chopra, Lovejoy, and Yano: Five Decades of Operations Management 14 Management Science 50(1), pp. 8–14, © 2004 INFORMS and implemented? Process design poses similar challenges before us are great, and they will call for the lenges, but with fewer constraints on the eventual same sort of creativity and dedication to task demon- outcome. Earlier we alluded to the critical relation- strated by the scholars of the Big Bang. The upside ship between operations and organizations. A good potential for novel, seminal research has never been process design must merge the physical flow system, greater. We hope and expect that years from now an social system, and information system into a self- overview will be written acknowledging the signifi- consistent whole. cance and contributions of papers now being written. As the research community moves into these new areas and others, we have full faith in the classical tools of our trade and the classical objective of apply- Acknowledgments ing those tools to help real people make real deci- The authors thank Richard Chase, Don Erlenkotter, Warren sions. We also recognize that we will need to augment Hausman, Steve Nahmias, Roger Schroeder, Lee Schwarz, these tools to address new challenges as they arise. Ed Silver, and Joe Thomas for providing their perspectives As these few examples have demonstrated, the chal- on the evolution of the operations management discipline.