MY MBA DIARY - CHAPTER-1

Operational Efficiency and a Common Myth

When we discuss operational efficiency, it's easy to assume that "the higher, the better" is always true. While this might hold for systems with predictable demand, it doesn't apply universally.

In scenarios with variable demand, this model falls short. For instance, consider why we often encounter long queues at ticket counters. According to queuing theory, systems perform optimally when the demand-to-supply ratio is around 80%-85%. Systems go into chaos the moment capacity utilization goes beyond 95%. This means that the seemingly minor shortfall of 10%-15% in resources can lead to significant disruptions.

This counterintuitive insight was a major revelation for me during my Operations classes. Understanding these nuances can help us better manage efficiency and expectations in various operational contexts.