2-1 Competitiveness, Strategy, and Productivity

Operations Management

William J. Stevenson

8th edition

2-2 Competitiveness, Strategy, and Productivity

CHAPTER

Competitiveness, Strategy, and Productivity

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

2-3 Competitiveness, Strategy, and Productivity

Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

2-4 Competitiveness, Strategy, and Productivity

Businesses Compete Using Marketing

Identifying consumer wants and needs Pricing Advertising and promotion

2-5 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

Product and service design Cost Location Quality Quick response

2-6 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

Flexibility Inventory management Supply chain management Service

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Why Some Organizations Fail

Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy

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Why Some Organizations Fail

Too much emphasis in product and service design and not enough on improvement Neglecting investments in capital and human resources Failing to establish good internal communications Failing to consider customer wants and needs

2-9 Competitiveness, Strategy, and Productivity

Mission/Strategy/Tactics

Mission

Strategy

Tactics

How does mission, strategies and tactics relate to decision making and distinctive competencies?

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Strategy

Strategies

Plans for achieving organizational goals reason for existence for an organization

Mission
The

Mission Statement
Answers

the question What business are we in?

Goals
Provide

detail and scope of mission

Tactics
The

methods and actions taken to accomplish strategies

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Planning and Decision Making

Mission Goals

Figure 2.1

Organizational Strategies
Functional Goals Finance Strategies Marketing Strategies Operations Strategies

Tactics Operating procedures

Tactics Operating procedures

Tactics Operating procedures

2-12 Competitiveness, Strategy, and Productivity

Strategy Example

Example 1

Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably

Mission: Goal: Strategy: Tactics: Operations:

Live a good life

Successful career, good income
Obtain a college education Select a college and a major

Register, buy books, take courses, study, graduate, get job

2-13 Competitiveness, Strategy, and Productivity

Examples of Strategies

Low cost Scale-based strategies Specialization Flexible operations High quality Service

2-14 Competitiveness, Strategy, and Productivity

Strategy and Tactics

Distinctive Competencies
The special attributes or abilities that give an organization a competitive edge. Price Quality Time Flexibility Service Location

2-15 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Price Quality Time Flexibility Service Location
Low Cost U.S. first-class postage Motel-6, Red Roof Inns

Table 2.2

High-performance design Sony TV or high quality Consistent Lexus, Cadillac quality Pepsi, Kodak, Motorola Rapid delivery On-time delivery Variety Volume Superior customer service Convenience Express Mail, Fedex, One-hour photo, UPS Burger King Supermarkets Disneyland Nordstroms Banks, ATMs

2-16 Competitiveness, Strategy, and Productivity

Operations Strategy

Operations strategy The approach, consistent with organization strategy, that is used to guide the operations function.

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Strategy Formulation

Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners

2-18 Competitiveness, Strategy, and Productivity

Strategy Formulation

Order qualifiers

Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase Characteristics of an organizations goods or services that cause it to be perceived as better than the competition

Order winners

2-19 Competitiveness, Strategy, and Productivity

Key External Factors

Economic conditions Political conditions Legal environment Technology Competition Markets

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Key Internal Factors

Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers

2-21 Competitiveness, Strategy, and Productivity

Quality and Time Strategies

Quality-based strategies

Focuses on maintaining or improving the quality of an organizations products or services Quality at the source

Time-based strategies

Focuses on reduction of time needed to accomplish tasks

2-22 Competitiveness, Strategy, and Productivity

Time-based Strategies
FEB MAR APR MAY JUN

JAN
Planning

Designing Processing Changeover Delivery On time!

2-23 Competitiveness, Strategy, and Productivity

Productivity

Productivity

A measure of the effective use of resources, usually expressed as the ratio of output to input

Productivity ratios are used for

Planning workforce requirements Scheduling equipment Financial analysis

2-24 Competitiveness, Strategy, and Productivity

Productivity

Partial measures

output/(single input) output/(multiple inputs) output/(total inputs)

Multi-factor measures

Total measure

Outputs Productivity = Inputs

2-25 Competitiveness, Strategy, and Productivity

Productivity Growth

Productivity Growth =
Current Period Productivity Previous Period Productivity Previous Period Productivity

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Measures of Productivity

Table 2.4

Partial measures
Multifactor measures Total measure

Output Labor

Output Output Machine Capital

Output Energy

Output Labor + Machine

Output Labor + Capital + Energy

Goods or Services Produced All inputs used to produce them

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Examples of Partial Productivity Measures

Table 2.5

Labor Productivity
Machine Productivity Capital Productivity

Units of output per labor hour Units of output per shift Value-added per labor hour
Units of output per machine hour machine hour Units of output per dollar input Dollar value of output per dollar input

Energy Productivity

Units of output per kilowatt-hour Dollar value of output per kilowatt-hour

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Example 3

7040 Units Produced Sold for $1.10/unit Cost of labor of $1,000 What is the multifactor productivity? Ans. 2.20

Cost of materials: $520

Cost of overhead: $2000

2-29 Competitiveness, Strategy, and Productivity

Example 3 Solution
Output Labor + Materials + Overhead

MFP =

MFP =

(7040 units)*($1.10) $1000 + $520 + $2000 2.20

MFP =

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Factors Affecting Productivity

Capital

Quality

Technology

Management

2-31 Competitiveness, Strategy, and Productivity

Other Factors Affecting Productivity

Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers

2-32 Competitiveness, Strategy, and Productivity

Other Factors Affecting Productivity

Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity

2-33 Competitiveness, Strategy, and Productivity

Bottleneck Operation
10/hr

Figure 2.3

Machine #1 Machine #2

10/hr

Bottleneck Operation
10/hr 10/hr

30/hr

Machine #3

Machine #4

2-34 Competitiveness, Strategy, and Productivity

Improving Productivity

Develop productivity measures Determine critical (bottleneck) operations Develop methods for productivity improvements Establish reasonable goals Get management support Measure and publicize improvements Dont confuse productivity with efficiency