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 y Pricing y Advertising and promotion
y

2-5 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

y y y y y

Product and service design Cost Location Quality Quick response

2-6 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

Flexibility y Inventory management y Supply chain management y Service
y

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Why Some Organizations Fail

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

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Why Some Organizations Fail

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

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?

2-10 Competitiveness, Strategy, and Productivity

Strategy
y

Strategies
y

Plans for achieving organizational goals reason for existence for an organization the question What business are we in?

Mission
y The

Mission Statement
y Answers

Goals
y Provide

detail and scope of mission

Tactics
y The

methods and actions taken to accomplish strategies

2-11 Competitiveness, Strategy, and Productivity

Planning and Decision Making

Figure 2.1
Mission Goals 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: y Goal: y Strategy: y Tactics: y 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 y Scale-based strategies y Specialization y Flexible operations y High quality y Service
y

2-14 Competitiveness, Strategy, and Productivity

Strategy and Tactics

y

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

2-15 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Table 2.2

Price Quality Time Flexibility Service Location

Low Cost

U.S. first-class postage Motel-6, Red Roof Inns

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
y

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

2-17 Competitiveness, Strategy, and Productivity

Strategy Formulation
Distinctive competencies y Environmental scanning y SWOT y Order qualifiers y Order winners
y

2-18 Competitiveness, Strategy, and Productivity

Strategy Formulation
y

Order qualifiers
y

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
y

2-19 Competitiveness, Strategy, and Productivity

Key External Factors

Economic conditions y Political conditions y Legal environment y Technology y Competition y Markets
y

2-20 Competitiveness, Strategy, and Productivity

Key Internal Factors

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

2-21 Competitiveness, Strategy, and Productivity

Quality and Time Strategies

y

Quality-based strategies
Focuses on maintaining or improving the quality of an organizations products or services y Quality at the source
y

Time-based strategies
y

Focuses on reduction of time needed to accomplish tasks

2-22 Competitiveness, Strategy, and Productivity

TimeTime-based Strategies
JAN
Planning

FEB

MAR

APR

MAY

JUN

Designing Processing Changeover Delivery On time!

2-23 Competitiveness, Strategy, and Productivity

Productivity
y

Productivity
y

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 y Scheduling equipment y Financial analysis
y

2-24 Competitiveness, Strategy, and Productivity

Productivity
y

Partial measures
y output/(single

input) inputs)

Multi-factor measures
y output/(multiple

Total measure
y output/(total

inputs)

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

2-27 Competitiveness, Strategy, and Productivity

Examples of Partial Productivity Measures

Table 2.5

Labor Productivity Machine Productivity Capital Productivity Energy 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 Units of output per kilowatt-hour Dollar value of output per kilowatt-hour

2-28 Competitiveness, Strategy, and Productivity

Example 3
7040 Units Produced Sold for $1.10/unit Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.20

2-29 Competitiveness, Strategy, and Productivity

Example 3 Solution
MFP = Output Labor + Materials + Overhead (7040 units)*($1.10) $1000 + $520 + $2000 2.20

MFP = MFP =

2-30 Competitiveness, Strategy, and Productivity

Factors Affecting Productivity

Capital

Quality

Technology

Management

2-31 Competitiveness, Strategy, and Productivity

Other Factors Affecting Productivity

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

2-32 Competitiveness, Strategy, and Productivity

Other Factors Affecting Productivity

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

2-33 Competitiveness, Strategy, and Productivity

Bottleneck Operation
Figure 2.3

Machine #1 Machine #2

10/hr

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