Operations Management Dr. Yehualashet Demeke: Competitiveness, Strategy, and Productivity

CHAPTER 2
COMPETITIVENESS ,STRATEGY, AND PRODUCTIVITY
Operations Management Dr.

1 Yehualashet Demeke 05/06/2022
Overview
Three separate, but related concepts that
are vitally important to business
organizations:
Competitiveness
Strategy
Productivity
???????Brainstorming and Reflection????

2 OM- Dr. Yehualashet D. 05/06/2022
Competitiveness
 How effectively an organization meets the needs of customers
relative to others that offer similar goods or services.
 Answer:
• What do customers want?
• How can these customer needs best be
satisfied?
Organizations compete over:
Price (Cost): WAL-MART
Quality: BMW
Response-time: UPS
Variety (Flexibility): DELL

Cont----
Competitiveness is an important factor in determining
whether a company prospers, barely gets by, or fails.
Organizations compete through some combination of their
marketing and operations functions.
Marketing influences competitiveness in several

ways:
Identifyingconsumer wants and/or needs
Price and quality are key factors in consumer buying
decisions
Advertising and promotion

Ctd..
Operations has a major influence on competitiveness
through :
Product
 and service design
innovation and the time-to-market for new products and services.
Cost of an organization’s output is a key variable that affects

pricing decisions and profit
Productivity (discussed later in the chapter) is an important

determinant of cost.
Location can be important in terms of cost and convenience for

customers.
Quality refers to materials, workmanship, design, and service.


Ctd..
Quick response can be a competitive advantage. One way is quickly bringing

new or improved products or services to the market. Quickly deliver existing
product/ Respond to customer complaints.
Flexibility
 is the ability to respond to changes.
Example: Alteration of design or features/ changes in volume
Inventory management –match supply and demand

Supply chain management involves coordinating internal and external

operations
Service might involve after-sale activities customers perceive as value-added,

such as delivery, setup, warranty work, and technical support.
Service quality can be a key differentiator; and it is often sustainable
Managers and workers are the people at the heart and soul of an

organization.

Operations’ Influence on Competitiveness
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Competitiveness
Inventory management
Supply chain management
Service
Managers and workers

Why Some Organizations Fail
Neglecting operations strategy.
Failing to take advantage of strengths and opportunities,
and/or failing to recognize competitive threats.
Putting too much emphasis on short-term financial
performance at the expense of research and
development.
Placing too much emphasis on product and service
design and not enough on process design and
improvement.
Neglecting investments in capital and human resources.
Failing to establish good internal communications and
cooperation among different functional areas.
Failing to consider customer needs.

Distinctive/core competencies
 Core competencies is the special attributes that give an
organization a competitive edge.
 Differentiation
 Cost: Make the Product or Deliver the Service Cheap
 Quality: Make a Great Product or Deliver a Great
Service
 Delivery Speed: Make the Product or Deliver the
Service Quickly
 Delivery Reliability: Deliver It When Promised
 Coping with Changes in Demand: Change Its
Volume
 Flexibility and New Product Introduction
Speed: Change It

Core Competencies
Core competencies include…
A well-trained and flexible Workforce
Having well-located & flexible Facilities
Having Market and Financial Know-How.
Expertise in Systems and Technology.
The core competencies should determine the
firm’s core processes.
These can include customer relations, new
service/product development, order fulfillment,
and supplier relationships.
A firm may have all of these or focus on a
subset of them, as determined by its core
10/ competencies.
OM- Dr. Yehualashet D. 05/06/2022
27
Operations Priorities (Competitive Dimensions)
 Cost

Make the Product or Deliver the Service
Cheap
 Quality

Make a Great Product or Deliver a Great
Service
 Delivery Speed

Make the Product or Deliver the Service
Quickly
 Delivery Reliability

Deliver It When Promised
 Coping with Changes in Demand

Change Its Volume
 Flexibility and New Product Introduction
Speed

Change
OM-
It
Dr. Yehualashet D.
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 Other Product-Specific Criteria
Competitive Capabilities
The Competitive Capabilities are the cost,

quality, time and flexibility dimensions of
competitive priorities that a process or value
chain actually possesses and is able to deliver.
Low Cost means delivering a service or
product at the lowest possible cost to the
satisfaction of the customer.
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27
Dealing with Trade-offs
For
For example,
example, if if wewe reduce
reduce costs
costs by by
reducing
reducing product
product quality quality inspections,
inspections, we we
might
might reduce
reduce productproduct quality.
quality.
For
For example,
example, if if wewe
improve Cost
improve customercustomer
service
service problem
problem
solving
solving by by cross-cross- Flexibility Delivery
training
training personnel
personnel
to
to deal
deal with with aa Quality
wider-range
wider-range of
of
problems,
problems, they
they
may
may become
become less less
efficient
efficient
13 OM-
at
at dealing
dealing
Dr. Yehualashet D. 05/06/2022
with commonly
Competing on Response
 Flexibility is matching market changes in

design innovation and volumes
 Institutionalization at Hewlett-Packard
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness in design, production,
and delivery
 Johnson Electric, Bennigan’s, Motorola
• Requires institutionalization within the firm
or ability to respond

Quality as a Competitive Capability
Top Quality: Delivering an outstanding service or
product.
Considerable interaction with the customers
may be required to determine what that means.
Consistent Quality: Providing services or
products that meet design specifications on a
consistent basis.
27
Time as a Competitive Capability
Delivery Speed is quickly filling a customer’s
order.
Lead Time is the time between receipt of an
order and filling the order.
On-Time Delivery means meeting the delivery
time promises.
Development Speed is quickly introducing a new
service or product.
Time-Based Competition is a strategy that
focuses on development speed and delivery
speed.

27
Flexibility as a Competitive Capability
Customization means satisfying the unique
needs of each customer by changing the service
or product designs.
Variety involves handling a wide assortment of
services or products efficiently.
Volume Flexibility requires accelerating or
decelerating the rate of production quickly to
handle large fluctuations in demand.

27
Order Winners and Order Qualifiers
These are criteria used by customers in service or
product selection.
Order Winners are criteria for differentiating services
or products of one firm from those of another.
 Price, quality, time, flexibility, after sales support, reputation,
etc.
Order Qualifiers are demonstrated levels of
performance required to do business in a particular
market segment.
The key to successfully competing is to determine what
customers want and then directing efforts toward meeting
(or even exceeding) customer expectations.

27
Ctd..
First: What do the customers want? (Which items on

the preceding list of the ways business
organizations compete are important to customers?)
Second: What is the best way to satisfy those
wants?
Operations must work with marketing to obtain
information on the relative importance of the various
items to each major customer or target market.
Understanding competitive issues can help
managers develop successful strategies.

EXERCISE
• Name 10 ways that banks, city admin, education
institutions, manufacturing firm compete for customers.
• Hint: consider operations’ influence on competitiveness
• Product and service design
• Cost
• Location
• Quality
• Quick response
• Flexibility
• Inventory management
• Supply chain management
• Service
• Managers and workers
Organizational Strategy
Low Price
Outsource operations to countries with low labor cost
Use capital-intensive methods to achieve high output volume and
low unit cost
Specialization
Focus on narrow product lines or limited services to achieve higher
quality
Responsiveness (time-based strategies)
Strategies that focus on the reduction of time needed to accomplish
tasks
Differentiation: Variety
Focus on customization
Differentiation: Newness
Focus on innovation to create new products or services
Differentiation: Service
Focus on various aspects of service (e.g., helpful, reliable, etc)
Differentiation: Quality
focus on quality in all phases of an organization in order to achieve
higher quality than competitors

Operations Strategy
Operations strategy is the means by which
operations implements the firm’s corporate
strategy and helps to build a customer-driven
firm.
It links long-term and short-term operations
decisions to corporate strategy.
It is the core of managing processes and value
chains.
Operations strategy – The approach, consistent
with organization strategy, that is used to guide
the operations function.
27
How Operations Strategy fits the Operations
Management Philosophy
Operations As a Competitive
Weapon
Operations Strategy Process Strategy
Project Management Process Analysis
Process Performance and QualitySupply Chain Strategy
Constraint Management Location
Process Layout Inventory Management
Lean Systems Forecasting
Sales and Operations
Planning
Resource Planning
Scheduling

27
Ctd..
Corporate strategy views the organization as a system of
interconnected parts, each working with the others to
achieve desired goals.
Operations Strategy supports the corporate strategy and
requires continuous cross-functional interaction.
It is narrower in scope
The operations strategy should be customer driven.
Thought: Mention a company you are familiar with in terms

of its operations strategy and spot some key areas that
comes to your mind???

27
Customer-Driven Operations Strategy–
Example: Starbucks
If someone says, “Lets go out for coffee,”
Starbucks often comes to mind.
Entrepreneur Howard Schultz had an
operations strategy in mind in 1990 when he
bought the 17-store Seattle chain and turned it
into a global success.
Service strategy was key.
Offering a variety of specialized products and
services, such as Internet access, phone
ahead ordering, and CD burning, all in a
socially interactive atmosphere.

27
Examples of Strategies
Organizational Examples of Companies
Strategy Operations Strategy or Services
Low Price Low Cost Wal-Mart
Southwest Airlines
Responsiveness Short processing times McDonald’s restaurants

On-time delivery FedEx
Differentiation: High performance design and/or BMW

High Quality high quality processing
Consistent Quality Coca-Cola
Differentiation: Innovation 3M
Newness Apple
Differentiation: Flexibility Burger King (“Have it your

Variety Volume way”)
McDonald’s (“Buses
Welcome”)
Differentiation: Superior customer service Disneyland
Service IBM
Differentiation: Convenience Supermarkets

Location Banks, ATMs

EXERCISE
• Name three companies you are familiar with in Ethiopia,
and describe their core organizational strategies in terms
of the following options:
• Low Price
• Specialization
• Responsiveness
• Differentiation: Quality
• Differentiation: Newness
• Differentiation: Variety
• Differentiation: Service
• Go online and find the mission statements of the three

companies. Are their strategies aligned with their mission
statements?
Operations Strategy
Strategy Exampl
Process e
Customer More
Needs Product
Corporate Increase Org.

Strategy Size
Operations Increase Production

Strategy Capacity
Decisions on Processes
Build New
and Infrastructure
Factory
Service or Product Development
Strategies
Product Variety: Offering a wide assortment.
Design: Ease of use and desirable features.
Innovation: Translate new technology into new
products.
Service: Products with services added.
Leader: Being first to introduce new services and/or
products.
Middle of the Road: Wait for the leaders to
introduce new services and/or products.
Laggard: Wait to see if the leader’s new services
and/or products catch on in the market.
27
Service Package
 A Service Package is a collection of goods and
services provided by a service process to its
customers. It consists of four features:
1. Supporting Facility: The physical resources
that must be in place before a service can be
offered.
2. Facilitating Goods: The materials purchased
or consumed by the customer or the items
provided by the customer to receive a service.
3. Explicit Services: The readily observable
benefits.
4. Implicit Services: Psychological benefits.
27
Quality Function Deployment (QDF)
Quality Function Deployment (QDF) is a means of
translating customer requirements into the
appropriate technical requirements for service or
product development. Questions it seeks to answer
are:
1. What do our customers want?
2. How well are we doing relative to our
competition?
3. What technical measures relate to our
customers’ needs?
4. What are the relationships between what our
customers want and the technical measures?
5. How does our service or product performance
compare to the competition?
6. What are the potential technical trade-offs?
27
Concurrent Engineering
 Concurrent Engineering brings product
engineers, process engineers, marketers,
buyers, information specialists, quality
specialists, and suppliers together to design a
product and the processes that will meet
customer expectations.
This is an essential cross-functional effort
during the service and/or product
development phase to insure a timely and
well-coordinated process that brings value to
the customer.
27
Strategic Options to Gain a
Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
Elements of Operations Management
Strategy
 Low-cost product
 Product-line breadth
 Technical superiority
 Product characteristics/differentiation
 Continuing product innovation
 Low-price/high-value offerings
 Efficient, flexible operations adaptable to
consumers
 Engineering research development
 Location
 Scheduling

Preconditions
One must understand:
 Strengths and weaknesses of competitors and
possible new entrants into the market
 Current and prospective environmental,
technological, legal, and economic issues
 The product life cycle
 Resources available within the firm and within
the OM function
 Integration of OM strategy with company’s
strategy and with other functional areas
Dynamics of Strategic Change
 Changes within the
organization
 Personnel
 Finance
 Technology
 Product life
 Changes in the environment

Productivity
A. Productivity
 One of the primary responsibility of operation
management is to achieve productive use of
organizations resources.
 Productivity is an index that measure output
(goods and services) relative the input (labor,
materials, energy and other resources) used to
produce them.
 Productivity
A measure of the effective use of resources,
usuallyProductivity
expressed as=output
the ratio of output to
input input

Productivity cont’d…..
 The choice of productivity measure depends primarily on the
purpose of the measurement.
 If the purpose is to track improvements in labor productivity
then labor becomes the obvious input measure.
 The units of output used in productivity measures depends
on the type of job performed
Number of office cleaned
Number of shifts
Number of machine
installed
Labor
It can be described as number of hours
offices cleaned per number
of shifts
Or it can be described as the number of machines installed
per labor

Productivity measures
Output
Productivity =
Input
Output Ouput Output
PartialMeasures ; ;
SingleInput Labor Capital
Output Ouput Output

Multifacto
r Measures
 ; ;
Multiple
Inputs Labor+Machine Labor+Capital
+Energy
Goods or services produced

Total Measure
All inputs used to produce them
Examples of Partial Productivity
Measures
Labor Units of output per labor hour
Productivity Units of output per shift
Value-added per labor hour
Machine Units of output per machine hour

Productivity machine hour
Capital Units of output per dollar input

Productivity Dollar value of output per dollar input
Energy Units of output per kilowatt-hour

Productivity Dollar value of output per kilowatt-hour

Productivity measures
Productivity Index = Value of output
Cost of Inputs
 For example, suppose the value of services
generated by a group of computers
operations in a day is $2000 and their total
operational costs are $1,200.
The ratio of value produced to costs
incurred is $2,000/$1,200, or 1.67.
A firm’s overall ratio must be greater than 1, or it
is losing money.

ctd…..
Example :
a. Four workers installed 720 square yard of
carpeting in eight hours
b. A machine produced 68 usable pieces in
two hours
 Calculation of multifactor productivity
measure inputs and outputs using a
common units of measurement such as
cost/value
 For example the measurement might use
Multi
costfactor productivity
of inputs = quantity
and price of production
of the output at
standard price
Labor cost + material cost +
overhead cost

Example . Determine the multifactor productivity for
a combined input of labor and machine time using
the following data
 Total out put 16000 units
 Inputs
 Labor – 65 hours
 Machine – 15 hours
Multi factor productivity = total output
Labor + material
Multi factor productivity = 16000 units =

200 units per hour
65 hrs + 15hrs

Example
7040 Units Produced

What is the
Sold for $1.10/unit multifactor
productivity?
Cost of labor of $1,000
Cost of materials: $520
Cost of overhead: $2000

MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)
$1000 + $520 + $2000
MFP = 2.20
Current Period Productivity –

Previous Period Productivity
Productivity Previous Period Productivity
Growth =

Productivity ratios are used for
Planning workforce requirements
Scheduling equipment
Financial analysis
Productivity measures are useful for

Tracking an operating unit’s performance
over time
Judging the performance and to decide
where improvements are needed

Factors Affecting Productivity
 Capital/Labor ratio: is a measure of whether
enough investment is being made in plant,
machinery, and tools to make effective use of
labor hours.
 Scarcity of some resources, such as energy,
water and a number of metals, etc.
 Work-force changes: include a steady shift
away from blue-collar occupations.
 Innovation and technology
 Safety
 Shortage of IT workers
 Layoffs
 Labor turnover
 Design of the workspace
 Incentive plans that reward productivity
Ctd..
Managerial factors: are the ways an

organization benefits from the unique
planning and managerial skills, or
business intelligence, of its managers
Quality of work life: is a term that
describes the organizational culture,
and the extent to which it motivates and
satisfies employees.
Factors Affecting Productivity
Capital Quality
Technology Management

Improving Productivity
1st Develop productivity measures:-
measurement is the first step in managing and
controlling an operation.
2nd Determine critical (bottleneck)
operations:-
 look at the system as a whole in deciding which
operations are the most critical.
 it is overall productivity that is important.
3rd Develop methods for achieving
productivity improvements: such as
soliciting ideas from workers ( organizing teams
of workers, engineers and mangers studying
how other firms have increased productivity,
and reexamining the way work is done
Cntd.…
4th Establish reasonable goals
5th Make it clear that management supports/encourage productivity

improvement. Consider incentive to reward workers for
contributions
6th Measure and publicize improvements
7th Don’t confuse productivity with efficiency:
Efficiency is narrower concept that pertains to getting the most
out of a given set of resources

Productivity is a broader concept that pertains to effective use of
over all resources

THNK YOU!!
Questions/
Queries?
52 Operations Management 05/06/2022

Dr.Yehualashet Demeke

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CHAPTER 2

COMPETITIVENESS ,STRATEGY, AND PRODUCTIVITY

Operations Management Dr.

???????Brainstorming and Reflection????

3 OM- Dr. Yehualashet D. 05/06/2022

Marketing influences competitiveness in several

4 OM- Dr. Yehualashet D. 05/06/2022

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The Competitive Capabilities are the cost,

 Flexibility is matching market changes in

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Top Quality: Delivering an outstanding service or

16/ OM- Dr. Yehualashet D. 05/06/2022

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First: What do the customers want? (Which items on

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Thought: Mention a company you are familiar with in terms

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25/ OM- Dr. Yehualashet D. 05/06/2022

Responsiveness Short processing times McDonald’s restaurants

Differentiation: High performance design and/or BMW

Differentiation: Flexibility Burger King (“Have it your

Differentiation: Convenience Supermarkets

26 OM- Dr. Yehualashet D. 05/06/2022

• Go online and find the mission statements of the three

Corporate Increase Org.

Operations Increase Production

17% - Momentum/name recognition

14% - Good management

34 OM- Dr. Yehualashet D. 05/06/2022

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Output Ouput Output

Goods or services produced

Machine Units of output per machine hour

Capital Units of output per dollar input

Energy Units of output per kilowatt-hour

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Multi factor productivity = 16000 units =

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7040 Units Produced

Cost of materials: $520

Cost of overhead: $2000

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Current Period Productivity –

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Productivity measures are useful for

46 OM- Dr. Yehualashet D. 05/06/2022

Managerial factors: are the ways an

49 OM- Dr. Yehualashet D. 05/06/2022

5th Make it clear that management supports/encourage productivity

6th Measure and publicize improvements