Competitiveness, Strategy, and

Productivity

Competitiveness:
o How effectively an organization meets the wants and needs of
customers relative to others that offer similar goods or services
o Organizations compete through some combination of their marketing
and operations functions
Marketing’s Influence
o Identifying consumer wants and/or needs
o Pricing and quality
o Advertising and promotion

Businesses Compete Using Operations

1. Product and service design
2. Cost
3. Location
4. Quality
5. Quick response
6. Flexibility
7. Inventory management
8. Supply chain management
9. Service
10. Managers & workers
1. Neglect operations strategy
2. Neglect investments in capital and human resources
3. Neglect customer wants and needs
4. Fail to take advantage of strengths and opportunities
5. Fail to establish good internal communications and cooperation
6. Too much emphasis on short-term financial performance at the expense of
R&D
7. Too much emphasis in product and service design and not enough on
process design and improvement

Mission (The reason for an organization’s existence)

Goals (Provide detail and the scope of the mission)

Organizational Strategies
(A plan for achieving organizational goals)

Functional Strategies
Tactics
 The special attributes or abilities that give an organization a
competitive edge

Effective strategy formulation requires taking into account:

o Core competencies
o Environmental scanning
o SWOT
Successful strategy formulation also requires taking into account:
o Order qualifiers
o Order winners

o Characteristics that customers perceive as minimum

standards of acceptability for a product or service to be
considered as a potential for purchase

o Characteristics of an organization’s goods or services that

cause it to be perceived as better than the competition
Environmental Scanning is necessary to identify
Internal Factors (S & W) External Factors (O & T)
o Human Resources o Economic conditions
o Facilities and equipment o Political conditions
o Financial resources o Legal environment
o Customers o Technology
o Competition
o Products and services
o Markets
o Technology
 Productivity
o A measure of the effective use of resources, usually expressed as the ratio
of output to input

Productivity measures are useful for

o Tracking an operating unit’s performance over time.
o Judging the performance of an entire industry or country

Output
Productivi ty =
Input
Output Ouput Output
Partial Measures ; ;
Single Input Labor Capital
Output Ouput Output
Multifactor Measures ; ;
Multiple Inputs Labor +Machine Labor +Capital +Energy

Goods or services produced
 Total Measure
All inputs used to produce them

 Current productivity - Previous productivity

Productivity Growth = 100%
Previous productivity


Service sector productivity is difficult to measure and manage because
It involves intellectual activities
It has a high degree of variability
A useful measure related to productivity is process yield
Where products are involved

 Ratio of output of good product to the quantity of raw

material input.

Where services are involved, process yield measurement is often

dependent on the particular process:

 Ratio of cars rented to cars available for a given day

 Ratio of student acceptances to the total number of

students approved for admission.

1. Capital
2. Management
3. Quality
4. Method
5. Technology

1. Establish reasonable goals

2. Develop methods for productivity improvements
3. Develop productivity measures for all operations
4. Determine critical (bottleneck) operations
5. Make it clear that management supports and encourages productivity
improvement
6. Measure and publicize improvements
 Product and Service Design
Product and service design – or redesign – should be closely tied to an
organization’s strategy

1. Translate customer wants and needs into product and service

requirements
2. Refine existing products and services
3. Develop new products and services
4. Formulate quality goals
5. Formulate cost targets
6. Construct and test prototypes
7. Document specifications
8. Translate product and service specifications into process
specifications

 Market size
 Demand profile

 Manufacturability - the capability of an organization to produce an

item at an acceptable profit
 Serviceability - the capability of an organization to provide a service
at an acceptable cost or profit

 Customer expectations
 Competitor quality
 Fit with current offering

 Liability issues, ethical considerations, sustainability issues,

costs and profits
 The driving forces for product and service design or redesign
are market opportunities or threats:
o Economic
o Social and Demographic
o Political, Liability, or Legal
o Competitive
o Cost or Availability
o Technological

1. Supply-chain based
2. Competitor based
3. Research based

 Ideas can come from anywhere in the supply chain:

o Customers
o Suppliers
o Distributors
o Employees
o Maintenance

o By studying how a competitor operates and its products

and services, many useful ideas can be generated
 Reverse engineering
o Dismantling and inspecting a competitor’s product to
discover product improvements
 o Organized efforts to increase scientific knowledge or
product innovation

 Basic research

o Has the objective of advancing the state of knowledge

about a subject without any near-term expectation of
commercial applications

 Applied research
o Has the objective of achieving commercial applications

 Development
o Converts the results of applied research into useful
commercial applications.

Legal Considerations
 Product liability
o The responsibility a manufacturer has for any injuries or
damages caused by as faulty product
 Uniform Commercial Code
o Under the UCC, products carry an implication of
merchantability and fitness
Ethical Considerations
 Designers are often under pressure to
o Speed up the design process
o Cut costs
 These pressures force trade-off decisions
o What if a product has bugs?
o Release the product and risk damage to your reputation
o Work out the bugs and forego revenue

Sustainability
o Using resources in ways that do not harm ecological
systems that support human existence
Key aspects of designing for sustainability
o Cradle-to-grave assessment (Life-Cycle analysis)
o The 3-Rs
 Reduction of costs and materials used
 Re-using parts of returned products
 Recycling

Cradle-to-Grave Assessment
o Known as Life-Cycle Analysis (LCA)
o The assessment of the environmental impact of a product
or service throughout its useful life
Focuses on such factors as
 Global warming
 Smog formation
 Oxygen depletion
 Solid waste generation
Reduce: Costs and Materials
Value analysis
o Examination of the function of parts and materials in an
effort to reduce the cost and/or improve the performance
of a product

Remanufacturing
o Refurbishing used products by replacing worn-out or
defective components
o Can be performed by the original manufacturer or another
company
Reasons to remanufacture:
o Remanufactured products can be sold for about 50% of
the cost of a new product
o The process requires mostly unskilled and semi-skilled
workers
o In the global market, European lawmakers are increasingly
requiring manufacturers to take back used products
Design for disassembly (DFD)
o Designing a product so that used products can be easily
taken apart
Recycling
o Recovering materials for future use
 Applies to manufactured parts
 Also applies to materials used during production
o Why recycle?
  Cost savings
 Environmental concerns
 Environmental regulations
o Companies doing business in the EU must show that a
specified proportion of their products are recyclable
Design for recycling (DFR)
 Product design that takes into account the ability to
disassemble a used product to recover the recyclable
parts

Standardization
Extent to which there is an absence of variety in a product, service, or
process
Designing for Mass customization
o A strategy of producing basically standardized goods or services,
but incorporating some degree of customization in the final
product or service
Facilitating Techniques
o Delayed differentiation
o Modular design

Delayed Differentiation
o The process of producing, but not quite completing, a product or
service until customer preferences are known
o It is a postponement tactic
o Produce a piece of furniture, but do not stain it; the customer
chooses the stain

Modular Design
o A form of standardization in which component parts are grouped
into modules that are easily replaced or interchanged
Advantages
o easier diagnosis and remedy of failures
o easier repair and replacement
o simplification of manufacturing and assembly
o training costs are relatively low
Disadvantages
o Limited number of possible product configurations
o Limited ability to repair a faulty module; the entire module
must often be scrapped
Quality Function Deployment (QFD)
o An approach that integrates the “voice of the customer”
into both product and service development
▪ The purpose is to ensure that customer requirements
are factored into every aspect of the process
▪ Listening to and understanding the customer is the
central feature of QFD
Kano Model
Basic quality
o Refers to customer requirements that have only limited effect on
customer satisfaction if present, but lead to dissatisfaction if absent

Performance quality
o Refers to customer requirements that generate satisfaction or
dissatisfaction in proportion to their level of functionality and appeal

Excitement quality
o Refers to a feature or attribute that was unexpected by the
customer and causes excitement
Concurrent engineering
o Bringing engineering design and manufacturing personnel together
early in the design phase
o Involve manufacturing, marketing and purchasing personnel in
loosely integrated cross-functional teams
o Views of suppliers and customers may also be sought
o The purpose is to achieve product designs that reflect customer wants
as well as manufacturing capabilities

Computer-Aided Design (CAD)

o Product design using computer graphics
Advantages
o increases productivity of designers, 3 to 10 times
o creates a database for manufacturing information and product
specifications
o provides possibility of engineering and cost analysis on proposed
designs
o Enables developers to perform simulations that aid in the design,
analysis, and commercialization of new products

Production Requirements
Designers must take into account production capabilities
o Equipment
o Skills
o Types of materials
o Schedules
o Technologies
Service Design
Begins with a choice of service strategy, which determines the nature
and focus of the service, and the target market
Key issues in service design
o Degree of variation in service requirements
o Degree of customer contact and involvement
Differences between Service and Product Design
1. Products are generally tangible, services intangible
2. Services are created and delivered at the same time
3. Services cannot be inventoried
4. Services are highly visible to consumers
5. Location is often important to service design, with
convenience as a major factor
6. Service systems range from those with little or no customer
contact to those that have a very high degree of customer
contact
7. Demand variability alternately creates waiting lines or idle
service resources

The Well-Designed Service System

1. Being consistent with the organization mission
2. Being user-friendly
3. Being easy to sustain
4. Being cost-effective
5. Having value that is obvious to the customer
6. Having effective linkages between back- and front-of-
the-house operations
7. Having a single, unifying theme
8. Having design features that will ensure service that is
reliable and of high quality
Successful Service Design
1. Define the service package in detail
2. Focus on the operation from the customer’s perspective
3. Consider the image that the service package will present
both to customers and to prospective customers
4. Recognize that designers’ familiarity with the system
may give them a quite different perspective than that of
the customer, and take steps to overcome this
5. Make sure that managers are involved and will support
the design once it is implemented
6. Define quality for both tangibles and intangibles
7. Make sure that recruitment, training, and reward policies
are consistent with service expectations
8. Establish procedures to handle both predictable and
unpredictable events
9. Establish system to monitor, maintain, and improve
service
MAD =
 Actual t − Forecast t
n

 (Actual t − Forecast t ) 2

MSE =
n −1
Actual t − Forecast t
 Actual t
 100
MAPE =
n

Actual Forecast (A-F)

Period 2
(A) (F) Error |Error| Error [|Error|/Actual]x100

1 107 110 -3 3 9 2.80%

2 125 121 4 4 16 3.20%

3 115 112 3 3 9 2.61%

4 118 120 -2 2 4 1.69%

5 108 109 1 1 1 0.93%

Sum 13 39 11.23%

n=5 n-1 = 4 n=5

MAD MSE MAPE

= 2.6 = 9.75 = 2.25%

Uses a single previous value of a time series as the basis
for a forecast

MONTH ACTUAL SHED 3-MONTH MOVING

SALES AVERAGE
January 10

February 12

March 13

April 16 2
(10 + 12 + 13)/3 = 11 /3
May 19 2
(12 + 13 + 16)/3 = 13 /3
June 23 (13 + 16 + 19)/3 = 16
July 26

August 30

September 28

October 18

November 16

December 14
MONTH ACTUAL 3-MONTH WEIGHTED
SHED MOVING AVERAGE
SALES
January 10
February 12
March 13
April 16
May 19
June 23
July 26
August 30
September 28
October 18
November 16
December 14
WEIGHTS APPLIED PERIOD

0.5 Last month

0.3 Two months ago

0.2 Three months ago

Forecast for this month =

0.5 x Sales last mo. +0. 3 x Sales 2 mos. ago + 0.2 x Sales 3 mos. ago
Ft = Ft −1 +  ( At −1 − Ft −1 )
where
Ft = Forecast for period t
Ft −1 = Forecast for the previous period
 = Smoothing constant
At −1 = Actual demand or sales from the previous period

nå xy - å xå y
b=
nå x 2 - (å x )
2

Ft = a + bx
where a=
å y - bå x or y - bx
n
Ft = Forecast for period x
where
a = Value of Ft at x = 0 n = Number of periods
b = Slope of the line y = Value of the time series
x = Specified number of time periods from x = 0

ELECTRICAL
POWER 2
YEAR (x) DEMAND (y) x xy
1 74 1 74
2 79 4 158
3 80 9 240
4 90 16 360
5 105 25 525
6 142 36 852
7 122 49 854
2
Σx = 28 Σy = 692 Σx = 140 Σxy = 3,063
 x=
å x = 28 = 4 y=
å y = 692 = 98.86
n 7 n 7

DEMAND
AVERAGE AVERAGE
YEARLY MONTHLY
MONTH YEAR 1 YEAR 2 YEAR 3 DEMAND DEMAND SEASONAL INDEX
Jan 80 85 105 90 94 .957( = 90/94)
Feb 70 85 85 80 94 .851( = 80/94)
Mar 80 93 82 85 94 .904( = 85/94)
Apr 90 95 115 100 94 1.064( = 100/94)
May 113 125 131 123 94 1.309( = 123/94)
June 110 115 120 115 94 1.223( = 115/94)
July 100 102 113 105 94 1.117( = 105/94)
Aug 88 102 110 100 94 1.064( = 100/94)
Sept 85 90 95 90 94 .957( = 90/94)
Oct 77 78 85 80 94 .851( = 80/94)
Nov 75 82 83 80 94 .851( = 80/94)
Dec 82 78 80 80 94 .851( = 80/94)
Total average annual demand = 1,128

Average 1,128
= = 94
monthly 12 months
demand

Seasonal =
Average monthly demand for past 3 years
index Average monthly demand
Period Quarter Sales Quarter Deseasonalized Sales
(Gal.) Relative
1 1 158.4 1.20 132
2 2 153.0 1.10 139.1
3 3 110.0 0.75 146.7
4 4 146.3 0.95 154
5 1 192.0 1.20 160
6 2 187.0 1.10 170
7 3 132.0 0.75 176
8 4 173.8 0.95 182.9

The trend values:

Period 9 : F 9 = 124 + 7.5 (9) = 191.5 X (1.2) = 229.8
Period 10: F 10 = 124 + 7.5 (10) = 199 X ( 1.1) = 218.9
Total Cost = FC + v  Q
where
FC = Fixed cost
v = Variable cost per unit
Q = Quantity or volume of output

Location Fixed Cost Variable Cost

per Year per Unit
A $250,000 $11
B $100,000 $30
C $150,000 $20
D $200,000 $35

Plot of
Total Cost of C = Total Cost of B
150,000 + 20Q = 100,000 + 30Q
50,000 = 10Q
Q = 5,000
 Range approximations
 B Superior (up to 4,999 units)
 C Superior (>5,000 to 11,111 units)
 A superior (11,112 units and up)

Total Cost of C = Total Cost of B

150,000 + 20Q = 100,000 + 30Q
50,000 = 10Q
Q = 5,000
Total Cost of A = Total Cost of C
250,000 + 11Q = 150,000 + 20Q
100,000 = 9Q
Q = 11,111 .11

Scores Weighted Scores

(Out of 100)

Factor Weight Alt 1 Alt 2 Alt 1 Alt 2

Proximity
to existing .10 100 60 .10(100) = 10.0 .10(60) = 6.0
source
Traffic
.05 80 80 .05(80) = 4.0 .05(80) = 4.0
volume
Rental
.40 70 90 .40(70) = 28.0 .40(90) = 36.0
costs
Size .10 86 92 .10(86) = 8.6 .10(92) = 9.2

Layout .20 40 70 .20(40) = 8.0 .20(70) = 14.0

Operating
.15 80 90 .15(80) = 12.0 .15(90) = 13.5
Cost
1.00 70.6 82.7