COMPETITIVENESS making process, and key factor in

central to consumer buying

-effectiveness of an
competitiveness. The decisions. Other key
organization in the
ideal is to achieve a factors include
marketplace relative to other
perfect match between innovation and the
organizations that offer
those wants and needs time-to-market for
similar products or services
and the organization’s new products and
-important factor in goods and/or services. services.
determining whether a 2. COST OF AN
2. PRICE AND QUALITY
company prospers, barely ORGANIZATION’S
gets by, or fails -are key factors in consumer OUTPUT
buying decisions. It is -is a key variable that
STRATEGY affects pricing
important to understand the
-relates to the plans that trade-off decision consumers decisions and profits.
determine how an make between price and COST-REDUCTION
organization pursues its quality. EFFORTS are
goals. generally ongoing in
3. ADVERTISING AND business
OPERATIONS STRATEGY PROMOTION organizations.
-particularly important in this -are ways organizations can Productivity
regard inform potential customers (discussed later in the
about features of their chapter) is an
PRODUCTIVITY products or services, and important
attract buyers. determinant of cost.
-relates to the effective use of
Organizations with
resources, and it has a direct OPERATIONS HAS A MAJOR higher productivity
impact on competitiveness INFLUENCE ON rates than their
OPERATIONS MANAGEMENT COMPETITIVENESS competitors have a
THROUGH: competitive cost
-chiefly responsible for
1. PRODUCT AND advantage. A
productivity
SERVICE DESIGN company may
*Business organizations - should reflect joint outsource a portion
compete through some efforts of many areas of its operation to
combination of price, delivery of the firm to achieve achieve lower costs,
time, and product or service a match between higher productivity,
differentiation. financial resources, or better quality.
operations 3. LOCATION
MARKETING INFLUENCES -can be important in
COMPETITIVENESS: capabilities, supply
chain capabilities, terms of cost and
1. IDENTIFYING and consumer wants convenience for
CONSUMER WANTS and needs. Special customers. Location
AND/OR NEEDS characteristics or near inputs can result
features of a product in lower input costs.
- is a basic input in an Location near
or service can be a
organization’s decision-
markets can result in - is the ability to it might involve extra
lower transportation respond to changes. attention while work
costs and quicker Changes might relate is in progress, such as
delivery times. to alterations in courtesy, keeping the
Convenient location design features of a customer informed,
is particularly product or service, or and attention to
important in the to the volume details.
retail sector. demanded by SERVICE QUALITY
4. QUALITY customers, or the mix - can be a key
- refers to materials, of products or differentiator; and it
workmanship, services offered by an is one that is often
design, and service. organization. High sustainable.
Consumers judge flexibility can be a Moreover,
quality in terms of com petitive businesses rated
how well they think a advantage in a highly by their
product or service changeable customers for service
will satisfy its environment. quality tend to be
intended purpose. 7. INVENTORY more profitable, and
Customers are MANAGEMENT grow faster, than
generally willing to -can be a competitive businesses that are
pay more for a advantage by not rated highly.
product or service if effectively matching 10. MANAGERS AND
they perceive the sup plies of goods WORKERS
product or service with demand. -are the people at the
has a higher quality 8. SUPPLY CHAIN heart and soul of an
than that of a MANAGEMENT organization, and if
competitor. -involves they are competent
5. QUICK RESPONSE coordinating internal and motivated, they
-can be a competitive and external can provide a distinct
advantage. One way operations (buyers competitive edge by
is quickly bringing and suppliers) to their skills and the
new or improved achieve timely and ideas they create.
products or services cost-effective One often
to the market. delivery of goods overlooked skill is
Another is being able throughout the answering the
to quickly deliver system. telephone. How
existing products and 9. SERVICE complaint calls or
services to a -might involve after- requests for
customer after they sale activities information are
are ordered, and still customers perceive handled can be a
another is quickly as value-added, such positive or a
handling customer as delivery, setup, negative. If a person
complaints. warranty work, and answering is rude or
6. FLEXIBILITY technical support. Or not helpful, that can
 produce a negative 7. Failing to consider Mission
image. Conversely, if customer wants and
-is the reason for its
calls are handled needs
existence. It is
promptly and
expressed in its
cheerfully, that can The key to
mission statement.
produce a positive successfully
image and, competing is to MISSION STATEMENT
potentially, a determine what
competitive customers want and - should answer the
advantage. then directing efforts question “What
toward meeting (or business are we in?”
WHY SOME ORGANIZATIONS Missions vary from
even exceeding)
FAIL organization to
customer
expectations. Two organization,
1. Neglecting
basic issues must be depending on the
operations strategy.
addressed. First: nature of their
2. Failing to take
What do the business.
advantage of
strengths and customers want? -serves as the basis for
opportunities, and/or (Which items on the organizational goals, which
failing to recognize preceding list of the provide more detail and
competitive threats. ways business describe the scope of the
3. Putting too much organizations mission. The mission and
emphasis on short- compete are goals often relate to how an
term financial important to organization wants to be
performance at the customers?) Second: perceived by the general
expense of research What is the best way public, and by its employees,
and development. to satisfy those suppliers, and customers.
4. Placing too much wants? Operations Goals serve as a foundation
emphasis on product must work with for the development of
and service design marketing to obtain organizational strategies.
and not enough on information on the These, in turn, provide the
process design and relative importance basis for strategies and tactics
improvement. of the various items of the functional units of the
5. Neglecting to each major organization.
investments in customer or target
capital and human market. -States the purpose of an
resources. Understanding organization
6. Failing to establish competitive issues
good internal can help managers ORGANIZATIONAL
communications and develop successful STRATEGY
cooperation among strategies. -is important because
different functional it guides the
areas. organization by
providing direction
 for, and alignment of, for global competitiveness LOW COST.
the goals and and fostering educational
-Outsource operations to
strategies of the excellence and ensuring
third-world countries that
functional units. equal access.
have low labor costs.
STRATEGIES
Strategies provide focus for
-Plans for achieving SCALE-BASED STRATEGIES.
decision making. Generally
organizational goals.
speaking, organizations have -Use capital-intensive
overall strategies called methods to achieve high
-can be the main
organizational strategies, output volume and low unit
reason for the
which relate to the entire costs.
success or failure of
organization. They also have
an organization. SPECIALIZATION.
functional strategies, which
relate to each of the -Focus on narrow product
THREE BASIC
functional areas of the lines or limited service to
BUSINESS
organization. The functional achieve higher quality.
STRATEGIES:
strategies should support the NEWNESS.
• Low cost
overall strategies of the
• Responsiveness -Focus on innovation to
organization, just as the
• Differentiation from create new products or
organizational strategies
competitors services.
should support the goals and
RESPONSIVENESS mission of the organization. FLEXIBLE OPERATIONS.
Tactics are the methods and
-ability to respond to actions used to accomplish -Focus on quick response
changing demands strategies. They are more and/or customization.
MICROSOFT specific than strategies, and
High quality.
they provide guidance and
-To help people and direction for carrying out -Focus on achieving higher
businesses throughout actual operations, which quality than competitors.
the world to realize their need the most specific and SERVICE.
full potential. detailed plans and decision
-Focus on various aspects of
VERIZON making in an organization.
service (e.g., helpful,
You might think of tactics as
-To help people and courteous, reliable, etc.).
the “how to” part of the
businesses communicate SUSTAINABILITY.
process (e.g., how to reach
with each other. the destination, following the - Focus on environmental-
strategy roadmap) and friendly and energy-efficient
STARBUCKS
operations as the actual operations.
-To inspire and nurture the “doing” part of the process.
human spirit—one cup and Much of this book deals with CORE COMPETENCIES
one neighborhood at a time. tactical operations. -The spe cial attributes or
U.S. DEPT. OF EDUCATION abilities that give an
-To promote student organization a competitive
DIFFERENT STRATEGIES: edge.
achievement and preparation
*Marketing and operations ORDER WINNERS 2. POLITICAL CONDITIONS.
work closely to match
-characteristics of an -These include favorable or
customer needs with
organization’s goods or unfavorable attitudes toward
operations capabilities
services that cause them to business, political stability or
STRATEGY FORMULATION be perceived as better than instability, and wars.
the competition
-always critical to the success 3. LEGAL ENVIRONMENT.
of a strategy *Characteristics such as price,
-This includes antitrust laws,
delivery reliability, delivery
SWOT government regulations,
speed, and quality can be
trade restrictions, minimum
-approach (strengths, order qualifiers or order
wage laws, product liability
weaknesses, opportunities, winners
laws and recent court
and threats).
MARKETING experience, labor laws, and
STRENGTHS AND patents.
-must make that
WEAKNESSES
determination and 4. TECHNOLOGY.
-have an internal focus and communicate it to operations
-This can include the rate at
are typically evaluated by
ENVIRONMENTAL which product innovations
operations people.
SCANNING are occurring, current and
THREATS AND future process technology
-monitoring of events and
OPPORTUNITIES (equipment, materials
trends that present either
handling), and design
-have an external focus and threats or opportunities for
technology.
are typically evaluated by the organization
marketing people. SWOT is 5. COMPETITION.
*key factor to consider when
often regarded as the link
developing strategies is -This includes the number
between organizational
technological change and strength of competitors,
strategy and operations
the basis of competition
strategy. RISK
(price, quality, special
MICHAEL PORTER’S FIVE -incorrect choices, poor features), and the ease of
FORCES MODEL execution, and higher-than- market entry. 6. Markets. This
expected operating costs will includes size, location, brand
-alternative to SWOT analysis loyalties, ease of entry,
create competitive
-takes into account the threat disadvantages potential for growth, long-
of new competition term stability, and
1. ECONOMIC CONDITIONS. - demographics.
ORDER QUALIFIERS These include the general
health and direction of the INTERNAL FACTORS
-characteristics that potential economy, inflation and
customers perceive as 1. HUMAN RESOURCES.
deflation, interest rates, tax
minimum standards of laws, and tariffs. -These include the skills and
acceptability for a product to abilities of managers and
be considered for purchase. workers, special talents
(creativity, designing,
problem solving), loyalty to
the organization, expertise,
dedication, and experience.
2. FACILITIES AND
EQUIPMENT.
-Capacities, location, age, and
cost to maintain or replace
can have a significant impact
on operations.
3. FINANCIAL RESOURCES.
-Cash flow, access to
additional funding, existing
debt burden, and cost of
capital are important
considerations.
4. CUSTOMERS.
-Loyalty, existing
relationships, and
understanding of wants and
needs are important.
5. PRODUCTS AND SERVICES.
-These include existing
products and services, and
the potential for new
products and services.
6. TECHNOLOGY.
- This includes existing
technology, the ability to
integrate new technology,
and the probable impact of
technology on current and
future operations.
7. SUPPLIERS.
- Supplier relationships,
dependability of suppliers,
quality, flexibility, and service
are typical considerations.
8. OTHER. -how the supply chain should
function to achieve supply
- Other factors include
chain goals
patents, labor relations,
company or product image, -should be aligned with the
distribution channels, business strategy
relationships with
-can create value for the
distributors, maintenance of
organization
facilities and equipment,
access to resources, and SUSTAINABILITY STRATEGY
access to markets.
-Society is placing increasing
SINGLE STRATEGY emphasis on corporate
sustainability practices in the
-to concentrate on one
form of governmental
particular strength or market
regulations and interest
condition
groups
MULTIPLE STRATEGIES
GLOBAL STRATEGY
-to address a particular set of
-strategic decisions with
conditions
respect to globalization must
*outsourcing to reduce be made
overhead
-In today’s global markets,
DATABASE you don’t have to go abroad
to experience international
-collection of statistically
competition. Sooner or later
documented experiences
the world comes to you
drawn from thousands of
businesses, designed to help OPERATIONS STRATEGY
understand what kinds of
-narrower in scope, dealing
strategies
primarily with the operations
DATA aspect of the organization
-key resource for such critical -relates to products,
management tasks processes, methods,
operating resources, quality,
THE PRIMARY ROLE OF THE
costs, lead times, and
PIMS
scheduling
-to help managers
*for operations strategy to be
understand and react to their
truly effective, it is important
business environment
to link it to organization
SUPPLY CHAIN STRATEGY strategy; that is, the two
should not be formulated
independently
1970S AND EARLY 1980S -Costs, flexibility, skill level nization’s products or
needed, capacity services
-operations strategy in the
United States was often 4. WORK DESIGN - generally a factor in both
neglected in favor of attracting and retaining
-Quality of work life,
marketing and financial customers
employee safety, productivity
strategies
TIME-BASED STRATEGIES
5. LOCATION
-Mergers and acquisitions
- reducing the time required
were common; leveraged -Costs, visibility
to accomplish various
buyouts were used, and
6. QUALITY activities
conglomerates were formed
that joined dissimilar -Ability to meet or exceed - focus on reducing the time
operations customer expectations needed to conduct the
various activities in a process
LATE 1980S AND EARLY 7. INVENTORY
1990S ORGANIZATIONS HAVE
-Costs, shortages ACHIEVED TIME REDUCTION
-many companies began to
8. MAINTENANCE IN SOME OF THE
realize this approach was not
FOLLOWING:
working -Costs, equipment reliability,
productivity PLANNING TIME:
STRATEGY FORMULATION
9. SCHEDULING -The time needed to react to
-key element of both
a competitive threat, to
organization strategy and -Flexibility, efficiency develop strategies and select
operations strategy
10. SUPPLY CHAINS tactics, to approve proposed
OPERATIONS STRATEGY changes to facilities, to adopt
-Costs, quality, agility, new technologies, and so on.
-can have a major influence shortages, vendor relations PRODUCT/SERVICE DESIGN
on the competitiveness of an 11. PROJECTS TIME:
organization
-Costs, new products, -The time needed to develop
STRATEGIC OPERATIONS services, or operating and market new or
MANAGEMENT DECISION systems redesigned products or
AREAS
services.
TWO FACTORS THAT TEND
1. PRODUCT AND SERVICE TO HAVE UNIVERSAL PROCESSING TIME:
DESIGN STRATEGIC OPERATIONS
IMPORTANCE: -The time needed to produce
-Costs, quality, liability, and
goods or provide services.
environmental issues 1. QUALITY This can involve scheduling,
2. CAPACITY 2. TIME repairing equipment,
methods used, inventories,
-Cost structure, flexibility QUALITY-BASED STRATEGIES
quality, training, and the like.
3. PROCESS SELECTION AND - maintaining or improving
LAYOUT the quality of an orga
CHANGEOVER TIME:
-The time needed to change
from producing one type of
product or service to another.
This may involve new
equipment settings and
attachments, different
methods, equipment,
schedules, or materials.
Delivery time: The time
needed to fill orders.
RESPONSE TIME FOR
COMPLAINTS:
-These might be customer
complaints about quality,
timing of deliveries, and
incorrect shipments. These
might also be complaints
from employees about
working conditions (e.g.,
safety, lighting, heat or cold),
equipment problems, or
quality problems.
* It is essential for marketing
and operations personnel to
collaborate on strategy
formulation in order to ensure
that the buying criteria of the
most important customers in
each market seg ment are
addressed.
AGILE OPERATIONS
- emphasizes the use of
flexibility to adapt and
prosper in an environment of
change
AGILITY
- involves a blending of
several distinct competencies
such as cost, quality, and
reliability along with flexibility
* Successful agile operations
requires careful planning to
achieve a system that
includes people, flexible
equipment, and information
technology. Reducing the
time needed to per form
work is one of the ways an
organization can improve a
key metric: productivity
IMPLICATIONS OF
ORGANIZATION STRATEGY
FOR OPERATIONS
MANAGEMENT
- a strategy to offer a wide
variety of products or
services, or to perform
customized work, creates
substantial operational and
sup ply chain variations and,
hence, more challenges in
achieving a smooth flow of
goods and services
throughout the supply chain,
thus making the matching of
supply to demand more
difficult
- increasing service reduces
the ability to compete on
price
BALANCED SCORECARD
(BSC)
- top-down management
system that organizations can
use to clarify their vision and
strategy and transform them
into action
- early 1990s by ROBERT
KAPLAN AND DAVID
NORTON
- to move away from a purely
financial perspective of the
organization and integrate
other perspectives such as
customers, internal business
processes, and learning and
growth
LOW PRICE
-Requires low variation in
products/services and a high-
volume, steady flow of goods
results in maximum use of
resources through the
system. Standardized work,
material, and inventory
requirements.
HIGH QUALITY
-Entails higher initial cost for
product and service design,
and process design, and more
emphasis on assuring supplier
quality.
QUICK RESPONSE
-Requires flexibility, extra
capacity, and higher levels of
some inventory items.
NEWNESS/INNOVATION
-Entails large investment in
research and development
for new or improved products
and services plus the need to
adapt operations and supply
processes to suit new
products or services.
PRODUCT OR SERVICE
VARIETY
-Requires high variation in
resource and more emphasis
on product and service
design; higher worker skills
needed, cost estimation more
difficult; scheduling more
complex; quality assurance
more involved; inventory
management more complex;
and matching supply to
demand more difficult.
SUSTAINABILITY
-Affects location planning,
product and service design,
process design, outsourcing
decisions, returns policies,
and waste management.
*Balanced Scorecard helps
focus managers’ attention on
strategic issues and the
implementation of strategy, it
is important to note that it
has no role in strategy
formulation.
SUPPLIERS
• Delivery
performance
• Quality performance
• Number of suppliers
Supplier locations
Duplicate activities
INTERNAL PROCESSES
• Bottlenecks
• Automation potential
• Turnover
EMPLOYEES
• Job satisfaction
• Learning
opportunities
• Delivery
performance
CUSTOMERS
• Quality performance
• Satisfaction
• Retention rate
PRIMARY RESPONSIBILITIES
OF A MANAGER
- achieve productive use of an
organization’s resources
PRODUCTIVITY
- index that measures output
(goods and services) relative
to the input (labor, materials,
energy, and other resources)
used to produce it
PRODUCTIVITY
OUTPUT/ INPUT
* the higher the productivity,
the lower the cost of the
output.
* productivity is an important
factor in determining how
competitive a company is.
PRODUCTIVITY GROWTH
- key factor in a country’s rate
of inflation and the standard
of living of its people
- increase in productivity from
one period to the next
relative to the productivity in
the preceding period
Productivity growth = Current productivity −
Previous productivity/ Previous productivity
*100
* Productivity can be
enhanced by the use of
robotic equipment
LABOR PRODUCTIVITY
-Units of output per labor
hour
-Units of output per shift
-Value-added per labor hour
-Dollar value of output per
labor hour
MACHINE PRODUCTIVITY
-units of output per machine
hour
-Dollar value of output per
machine hour
CAPITAL PRODUCTIVITY
-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
* productivity measures can
be used to track performance
over time
* productivity measurements
serve as scorecards of the
effective use of resources
* Advantages of domestic-
based operations for
domestic markets often
include higher worker productivity measurements. sustain growth, and take
productivity, better control of USE OF THE INTERNET advantage of new
quality, avoidance of opportunities.
can lower costs of a wide
intellectual property losses,
range of transactions, LAYOFFS
lower shipping costs, political
thereby increasing
stability, low inflation, and often affect productivity. The
productivity. It is likely that
faster delivery effect can be positive and
this effect will continue to
negative. Initially,
SERVICE PRODUCTIVITY increase productivity in the
productivity may increase
foreseeable future.
- more problematic than after a layoff, because the
COMPUTER VIRUSES
manufacturing productivity workload remains the same
can have an immense but fewer workers do the
* useful measure closely
negative impact on work—although they have to
related to productivity is
productivity. work harder and longer to do
process yield
it. However, as time goes by,
SEARCHING FOR LOST OR
NUMEROUS FACTORS the remaining workers may
MISPLACED ITEMS
AFFECT PRODUCTIVITY experience an increased risk
wastes time, hence of burnout, and they may fear
- methods, capital, quality, additional job cuts. The most
negatively affecting
technology, and capable workers may decide
productivity
management. to leave.
SCRAP RATES
OTHER FACTORS THAT LABOR TURNOVER
AFFECT PRODUCTIVITY have an adverse effect on
productivity, signaling has a negative effect on
STANDARDIZING productivity; replacements
inefficient use of resources.
processes and procedures NEW WORKERS need time to get up to speed.
wherever possible to reduce DESIGN OF THE WORKSPACE
tend to have lower
variability can have a can impact productivity. For
productivity than seasoned
significant benefit for both example, having tools and
workers. Thus, growing
productivity and quality. other work items within easy
companies may experience a
QUALITY DIFFERENCES reach can positively impact
productivity lag.
may distort productivity productivity.
SAFETY
measurements. One way this INCENTIVE PLANS THAT
can happen is when should be addressed. REWARD PRODUCTIVITY
comparisons are made over Accidents can take a toll on INCREASES
time, such as comparing the productivity.
productivity of a factory now can boost productivity.
A SHORTAGE OF
with one 30 years ago.
TECHNOLOGY-SAVVY
Quality is now much higher
than it was then, but there is WORKERS hampers the
no simple way to incorporate ability of companies to
quality improvements into update com puting
resources, generate and