Production & Operations

Management
Dr. Akshay G Khanzode
Assistant Professor, SBM, NMIMS Mumbai

Session - 02
 Content of Presentation
• Competitiveness
• Strategy
• Productivity
• Productivity Concepts
• Single factor Productivity
• Multi-Factor Productivity
• Total Productivity
• Productivity Measures in Manufacturing
• Methods to Improve Productivity
• Home Style Cookies Case-let Discussion

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Competitiveness
• How effectively an organization meets the wants and needs of customers relative
to others that offer similar goods or services?
• Organizations compete through some combination of their marketing and
operations functions
• What do customers want?
• How can these customer needs best be satisfied?

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Businesses Compete Using Operations
• Product and service design (Tata Motors)
• Cost (Reliance Jio)
• Location (ITC Hotels)
• Quality (Amul)
• Quick response (Zara)
• Flexibility (Maruti Suzuki)
• Inventory management (Walmart)
• Supply chain management (Unilever)
• Service (Vistara)
• Managers and workers (Southwest Airlines)

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Why Some Organizations Fail
• Neglecting operations strategy
• Failing to take advantage of strengths and opportunities and/or failing to recognize
competitive threats
• Too much emphasis on short-term financial performance at the expense of R&D
• Too much emphasis in 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
• Failing to consider customer wants and needs

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Sample Operations Strategies
Organizational Strategy Operations Strategy Examples of Companies or Services

U.S. first-class postage

Low Price Low Cost
Wal-Mart
Short processing times McDonald’s restaurants
Responsiveness
On-time delivery FedEx
High performance design and/or high-
Differentiation: Sony TV
quality processing
High Quality Coca-Cola
Consistent Quality
Differentiation:
Innovation 3M, Apple
Newness
Differentiation: Flexibility Burger King (Have it your way”)
Variety Volume McDonald’s (“Buses Welcome”)
Differentiation: Disneyland
Superior customer service
Service IBM
Differentiation:
Convenience Supermarkets; Mall Stores
Location

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Strategy Formulation
• 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
• Order qualifiers
• Characteristics that customers perceive as minimum standards of acceptability for a product or
service to be considered as a potential for purchase
• Order winners
• Characteristics of an organization’s goods or services that cause it to be perceived as better
than the competition

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Strategic OM Decision Areas
Decision Area What the Decisions Affect
Product and service design Costs, quality, liability, and environmental issues
Capacity Cost, structure, flexibility
Process selection and layout Costs, flexibility, skill level needed, capacity
Work design Quality of work life, employee safety, productivity
Location Costs, visibility
Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Productivity
• 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
• High productivity is linked to higher standards of living
o As an economy replaces manufacturing jobs with lower productivity service jobs, it is more
difficult to maintain high standards of living
• Higher productivity relative to the competition leads to competitive advantage in
the marketplace
o Pricing and profit effects
• For an industry, high relative productivity makes it less likely it will be supplanted
by foreign industry

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Productivity Measures
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


Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Productivity Calculation Example
• Units produced: 5,000
• Standard price: $30/unit
• Labor input: 500 hours
• Cost of labor: $25/hour
• Cost of materials: $5,000
• Cost of overhead: 2x labor cost

• What is the multifactor productivity?

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Solution
Output
Multifactor Productivity =
Labor + Material + Overhead
5,000 units  $30/unit
=
(500 hours  $25/hour) + $5,000 + (2(500 hours  $25/hour))

$150,000
=
$42,500
= 3.5294

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Productivity Growth
Current productivity - Previous productivity
Productivity Growth = 100%
Previous productivity
Example: Labor productivity on the ABC assembly line was 25 units per hour in
2014. In 2015, labor productivity was 23 units per hour. What was the productivity
growth from 2014 to 2015?


23 - 25
Productivity Growth = 100% = −8%
25

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai
 Productivity Growth
• Briefly describe the cookie production process.
• What are two ways that the company has increased productivity? Why did increasing the
length of the ovens result in a faster output rate?
• Do you think that the company is making the right decision by not automating the
packing of cookies? Explain your reasoning. What obligation does a company have to its
employees in a situation such as this? What obligation does it have to the community? Is
the size of the town a factor? Would it make a difference if the company was located in a
large city? Is the size of the company a factor? What if it were a much larger company?
• What factors cause the company to carry minimal amounts of certain inventories? What
benefits result from this policy?
• As a consumer, what things do you consider in judging the quality of cookies you buy in a
supermarket?
• What advantages and what limitations stem from the company’s not using preservatives in
cookies?
• Briefly describe the company’s strategy

Production & Operations Management, Dr. A.G. Khanzode, SBM, NMIMS Mumbai