2-1 Competitiveness, Strategy, and Productivity

Operations Management

William J. Stevenson

8th edition

2-2 Competitiveness, Strategy, and Productivity

CHAPTER

2

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

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 • Pricing • Advertising and promotion

Businesses Compete Using Operations
• • • • •

2-5 Competitiveness, Strategy, and Productivity

Product and service design Cost Location Quality Quick response

Businesses Compete Using Operations

2-6 Competitiveness, Strategy, and Productivity

Flexibility • Inventory management • Supply chain management • Service

2-7 Competitiveness, Strategy, and Productivity

Why Some Organizations Fail

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

2-8 Competitiveness, Strategy, and Productivity

Why Some Organizations Fail

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

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

Strategies

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

Mission
• The

Mission Statement
• Answers

Goals
• Provide

detail and scope of mission

Tactics
• 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: • Goal: • Strategy: • Tactics: • 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 • Scale-based strategies • Specialization • Flexible operations • High quality • Service

2-14 Competitiveness, Strategy, and Productivity

Strategy and Tactics

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

Examples of Distinctive Competencies
Table 2.2

2-15 Competitiveness, Strategy, and Productivity

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

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 • Environmental scanning • SWOT • Order qualifiers • Order winners

2-18 Competitiveness, Strategy, and Productivity

Strategy Formulation

Order qualifiers

Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition

Order winners

2-19 Competitiveness, Strategy, and Productivity

Key External Factors

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

2-20 Competitiveness, Strategy, and Productivity

Key Internal Factors

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

2-21 Competitiveness, Strategy, and Productivity

Quality and Time Strategies

Quality-based strategies

Focuses on maintaining or improving the quality of an organization’s products or services • Quality at the source

Time-based strategies

Focuses on reduction of time needed to accomplish tasks

2-22 Competitiveness, Strategy, and Productivity

Time-based Strategies
JAN
Planning Designing Processing Changeover Delivery On time!

FEB

MAR

APR

MAY

JUN

2-23 Competitiveness, Strategy, and Productivity

Productivity

Productivity

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 • Scheduling equipment • Financial analysis

2-24 Competitiveness, Strategy, and Productivity

Productivity

Partial measures

output/(single input) output/(multiple inputs) output/(total inputs)

Multi-factor measures

Total measure

Outputs Productivity = Inputs

2-25 Competitiveness, Strategy, and Productivity

Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity Previous Period Productivity

2-26 Competitiveness, Strategy, and Productivity

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

2-32 Competitiveness, Strategy, and Productivity

Other Factors Affecting Productivity

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

2-33 Competitiveness, Strategy, and Productivity

Bottleneck Operation
Figure 2.3

Machine #1 Machine #1 Machine #2 Machine #2

10/hr

10/hr

Machine #3 Machine #3

Bottleneck Bottleneck Operation Operation
10/hr 10/hr

30/hr

Machine #4 Machine #4

2-34 Competitiveness, Strategy, and Productivity

Improving Productivity

Develop productivity measures • Determine critical (bottleneck) operations • Develop methods for productivity improvements • Establish reasonable goals • Get management support • Measure and publicize improvements • Don’t confuse productivity with efficiency

2-35 Competitiveness, Strategy, and Productivity

Value Results

VO10 ABTco example

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