2-1 Competitiveness, Strategy, and Productivity

Chapter 2
Competitiveness,
Strategy, and
Productivity
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-2 Competitiveness, Strategy, and Productivity

Competitiveness:

How effectively an organization meets the

needs of customers relative to others that
offer similar goods or services

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-3 Competitiveness, Strategy, and Productivity

Competitiveness

Price

Quality

Service
Time

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-4 Competitiveness, Strategy, and Productivity

Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-5 Competitiveness, Strategy, and Productivity

Strategy

• Mission
– The reason for existence for an organization
• Mission Statement
– A clear statement of purpose
• Strategy
– A plan for achieving organizational goals
• Tactics
– The actions taken to accomplish strategies

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-6 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: Live a good life
•Goal: Successful career, good income
•Strategy: Obtain a college education
•Tactics: Select a college and a major
•Operations: Register, buy books, take
courses, study, graduate, get job

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-7 Competitiveness, Strategy, and Productivity

Planning and Decision Making

Figure 2-1
Mission

Goals

Organizational strategy

Functional strategies
Finance Marketing Operations

Tactics Tactics Tactics

Finance Marketing Operations

operations operations operations

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-8 Competitiveness, Strategy, and Productivity

Strategy Formulation

• Distinctive Competencies
– The special attributes or abilities that
give an organization a competitive edge.
• Environmental Scanning
– The considering of events and trends
that present threats or opportunities for a
company.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-9 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Price Low Cost U.S. first-class postage

Motel-6, Red Roof Inns

Quality High-performance design Sony TV

or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Motorola

Time Rapid delivery Express Mail

On-time delivery One-hour photo
Flexibility Variety Burger King
Volume Supermarkets
Service Superior customer Disneyland
service Nordstroms
Location Convenience Banks, ATMs

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-10 Competitiveness, Strategy, and Productivity

Key External Factors

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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-11 Competitiveness, Strategy, and Productivity

Key Internal Factors

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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-12 Competitiveness, Strategy, and Productivity

New 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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-13 Competitiveness, Strategy, and Productivity

Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover On time!

Delivery

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-14 Competitiveness, Strategy, and Productivity

Productivity

• Partial measures
– output/(single input)
• Multi-factor measures
– output/(multiple inputs)
• Total measure
– output/(total inputs)

Outputs
Productivity =
Inputs
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-15 Competitiveness, Strategy, and Productivity

Productivity Growth

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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-16 Competitiveness, Strategy, and Productivity

Measures of Productivity
Table 2-4

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-17 Competitiveness, Strategy, and Productivity

Examples of Partial Productivity Measures

Table 2-5

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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-18 Competitiveness, Strategy, and Productivity

Example

10,000 Units Produced

Sold for $10/unit

500 labor hours

What is the
labor productivity?
Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000

Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-19 Competitiveness, Strategy, and Productivity

Example--Labor Productivity

•10,000 units/500hrs = 20 units/hour

or we can arrive at a unitless figure

•(10,000 unit* $10/unit)/(500hrs* $9/hr) =

22.22

Can you think of any advantages or

disadvantages of each approach?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-20 Competitiveness, Strategy, and Productivity

Example--Multifactor Productivity

MFP = Output
Labor + Materials

MFP = (10,000 units)*($10)

(500)*($9) + ($5000) + ($25000)

MFP = 2.90

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-21 Competitiveness, Strategy, and Productivity

Figure 2-2

Annual Productivity Growth

6
Annual %

4
Change

2
0
-2 77 79 81 83 85 87 89 91 93 95 97 99
Year

Operations Management, Seventh Edition, by William J. Stevenson

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2-22 Competitiveness, Strategy, and Productivity

Factors Affecting Productivity

Capital Quality

Technology Management

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-23 Competitiveness, Strategy, and Productivity

Factors Affecting Productivity

• Standardization
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers
• Cuts in health benefits

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-24 Competitiveness, Strategy, and Productivity

Factors Affecting Productivity

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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-25 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
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
2-26 Competitiveness, Strategy, and Productivity

Bottleneck Operation
Figure 2-3

Operation

Operation
Bottleneck
Operation
Operation

Operation
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.