2-1 Competitiveness, Strategy, and Productivity

William J. Stevenson

Operations Management

8th edition

2-2 Competitiveness, Strategy, and Productivity

CHAPTER2

Competitiveness, Strategy, and Productivity

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights

reserved.

2-3 Competitiveness, Strategy, and Productivity

Competitiveness: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 MarketingBusinesses Compete Using Marketing

Identifying consumer wants and needs Pricing Advertising and promotion

2-5 Competitiveness, Strategy, and Productivity

Businesses Compete Using OperationsBusinesses Compete Using Operations

Product and service design Cost Location Quality Quick response

2-6 Competitiveness, Strategy, and Productivity

Businesses Compete Using OperationsBusinesses Compete Using Operations

Flexibility Inventory management Supply chain management Service

2-7 Competitiveness, Strategy, and Productivity

Why Some Organizations FailWhy 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 FailWhy 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/TacticsMission/Strategy/Tactics

How does mission, strategies and tactics relate todecision making and distinctive competencies?

StrategyStrategy TacticsTacticsMissionMission

2-10 Competitiveness, Strategy, and Productivity

StrategyStrategy

Strategies Plans for achieving organizational goals

Mission The reason for existence for an organization

Mission Statement Answers the question “What business are we in?”

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 MakingPlanning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

Figure 2.1

2-12 Competitiveness, Strategy, and Productivity

Strategy ExampleStrategy Example

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

Example 1

2-13 Competitiveness, Strategy, and Productivity

Examples of StrategiesExamples of Strategies

Low cost Scale-based strategies Specialization Flexible operations High quality Service

2-14 Competitiveness, Strategy, and Productivity

Strategy and TacticsStrategy and Tactics

Distinctive CompetenciesThe special attributes or abilities that give anorganization a competitive edge. Price Quality Time Flexibility Service Location

2-15 Competitiveness, Strategy, and Productivity

Banks, ATMsConvenienceLocationLocation

DisneylandNordstroms

Superior customer service

ServiceService

Burger KingSupermarkets

VarietyVolume

FlexibilityFlexibility

Express Mail, Fedex,One-hour photo, UPS

Rapid deliveryOn-time delivery

TimeTime

Sony TVLexus, CadillacPepsi, Kodak, Motorola

High-performance design or high quality Consistent quality

QualityQuality

U.S. first-class postageMotel-6, Red Roof Inns

Low CostPricePrice

Examples of Distinctive CompetenciesExamples of Distinctive CompetenciesTable 2.2

2-16 Competitiveness, Strategy, and Productivity

Operations StrategyOperations Strategy

Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.

2-17 Competitiveness, Strategy, and Productivity

Strategy FormulationStrategy Formulation

Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners

2-18 Competitiveness, Strategy, and Productivity

Strategy FormulationStrategy Formulation

Order qualifiers Characteristics that customers perceive as

minimum standards of acceptability to be considered as a potential purchase

Order winners Characteristics of an organization’s goods or

services that cause it to be perceived as better than the competition

2-19 Competitiveness, Strategy, and Productivity

Economic conditions Political conditions Legal environment Technology Competition Markets

Key External FactorsKey External Factors

2-20 Competitiveness, Strategy, and Productivity

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

Key Internal FactorsKey Internal Factors

2-21 Competitiveness, Strategy, and Productivity

Quality and Time StrategiesQuality 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 StrategiesTime-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Processing

Changeover On time!

Designing

Delivery

2-23 Competitiveness, Strategy, and Productivity

ProductivityProductivity

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

ProductivityProductivity

Partial measures output/(single input)

Multi-factor measures output/(multiple inputs)

Total measure output/(total inputs)

Productivity = Outputs

Inputs

2-25 Competitiveness, Strategy, and Productivity

Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =

2-26 Competitiveness, Strategy, and Productivity

Measures of ProductivityMeasures of ProductivityTable 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

2-27 Competitiveness, Strategy, and Productivity

Units of output per kilowatt-hourDollar value of output per kilowatt-hour

Energy Productivity

Units of output per dollar inputDollar value of output per dollar input

Capital Productivity

Units of output per machine hourmachine hour

Machine Productivity

Units of output per labor hourUnits of output per shiftValue-added per labor hour

Labor Productivity

Examples of Partial Productivity Examples of Partial Productivity MeasuresMeasures

Table 2.5

2-28 Competitiveness, Strategy, and Productivity

Example 3Example 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 multifactorproductivity?

Ans. 2.20

2-29 Competitiveness, Strategy, and Productivity

Example 3 SolutionExample 3 Solution

MFP = OutputLabor + Materials + Overhead

MFP = (7040 units)*($1.10)$1000 + $520 + $2000

MFP = 2.20

2-30 Competitiveness, Strategy, and Productivity

Factors Affecting ProductivityFactors Affecting Productivity

Capital Quality

Technology Management

2-31 Competitiveness, Strategy, and Productivity

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

Other Factors Affecting ProductivityOther Factors Affecting Productivity

2-32 Competitiveness, Strategy, and Productivity

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

Other Factors Affecting ProductivityOther Factors Affecting Productivity

2-33 Competitiveness, Strategy, and Productivity

Bottleneck OperationBottleneck OperationFigure 2.3

Machine #2Machine #2BottleneckOperation

BottleneckOperation

Machine #1Machine #1

Machine #3Machine #3

Machine #4Machine #4

10/hr

10/hr

10/hr

10/hr

30/hr

2-34 Competitiveness, Strategy, and Productivity

Improving ProductivityImproving 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