2-1 Competitiveness, Strategy, and Productivity 2-2 Competitiveness, Strategy, and Productivity

CHAPTER
2 Competitiveness:

How effectively an organization meets the wants

and needs of customers relative to others that
Competitiveness, Strategy, offer similar goods or services
and Productivity

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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Businesses Compete Using Marketing Businesses Compete Using Operations

• Identifying consumer wants and needs • Product and service design

• Pricing • Cost
• Advertising and promotion • Location
• Quality
• Quick response
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Businesses Compete Using Operations Why Some Organizations Fail

• Flexibility • Too much emphasis on short-term financial performance

• Inventory management • Failing to take advantage of strengths and opportunities
• Supply chain management • Failing to recognize competitive threats
• Service • Neglecting operations strategy

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Why Some Organizations Fail Mission/Strategy/Tactics

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

How does mission, strategies and tactics relate to

decision making and distinctive competencies?
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Strategy Planning and Decision Making

Figure 2.1
• Strategies
Mission
• Plans for achieving organizational goals
• Mission Goals
• The reason for existence for an organization
Organizational Strategies
• Mission Statement
• Answers the question “What business are we in?” Functional Goals

• Goals Finance Marketing Operations

Strategies Strategies Strategies
• Provide detail and scope of mission
• Tactics
Tactics Tactics Tactics
• The methods and actions taken to accomplish strategies
Operating Operating Operating
procedures procedures procedures

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Strategy Example Examples of Strategies

Example 1
• Low cost
Rita is a high school student. She would like to have a • Scale-based strategies
career in business, have a good job, and earn enough
• Specialization
income to live comfortably
• Flexible operations
Mission: Live a good life • High quality
• Goal: Successful career, good income • Service
• Strategy: Obtain a college education
• Tactics: Select a college and a major
• Operations: Register, buy books, take
courses, study, graduate, get job
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Strategy and Tactics Examples of Distinctive Competencies

Table 2.2
• Distinctive Competencies Low Cost U.S. first-class postage
Price
The special attributes or abilities that give an Motel-6, Red Roof Inns
organization a competitive edge. High-performance design Sony TV
• Price
Quality
or high quality Consistent Lexus, Cadillac
• Quality quality Pepsi, Kodak, Motorola

• Time Time Rapid delivery Express Mail, Fedex,

One-hour photo, UPS
• Flexibility On-time delivery

• Service Flexibility Variety Burger King

Volume Supermarkets
• Location
Service Superior customer Disneyland
service Nordstroms

Location Convenience Banks, ATMs

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Operations Strategy Strategy Formulation

• Operations strategy – The approach, consistent with organization • Distinctive competencies

strategy, that is used to guide the operations function. • Environmental scanning
• SWOT
• Order qualifiers
• Order winners
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Strategy Formulation Key External Factors

• Order qualifiers • Economic conditions

• Characteristics that customers perceive as • Political conditions
minimum standards of acceptability to be • Legal environment
considered as a potential purchase • Technology
• Order winners • Competition
• Characteristics of an organization’s goods or • Markets
services that cause it to be perceived as better
than the competition

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Key Internal Factors Quality and Time Strategies

• Human Resources • Quality-based strategies

• Facilities and equipment • Focuses on maintaining or
• Financial resources improving the quality of an
• Customers organization’s products or
• Products and services services
• Technology • Quality at the source
• Suppliers • Time-based strategies
• Focuses on reduction oftime
needed to accomplish tasks
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Time-based Strategies Productivity

• Productivity
JAN FEB MAR APR MAY JUN • A measure of the effective use of resources, usually expressed as the ratio of
output to input
• Productivity ratios are used for
Planning
• Planning workforce requirements
• Scheduling equipment
Designing • Financial analysis

Processing

Changeover On time!

Delivery

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Productivity Measures of Productivity

Table 2.4
• Partial measures
• output/(single input)
• Multi-factor measures
• output/(multiple inputs) Partial Output Output Output Output
• Total measure measures Labor Machine Capital Energy
• output/(total inputs)
Multifactor Output Output
measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

Outputs measure All inputs used to produce them
Productivity =
Inputs
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Examples of Partial Productivity Measures Example 3

Table 2.5

7040 Units Produced

Labor Units of output per labor hour
Units of output per shift
Productivity Value-added per labor hour Sold for $1.10/unit
Machine Units of output per machine hour

Productivity
machine hour Cost of labor of $1,000 What is the
Units of output per dollar input
multifactor
Capital Cost of materials: $520
Dollar value of output per dollar input productivity?
Productivity
Energy Units of output per kilowatt-hour Cost of overhead: $2000 Ans. 2.20
Dollar value of output per kilowatt-hour
Productivity

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Example 3 Solution Factors Affecting Productivity

MFP = Output
Labor + Materials + Overhead Capital Quality

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20 Technology Management

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Other Factors Affecting Productivity Other Factors Affecting Productivity

• Standardization • Safety
• Quality • Shortage of IT workers
• Use of Internet • Layoffs
• Computer viruses • Labor turnover
• Searching for lost or misplaced items • Design of the workspace
• Scrap rates • Incentive plans that reward productivity
• New workers

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Bottleneck Operation Improving Productivity

Figure 2.3
• Develop productivity measures
10/hr
Machine #1 • Determine critical (bottleneck) operations
• Develop methods for productivity improvements
• Establish reasonable goals
10/hr • Get management support
Machine #2
Bottleneck 30/hr • Measure and publicize improvements
• Don’t confuse productivity with efficiency
Operation
Machine #3
10/hr

Machine #4 10/hr