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

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
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
(USP)
2-4 Competitiveness, Strategy, and Productivity

Businesses Compete Using Marketing

 Identifying consumer wants and needs

 Pricing

 Advertising and promotion

2-5 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Product and service design

 Cost
 Location
 Quality
 Quick response

 Service Design-Service Design is the activity of planning and

organizing people, infrastructure, communication and material
components of a service, in order to improve its quality, the
interaction between service provider and customers and the
customer's experience.
2-6 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Flexibility
 Inventory management

 Supply chain management

 Service
Supply Chain management-Supply chain management (SCM) is the
management of a network of interconnected businesses involved in
the ultimate provision of product and service packages required by
end customers
 Supply Chain Management spans all movement and storage of raw
materials, work-in-process inventory, and finished goods from
point of origin to point of consumption (supply chain).
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

 An operations strategy consists of a sequence of decisions that, over time,

enables a business unit to achieve a desired operations structure,
infrastructure, and set of specific capabilities in support of the competitive
priorities.
  
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
 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
 Strategy is a deliberate search for a plan of action that will develop a
business's distinctive competence and compound it.
2-11 Competitiveness, Strategy, and Productivity

Planning and Decision Making

Figure 2.1

Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures 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: Live a good life
 Goal: Successful career, good income
 Strategy: Obtain a college education
 Tactics: Select a reputed college with placement
 Operations: Register, buy books, take
courses, study, graduate, get job
2-13 Competitiveness, Strategy, and Productivity

Examples of Strategies

 Low cost
 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
2-15 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Table 2.2
Price Low Cost Bajaj Scooters

Quality High-performance design Dairy Milk

or high quality Consistent
quality

Time Rapid delivery Pizza Hut

On-time delivery

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer HDFC

service

Location Convenience 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.

 10/02/10
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
 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

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 FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover On time!

Delivery
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)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)
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 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

Examples of Partial Productivity Measures

Table 2.5

Labor Units of output per labor hour

Units of output per shift
Productivity Value-added per labor hour

Machine Units of output per machine hour

machine hour
Productivity
Capital Units of output per dollar input
Dollar value of output per dollar input
Productivity
Energy Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Productivity
2-28 Competitiveness, Strategy, and Productivity

Example 3

7040 Units Produced

Sold for $1.10/unit

Cost of labor of $1,000 What is the

multifactor
Cost of materials: $520 productivity?

Cost of overhead: $2000 Ans. 2.20

2-29 Competitiveness, Strategy, and Productivity

Example 3 Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20
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

 Technology

 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
10/hr
Machine
Machine #1
#1

10/hr
Machine
Machine #2
#2 Bottleneck
Bottleneck 30/hr
Operation
Operation
Machine
Machine #3
#3 10/hr

Machine
Machine #4
#4 10/hr
 2-34 Competitiveness, Strategy, and Productivity

Bottleneck
- A bottleneck, in a communications context, is a point in the enterprise
where the flow of data is impaired or stopped entirely. Effectively, there
isn't enough data handling capacity to handle the current volume of
traffic. A bottleneck can occur in the user network or storage fabric or
within servers where there is excessive contention for internal server
resources, such as CPU processing power, memory, or I/O
(input/output). As a result, data flow slows down to the speed of the
slowest point in the data path. This slow down affects application
performance, especially for databases and other heavy transactional
applications, and can even cause some applications to crash.
In general, a bottleneck is a process in an operation where the capacity is
less than demand placed upon that operation.
 2-35 Competitiveness, Strategy, and Productivity

Elimination of bottlenecks

If your bottleneck is not a piece of equipment, you may have an

opportunity to eliminate or improve the overloaded area. Get creative in
increasing the throughput, an additional employee or a new tool may
increase the throughput of the operation. If you've identified a bottleneck
in your operation, an improvement will lead to an improvement in the
throughput of your entire process, so it's definitely worth the effort. You
should feel comfortable cross-training and juggling employees around to
balance your operation.
2-36 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