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
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

2-5 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

• Product and service design

• Cost
• Location
• Quality
• Quick response
2-6 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

• 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
• 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 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 college and a major
• Operations: 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
2-15 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Table 2.2
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, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer Disneyland

service Nordstroms

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.
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
 Examples of Partial Productivity
2-27 Competitiveness, Strategy, and 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

• 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

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

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