Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition,...

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Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2

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Page 1: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Competitiveness, Strategy, and Productivity

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

reserved.

Chapter 2

Page 2: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Competitiveness:Competitiveness:

How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Page 3: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Businesses Compete Using Marketing

Identifying consumer wants and needs Pricing Advertising and promotion

Page 4: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Businesses Compete Using Operations

Product and service design Cost Location Quality Quick response

Page 5: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Businesses Compete Using Operations

Flexibility Inventory management Supply chain management Service

Page 6: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

Page 7: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

Page 8: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Mission/Strategy/Tactics

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

StrategyStrategy TacticsTacticsMissionMission

Page 9: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Strategy Strategies

Plans for achieving organizational goals

MissionThe reason for existence for an organization

Mission StatementAnswers the question “What business are we in?”

GoalsProvide detail and scope of mission

TacticsThe methods and actions taken to accomplish strategies

Page 10: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Planning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

Page 11: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Strategy 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

Page 12: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Examples of Strategies

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

Page 13: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Strategy and Tactics

Distinctive Competencies

The special attributes or abilities that give anorganization a competitive edge.

Price Quality Time Flexibility Service Location

Page 14: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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 Competencies

Page 15: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Operations Strategy

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

Page 16: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Strategy Formulation

Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners

Page 17: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

Page 18: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Economic conditions Political conditions Legal environment Technology Competition Markets

Key External Factors

Page 19: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

Key Internal Factors

Page 20: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

Page 21: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Processing

Changeover On time!

Designing

Delivery

Page 22: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

Page 23: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Productivity

Partial measures output/(single input)

Multi-factor measures output/(multiple inputs)

Total measure output/(total inputs)

Productivity = Outputs

Inputs

Page 24: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =

Page 25: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Measures of ProductivityMeasures of Productivity

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

Page 26: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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 MeasuresExamples of Partial Productivity Measures

Page 27: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Example 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

Page 28: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Example 3 Solution

MFP = OutputLabor + Materials + Overhead

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

MFP = 2.20

Page 29: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Factors Affecting Productivity

Capital Quality

Technology Management

Page 30: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

Other Factors Affecting Productivity

Page 31: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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

productivity

Other Factors Affecting Productivity

Page 32: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

Bottleneck Operation

Machine #2Machine #2BottleneckOperation

BottleneckOperation

Machine #1Machine #1

Machine #3Machine #3

Machine #4Machine #4

10/hr

10/hr

10/hr

10/hr

30/hr

Page 33: Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill.

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


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