Introduction to Operations

Management (Session 2)

Prof. (Dr.) Kaustav Kundu,

Assistant Professor (QT and OM area),
Office No. 306
 Learning Objectives

 Discuss problems with outsourcing

Explain productivity and competitiveness
Necessity of operations strategy and its
different steps
Case study questions:
How responsible is a company for the actions of its
supplier? Of its supplier’s supplier? When the country in
which the supplier exists fails to take action?
What are the difficulties in relying on monitoring to
enforce suitable working conditions in supplier factories?
What other remedies would you recommend?
Compare Apple’s supplier problems Nike’s and those of
the apparel industry. Would the same remedies work in
each case? Which case is more difficult? Why?
Productivity and Competitiveness
 The OECD (Organization for Economic Cooperation and Development) defines
competitiveness as “the degree to which a nation can produce goods and services
that meet the test of international markets while simultaneously maintaining or
expanding the real incomes of its citizens”

 The most common measure of competitiveness is productivity.

 Productivity is calculated by dividing units of output by units of input.

𝑂𝑢𝑡𝑝𝑢𝑡
 Productivity =
𝐼𝑛𝑝𝑢𝑡

 Single-factor productivity compares output to individual inputs, such as labor

hours, investment in equipment, material usage, or square footage.

 Multifactor productivity relates output to a combination of inputs, such as (labor +

capital) or (labor + capital + energy + materials).
Measures of Productivity
 Single-Factor Productivity
𝑂𝑢𝑡𝑝𝑢𝑡 𝑂𝑢𝑡𝑝𝑢𝑡 𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑟 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

 Multifactor Productivity
𝑂𝑢𝑡𝑝𝑢𝑡 𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑟+𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠+𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐿𝑎𝑏𝑜𝑟+𝐸𝑛𝑒𝑟𝑔𝑦+𝐶𝑎𝑝𝑖𝑡𝑎𝑙

 Total Factor Productivity

𝐺𝑜𝑜𝑑𝑠 𝑎𝑛𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝐴𝑙𝑙 𝑖𝑛𝑝𝑢𝑡𝑠 𝑢𝑠𝑒𝑑 𝑡𝑜 𝑝𝑟𝑜𝑑𝑢𝑐𝑒 𝑡ℎ𝑒𝑚

where capital can include the value of equipment, facilities, inventory, and land.
Calculating Productivity
Osborne Industries is compiling the monthly productivity report for its boards of directors.
From the following data, calculate (a) labor productivity, (b) machine productivity, and (c)
multifactor productivity of output per dollars spent on labor, machine, materials, and energy.
The average labor rate is $15 an hour, and the average machine usage rate is $10 an hour.

Units produced 100,000

Labor hours 10,000
Machine hours 5,000
Cost of materials $35,000
Cost of energy $15,000
Drawbacks of productivity statistics

 Productivity is a relative measure. Productivity statistics can be misleading.

 For example, a country or firm may increase productivity by decreasing input faster than
output. Thus, although the company may be retrenching, its productivity is increasing.

 Productivity statistics also assume that if more input were available, output would increase
at the same rate. This may not be true, as there may be limits to output other than those on
which the productivity calculations are based.

 Furthermore, productivity emphasizes output produced, not output sold. If products

produced are not sold, inventories pile up and increases in output can actually accelerate a
company’s decline.
Strategy planning

Mission and Vision

Voice of the Voice of the

Corporate Strategy
Business Customer

Marketing Strategy Operations Strategy Financial Strategy

Strategy formulation

Defining a primary task.

Assessing core competencies.
Determining order winners and order qualifiers.
Positioning the firm.
Deploying the strategy
Key Takeaways
 Outsourcing is not always beneficial. The companies need to take
proper actions in order to make it effective.

 There are different ways of measuring productivity. Productivity can

be single factor, multiple factor or total factor.

 The productivity statistics is misleading. If both numerator and

denominator change, it will be hard to guess the productivity.

 How to make proper strategy planning and different steps of strategy

formulation.
Assignment

 Text Book: Operations & Supply Chain Management, 8th Ed. (International Student
Version) by Roberta S. Russell and Bernard W. Taylor III ©2014 John Wiley and Sons, Inc.
(ISBN-13-9788126556823)
• Case study on “Two Strategies – ZARA and Uniqlo” page 19.
• Form a group of 6 and try to answer the questions
• You need to present them in the next class