What is Productivity? The term Productivity was coined by Dr. F Quensney in the year 1776. Productivity is a common measure of how well resources are / being used or a measure of the effective use of resources usually expressed as the ratio of output to input. Output Productivity = TaWhat is Productivity? = Since operations management focuses on making best use of resources available to a firm, productivity measurement is fundamental to understanding operations-related performance. = Productivity is the ratio of outputs (goods and services) divided by the inputs / (resources, such as labour and capital). ® Single-factor and Multi-tactor productivity.Other definitions of Productivity Output of the system 2 Bedociivity = Input to the system y oa Output obtained Productivity = inpUTeXDended eetenive Effectiveness EfficiencyWhy Productivity Matters y¥ High productivity is linked to higher standards of living v Higher productivity relative to the competition leads to competitive advantage in the marketplace * Pricing and profit effects v For an industry, high relative productivity makes it less likely it will be supplanted (Replace) by foreign industryMeasures of Productivity Hi rte NaC Partial Ratio of output to a Output 4, Output ., Output 1 sl - 7 Measure single input. Labour ~ Capital ~ Materials Output rt Labour + Capital Multifactor Ratio of output to a 2 Neoware, — 9OUP OF inputs but not ail inputs) Outputs Inputs: Ratio of all outputs to Goods and Services produced 3. Total Measure allinputs. imme Tiicasni ices ea ‘All resources usedExamples Partial Measures of Producti ( Restaurant Customers (meals) per labour hour Retail Store Sales per square foot Utility Watt Kilowatts per ton of coal Paper Mill Tons of paper per cord of woodExample Input and Output Production Data (Rs.) OUTPUT INPUT eed 10,000 1. Human 3,000 units 2. Work-in- P process 2,500 2. Material 153 3. Dividends 1,000 3. Capital 10,000 4. Bonds - 4. Energy 540 5. Other 5. Other Income - Expenses Led TOTAL ae eee eT a ae Seo aesExample Partial Measure Multifactor Measure Total Measure Productivity Measures Total Output -13,500_, Energy 540 2) Finished units = 00 Energy eC Total Output BE Seana 28 Human + Material Outputs =13.500_1 g9 Inputs 15,193Example 1 7040 Units Produced Which productivity Sold for Rs. 1.10/unit measures can / be Cost of labor : Rs. 1,000 calculated? Cost of materials: Rs. 520 What is the multifactor Cost of overhead: Rs. 2000 productivity?Solution 1 MFP = Output Labor + Materials + Overhead (MEP = (7040 units)*(Rs. 1.10) ~) MFP = 2.20 WR — a9) 20 RA. S————Example 2 5,500 Units Produced Sold for Rs. 35/unit 500 labor hours are used Cost of labor: Rs. 25/hr Cost of raw material: Rs. 5,000 Cost of overhead: 2 x labor cost (a) What is the labor productivity? (b) What is the multifactor productivity?Solution 2: Labor Productivity > 5,500 units/500 hours “i ntsinou Or we can arrive at a unitless figure: a > (5,500 units*Rs. 35/unit)/(500 hours * Rs. 25/hr) “4 one om EEESolution 2: Multifactor Productivity MFP = Labor + Materials + Overhead (5,500 units)*(Rs.35) (S00hrs.)"Rs.25/hr. + (Rs.5000) + 2°(500hrs.)* Rs 25/hr.Example 3 a A Fast food restaurant has a record of 240 customers served each day for the last one year. Three employees are available for service between 9:00 am to 9:00 pm. However on Thursday of the week 280 customers were served by three staff and on Saturday 212 customers were served with one of the staff taking half day leave. Determine the labour productivity in each cases.Labour productivity neptcniarm coe: EE = Output Labor input 240 Ereriaiirsper day = 6.68 CustomersServedperHour Labour Pro ductivity on Thrusday _ 280 ~3«12 = 7.78 CustomersServedperHourLabour productivity ____ Output Labor input 240 Ted hrs per day = ©68 CustomersServedperHour 2 Labour Pro ductivityonThrusday = 3-5 = 7.78 CustomersServedperHour Labour Pr o ductivity on Saturday 2?Labour productivity = Output Labor input 240 Bxi2hrsperday ~ ©:98 Customers Served per Hour Labour Productivity on Thrusday 280 = 3y13 = 7-78 Customers Served per Hour Labour Productivity on Saturday 212 = Gaia £6 ~ 7:07 CustomersservedperHourMETHODS OF IMPROVING Oe in input compared = When organization feels that some of its products / services are obsolete or not economical in market.VTERNATIO} L DIMENSION OF PRODUCTIVITY Due to globalization , improvements in Infrastructure and communication world has become small. There are situations where goods are imported while services are provided locally (ex. High end Ferrari car, Apple Phone). some time manufacturer (say USA) may transfer its technology to its supplier plant (India). To meet the international challenges in productivity, the operation manager should take the following steps: - Industry — by — industry productivity analysis within a national economy - Firm — by firm comparisons and case situations in other nations - Product quality improvement at a competitive price m= cheap labour / skill advantage.THE ENVIRONMENT OF OPERATIONSIRONME} OF OPER TIONS Environmental factors for any organization can be classified into : Uncontrollable Controllable (External factors) (internal factors) Social Factors Human resource skill Political Factors Facilities available Economic Factors Financial strength Legal Factors Existing product base Technological Factors Technical expertise Market Supplier - customer relationship Competitionsectongeam nso een Decision Making © Most operations decisions involve many alternatives that can have quite different impacts on costs or profits Typical operations decisions include: Y What: What resources are needed, and in what amounts? When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? Where: Where will the work be done? Who: Who will do the work? How: How will the product or service be designed? How will the swore he done? How will resources be allocated?Quantitative Methods = A decision making approach that frequently seeks to obtain a mathematically optimal solution = Linear programming © Queuing techniques ® Forecasting techniques = Modeling is a key tool used by all decision makers ™ Model: an abstraction of reality; a simplification = Common features of models: ® They are simplifications of realife phenomena = They omit unimportant details of the systems they mimic so that attention can be focused on the most important aspects of the real- life systemBenefits / Limitations of Models ® Benefits 1. Models are generally and nsive than dealing with the real system 2. Require users to organize and sometimes 3. Increase ur anding of the problem 4, Enable managers to analyze “What if? as ® Limitations 1. Quantitative information may be emphasized at the expense of qualitative information 2. Models may be incorrectly applied and the results misinterpreted © Thisis a real risk with the widespread availabilty of sophisticated, computerized models are placed in the hands of uninformed users. 3. The use of models does not guarantee good decisions.Key Issues for Today's Business Operations = Economic conditions = Management of technology © The Intemet, e-commerce, e-b1 iness = Competing in a global economy © Globalization, outsourcing ® Supply chain management {more in the following slides) = Environmental concems and sustainability © Global warming, carbon footprint = Ethical conduct © Worker safety, product safety, the community, hiring/firing workers, ..Review Question 1 mWhat is the difference between Effective and Efficient?What is the difference between Effective and Efficient? ® Effective is doing the right thing by developing and using correct strategy. ® Efficient is doing the job well with minimum resources and waste.Review Question 2 BWhat are the Productivity Variables?What are the Productivity Variables? Stops yy (= Management’ 7 a Ete CHeak:What is Operations Strategy? © Operations strategy is the process of making appropriate decisions in the operations function on the basis of the inputs from the overall comporate strategy. = Operations strategy is a process by which key operations decisions that are consistent with the overall strategic objectives of the fim are made. = Examples: = Extent of capacity to be built into the system = Type of process and manufacturing technology to be used ® Nature of products to be manufactured ® Type of supply chain to configureWhat is the relevance of Operations Strategy? ® Enables an organization to respond to the market needs in the most effective manner by aligning the resources and various activities in the organization to deliver products and services that are likely to succeed in the market place.How are Strategy formulated? Competitive Dynamics at the Markelplace Order Winners Order Qualifiers geo EGC Option Tar] | Generic Competitive Sustaining Priotties Competitive Quality, Cost, dvantage Delivery, Flexibility Firm Level Strengths & aceisteng Corporate Strategy Strategic Decisions Operations Measures for =| —} — Operational for Operations System Strategy Pues ~ EEN operations STRATEGY FORMULATION PROCESSHow are Strategy formulated? ™ Involves a sequential and structural set of activities. "STEP-1: To identify strategic options for sustaining the competitive advantage. > STEP-2: Devise overall corporate strategy. "= STEP-3: Develop an appropriate operations strategy.How are Strategy formulated? Any strategy making exercise begins with scanning the market place and understanding the dynamics of the market place. Market dynamics informs an organization of the relevant issues to be considered for the strategy formulation process It provides useful information about competitors, nature of offerings that they make to the customers, the customer expectations. Expectations of customers can be manifold. It may include price, performance, quality ease of use, deliver commitments, technological superiority of products, critical post sales support Customer expectations change with time due to technological improvements, demographic profile, exposure to newer evolution of market and infrastructure, shi choices. ® Therefore, organizations need to prioritise the alternatives.Operations Decision Making = Turkeys ¥ Pach saegy ( L —_—+ 1 [rrmmesoawm | (Copmatinsseaeg 7] [Cemtetnesose w a xX 2) ee ie roe | Nema cutonery = soviet {out The Wanstormation Process (wave ding) —_What are Order Winners & Order Qualifiers? = Order qualifiers are set of attributes that customers expect in the product or service they consider for buying. ™ Order winners are set of altributes that have the potential to sufficiently motivate the customer to buy the product.\\ EXAMPLE Consider your purchase of a notebook computer. You might think that such features that have important qualifying dimensions are: = screen size, ya = weight, (— = operating system version, = cost. The order-winning feature that actually differentiates those candidate notebook computers that qualify is battery life. In doing your search, you develop a list of computers that all have 14- inch screens, weigh less than three pounds, run the latest Microsoft windows operating system, and cost less than $1,000. From this list of acceptable computers, you select the one that has the longest battery life.What are the operational measures ? Polo Na) + Defects (parts per million) + Number of suggestions per employee Average days of inventory Procurement cost Manufacturing cost S Value of import substitution, cost reduction Lead time for order fulfilment Procurement and Manufacturing lead time On-time delivery of supplies Schedule adherence = New product development time Number of models introduced (rtextpitn Process and manufacturing flexibility von EEE - = Average training time per employee 4 RECT MEASURES Non-value added content in process =~ \\ + Delivery quote for customized productsWhat are the options for strategic decision making in operations Strategic Options for = Operations Decisions regarding j Product Fonfate) > oducts hat crganization wants fo produce. oduct Portfolio ) «number of variations in each product line, a + extent of customization that it can offer to its customer. Refers to overall configuration of the operations system such that various Process design yoduction activities happen in a particular order, Advantages like: Increased machine utilization Scheduling flexibility Ease of engineering challenges (design and process plans} Eaxe of expansion (expand in response to growing market) Reduced manufacturing lead time Lower in-process inventory Maximum number of units of goods that can be produced per unit time or maximum number of service offerings that can be made per unit time. Network of entities supplying components and raw material to on ‘organization as well as those distributing finished goods to customers.ASUPPLY CHAIN f \ | | | | | | | =, \ } \ }PORTER’S COMPETITIVE STRATEGY VALUE CREATION Firm Infrastructure Human Resource Management Support Activities Primary ActivitiesHow do mission, strategies and tactics relate to decision making and distinctive competencies? as Mission |= Strategy ===" | Tactics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 (zee «- Factics The methods and actions taken to accomplish strategiesStrategy Example Mission: Live a good life 7c ™ Goal: Successful car good income ~ fe Strategy: Obtain a college education /@ Tactics: college and a major es) study, graduate, get jobFIRM’s EXTERNAL ENVIRONMENT y Competitive Strategy J Opportunities and Threats (swOT) Industry Structure Business Strategy r\| \ Industry Structure / >MONOPOLY >DLOPOLY 7 soucorow ) >MONOPOLISTIC COMPETITION ( >PERFECT COMPETITIONPORTER’s 5 FORCES: used to breakdown and understand the competitive nature of an industry ravaurr aon TREAT OF wew enTRAWT: Bris COMPETTORS SCAR SANSUI «Sores tceney Govemmert poles + Grand yy + pecs trbuton chnnals 5 Gamers text 1 Senching cots © Switching costs eee RIVALRY ro oT tt AMONG POWER oF aaa COMPETITORS iy exam osu esacanmcouc or nes ee at ae tert atanee : Samara 2 Se nen om EEE «sree roouc © Reet eee > Stony + Relative price performance of substitute SUSSTIUTE) : Recetas, [easValue conceptually addresses extent of Product Differentiation | as well as Price at which it can be provided / Value - Quality/Price (ms tsa conceptual rather than a mathematical relationship) : — 8 omer decides what Value is | \ Firm’s address ValueCompetitive Dimensions | Price = = + Make the product or deliver the service cheap a * Make a great product or delivery a great service $$ *Make the product or deliver the service quickly —— Zo + Deliver it when promised es SE + Change its volume a mt harm ae yur enn A hanee ICOMPETITIVE PRIORITIES- THE EDGE la | = Five important Operations Quest ee ompete on — e ( cose - Quality? / \\ speea? = Allof the above? = Some? are the Tradeoffs? r\Notion of Trade-offs Cost Flexibility Delivery(Speed) QualityCASE STUDIES ON OPERATIONS STRATEGIESTESLA MOTORS = Started by Elon Musk, tesla motors is radically changing the way we think about personal travel. = The All-electric model ‘S’ has features like = An autopilot with advanced cruise control and automatic passing ® Parking features, where the car can park itself and even be retrieved automatically, So od ~~~ | | \TESLA MOTORS The company has needed to address major obstacles for the mass-market acceptance of a battery-powered car like: 1. Limited range of batteries. 2. Time it takes to charge the battery packs.TESLA MOTORS ™ Operations strategic initiatives that tesla has implemented to address these issues: =They have built thousands of “supercharging” stations around the world that can charge the car in just 30 minutes. ™To drive the cost of the batteries down, they are building a giant battery plant in Reno, Nevada./ TESLA MOTORS ™ Tesla refers to this as their “gigafactory” and the intent is to produce a low-cost industry standard around its interchangeable battery pack form-factor and power. ™ Elon Musk turned over the patents associated with the new battery to the/public) so that the standards can be easily adopted by others.IKEA’S OPERATIONS STRATEGY = Consider how IKEA, the Swedish retailer of home products, implements its strategy using a set of unique activities. ® IKEA targets young furniture buyers who want style at a low cost. ® IKEAhas chosen to perform activities differently from its rivals. sveet google.com is sharing your screen. Ez HieIKEA’S OPERATIONS STRATEGY = Consider the typical furniture store, where showrooms display samples of the merchandise. = One area may contain many sofas, _™ Another area displays dining tables, = There are many other areas focused on particular types of furniture. ® Displaying fabric swatches or wood samples or alternative styles offer customers thousands of product varieties from which to™ Salespeople escort customers through the store, answering questions and helping them navigate through the maze of choices. ™ Once a customer decides what he or she wants, the order is relayed to a third-party manufacturer. = With a lot of luck, the furniture will be delivered to the customer’s home within six to eight weeks. ® This is a supply chain that maximizes customization and service, but does so ata high cost.IKEA’S OPERATIONS STRATEGY = In contrast, IKEA serves customers who are happy to trade service for cost. Asn = IKEA uses a self-service model with room like displays where / furniture is shown in familiar settings. / = Rather than relying on third-party manufacturers, IKEA designs its own low-cost, ready-to-assemble furniture. nest gccplecom'sstarngyoursces., EERIE iceIKEA’S OPERATIONS STRATEGY =In the store there is a self-serve warehouse, where customers can pick up products themselves and take them home the same day. D Yoo Le = Much of its low-cost operation comes from having customers service themselves. nectgeoplecom'sstarngyoursces., EER <=“Timbuk2 is more than a bag. It’s more than a brand. Timbuk2 is a bond. To its owner, a Timbuk2 bag is a dependable, everyday companion We see fierce, emotional attachments form between Timbuk2 customers and their bags all the time A well-worn Timbuk2 bag has a certain stains and scars of everyday urban adventures.peer A eo The Tao of Timbuk2 Cn Xx = Many Timbuk2 bags are worn daily for a decade or more, accompanying the owner through all sorts of defining life events. = True to our legend of ‘indestructibility,’ it's not uncommon for a Timbuk2 bag to outlive jobs, personal relationships, even pets. This is the Tao of Timbuk2. nectgcoplecom'sstarngyoursces:, SEERA :-» What makes Timbuk2 so unique? ™ Each bag is custom designed by the customer on its website. = After the customer selects the basic bag configuration and size, colors for each of the various panels are presented; various lines, logos, pockets, and straps can be selected so that the bag is tailored to the exact specifications of the customer. ESE = = A quick click of the mouse and the bag is delivered directly to the customer in only two days. How does it do this?= This San Francisco-based company is known for producing high-quality custom and classic messenger bags according to the customer’s personally customized order, using a team of approximately 25 hardworking cutters and sewers. = Over the years, it has fine-tuned its plant’s production line to make it as efficient as possible, while producing the highest-quality messenger bags available. nest gcoglecom esterngyourscesn, EERIE He™ The local manufacturing is focused on the custom messenger bag. »® For these bags, orders are taken over the internet. = The customers are given many configuration, size, color, pocket, and strap options. = The bag is tailored to the exact specifications of the customer on the Timbuk2 assembly line in San Francisco and sent via over-night delivery directly to the customer.The Tao of Timbuk2 = Recently, Timbuk2 has begun making some of its new products in China, which is a concern to some of its long-standing customers. = The company argues that it has designed its new products to provide the best possible features, quality, and value at reasonable prices and stresses that these new products are still designed in / San Francisco. ® Timbuk2 argues that the new bags are much more complex to build and require substantially more labor and a variety of very expensive machines to produce. ® It argues that the San Francisco factory labor cost alone would sxaite Saxons Es crake the retail price absurdly high.The Tao of Timbuk2 = After researching a dozen factories in china, Timbuk2 found one that it thinks is up to the task of producing these new bags. = Much as in San Francisco, the China factory employs a team of hardworking craftspeople who earn good wages. = Timbuk2 visits the China factory every four to eight weeks to ensure superior quality standards and working conditions are met. nestgceglecom sstarngyourscee, EERIE <=The Tao of Timbuk2 = On the Timbuk2 website (www.timbuk2.com), the company argues it has the same hardworking group of bag fanatics designing and making great bags, and supporting the local community and the increasingly competitive global market. nest geoplecom ssterngyourssen,, EERIE <0The Tao of Timbuk2 = The company reports that demand is still strong for the custom messenger bags made in San Francisco and that the new laptop bags sourced from China are receiving rave reviews. ® The additional business is allowing it to hire more people in all departments at the San Francisco headquarters, creating even more jobs locally. rect geoglecom sstarngyou sce, ERIE veQUESTIONS = Consider the two categories of products that Timbuk2 makes and sells. For the custom messenger bag, what are the key competitive dimensions that are driving sales? Is_ its competitive priorities different for the new laptop bags sourced in china? measeccomeincryerecen EEEQUESTIONS = Consider the two categories of products that Timbuk2 makes and sells. For the custom messenger bag, what are the key competitive COME dimensions that are driving sales? Is_ its competitive priorities different for the new laptop bags sourced in china? measreomiomcngyeresen EEREQUESTIONS Compare the assembly line in China to that in San Francisco along the following dimensions: (1) volume or rate of production, (2) required skill of the workers, (3) level of automation, and (4) amount of raw materials and finished goods inventory, | maieconsoecgsarcne, EEEQUESTIONS = Draw two diagrams, one depicting the supply chain for those products sourced in China and the other depicting the bags produced in San Francisco = Show all the major steps, including raw material, manufacturing, finished goods, warehousing, and transportation ® Other than manufacturing cost, what other costs should Timbuk2 consider when making the sourcing decision? | masini SEE