2-1 Competitiveness, Strategy, and Productivity

CHAPTER
2

Productivity, Competitiveness,
and Strategy

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
2-2 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
2-3 Competitiveness, Strategy, and Productivity

Productivity

 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)

Outputs
Productivity =
Inputs
2-4 Competitiveness, Strategy, and Productivity

Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
2-5 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
2-6 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

Value-added per 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
2-7 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

2-8 Competitiveness, Strategy, and Productivity

Example 3 Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20
2-9 Competitiveness, Strategy, and Productivity

Factors Affecting Productivity

Capital Quality

Technology Management
2-10 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
2-11 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

2-12 Competitiveness, Strategy, and Productivity

Bottleneck Operation
Figure 2.3
10/hr
Machine #1

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

Machine #4 10/hr
2-13 Competitiveness, Strategy, and Productivity

Bottleneck Operation is a process or

a step that limits an entire system's
capacity to produce at its optimum level
that results in clogging productivity,
profitability, and growth
2-14 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

2-15 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
2-16 Competitiveness, Strategy, and Productivity

Businesses Compete Using Marketing

 Identifying consumer wants and needs

 Pricing

 Advertising and promotion

2-17 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Product and service design

 Cost
 Location
 Quality
 Quick response
2-18 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Flexibility
 Inventory management

 Supply chain management

 Service
2-19 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

2-20 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
2-21 Competitiveness, Strategy, and Productivity

Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?
2-22 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
2-23 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
2-24 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
2-25 Competitiveness, Strategy, and Productivity

Examples of Strategies

 Low cost
 Scale-based strategies

 Specialization

 Flexible operations

 High quality

 Service
2-26 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
2-27 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

2-28 Competitiveness, Strategy, and Productivity

Operations Strategy

 Operations strategy – The approach,

consistent with organization strategy, that is
used to guide the operations function.
2-29 Competitiveness, Strategy, and Productivity

Strategy Formulation

 Distinctive competencies
 Environmental scanning

 SWOT

 Order qualifiers

 Order winners
2-30 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
2-31 Competitiveness, Strategy, and Productivity

Key External Factors

 Economic conditions
 Political conditions

 Legal environment

 Technology

 Competition

 Markets
2-32 Competitiveness, Strategy, and Productivity

Key Internal Factors

 Human Resources
 Facilities and equipment

 Financial resources

 Customers

 Products and services

 Technology

 Suppliers
2-33 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
2-34 Competitiveness, Strategy, and Productivity

Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover On time!

Delivery