Session 5

Operations &
Logistics as
Competitive
Weapon I & II

Dr. Chetna Chauhan

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
Business Productivity Measure

Restaurant Customers (meals) per labor hour

Retail store Sales per square foot

Chicken farm Pounds of meat per pound of feed

Utility plant Kilowatt hours per ton of coal

Paper mill Tons of paper per cord of wood

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Productivity

• Partial measures
• output/(single input)
• Multi-factor measures
• output/(multiple inputs)
• Total measure
• output/(total inputs)
Outputs
Productivity =
Inputs
Measures 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
Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
Example
7040 Units Produced

Sold for $1.10/unit

Cost of labor of $1,000

Cost of materials: $520 What is the

multifactor
Cost of overhead: $2000 productivity?
Example Solution
MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20
Improving Productivity
• Develop productivity measures
• Determine critical (bottleneck) operations
• Develop methods for productivity improvements
• Establish reasonable goals
• Get management support
• Measure and publicize improvements
Bottleneck Operation

10/hr
Machine #1

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

Machine #4 10/hr
 Efficiency and utilization
Design capacity is the maximum possible
output
• Efficiency
Effective capacity is the maximum output
actual output given product mix, scheduling realities,
Efficiency  machine maintenance requirements,
effective capacity human factors and so on

• Utilization Actual output is the rate of output actually

actual output achieved. It cannot exceed effective
Utilizatio n  as percentages
Measured capacity
design capacity
 Efficiency and utilization

Design Capacity = 50 trucks per day

Effective Capacity = 40 trucks per day
Actual Output = 36 trucks per day

actual output 36
Efficiency    90%
effective capacity 40

actual output 36
Utilizatio n    72%
design capacity 50
 actual output 36
Efficiency    90%
effective capacity 40

actual output 36
Utilizatio n    72%
design capacity 50
Competitive Priorities: Order Qinners Vs Order Qualifiers
• An order winner is a criterion that customers use to differentiate the services or products of one firm from another.
• Order winners can include price (which is supported by low-cost operations) and other dimensions of quality, time,
and flexibility
• Order winners also include criteria not directly related to the firm’s operations, such as after-sale support technical
support and reputation
• Sometimes customers demand a certain level of demonstrated performance before even contemplating
a service or product

• Minimal level required from a set of criteria for a firm to do business in a particular market segment is called an
order qualifier
• Fulfilling the order qualifier will not ensure competitive success; it will only position the firm to compete in market
Competitive Priorities: Order Qinners Vs Order Qualifiers
For the investments made in the design and management of
processes and supply chains, it is important to understand which
competitive priorities are order qualifiers and which ones are order If a minimum threshold level is not met for an order-
winners qualifying dimension by a firm, then it would get
disqualified from even being considered further by its
customers

Once the firm qualifies by attaining consistent quality

beyond the threshold, it may gain additional sales
at a very low rate by investing further in improving the
order qualifying dimension.

For an order-winning dimension (i.e., low price), a firm can

expect to gain appreciably greater sales and market share
by continuously lowering its prices
Activity mapping
Activity map: Southwest airlines
Activity map connects your value
proposition to the activities of your
organization that enable you to deliver
this value proposition better than any
competitors

Source: Monkhouse & company, 2021

 Activity mapping
To conduct activity mapping:
• Map the core elements of value proposition
• What are the most important activities (value creators, cost drivers etc.)
• Identify relationships
 Draw connection if activity contributes to value proposition
 Draw connection if two activities affect each other
Benefits:
• Helps to see things your company does that have no bearing on your differentiation

• You can look for for activities that complement each other

• Improvement in one is correlated with an improvement in the other

• Identify ways & opportunities to strengthen activities

• Identify potentially missing activities

 The firm’s strategy describes
how it will create and sustain

Sustainable value for its current shareholders

Strategy

Adding a sustainability
requirement means meeting
value goals without
compromising the ability of
future generations to meet
their own needs
According to a UN study the cost of pollution and other damage to the natural environment caused by the world's biggest
companies would wipe out more than one-third of their profits if they were held financially accountable
SC Design

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 Typical Supply Chain for Manufacturing: Recap

Supplier

Supplier

Supplier
}Storage Mfg. Storage Dist. Retailer Customer

Supply chain is a group of functions and processes focused on optimizing the flow of products, services and
related information from sources of supply to customers or points of demand. 
Typical Supply Chain for a Service: Recap

}
Supplier

Storage Service Customer

Supplier
Elements of Supply Chain Management

Element Typical Issues

Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory costs
Purchasing Evaluating suppliers and supporting operations
Suppliers Monitoring supplier quality, delivery, and relations
Location Determining location of facilities
Logistics Deciding how to best move and store materials
Benefits of Supply Chain Management

Organization Benefit

Campbell Soup Doubled inventory turnover rate Key benefits:

• Lower inventories
• Higher productivity
Hewlett-Packard Cut supply costs 75% • Greater agility
• Shorter lead times
• Higher profits
Sport Obermeyer Doubled profits and increased sales 60%
• Greater customer loyalty

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the

world
Strategic options for SC design

SC Design
Responsive

Efficient
How to decide?

A responsive supply chain is a type of supply chain that is able to quickly adapt to changes in
demand, supply, market conditions or other factors

An efficient supply chain is one uses its resources in the most optimum manner
 Efficient supply chain: common designs
Make-to-stock (MTS):

• The product is built on the basis of sales forecast

• Product is sold to the customer from a finished goods stock
• The end customer has no individual inputs into the configuration of the product
• The customer typically purchases the product from a retailer
• The focus of the MTS supply chain is on efficient service, material, monetary, information flow and
keeping inventories to a minimum

examples of efficient SCs?

Responsive supply chain: common designs
Assemble-to-order (ATO):
• The product is built to customer specifications from a stock of existing components
• Customers can choose among various standard components in arriving at their own products; however, they have no control
over the design of the components
• Assembly is delayed until the order is received.
• Examples include Dell’s approach to customizing desktops and laptops

Make-to-order (MTO):
• The product is based on a standard design; however, product is linked to the customer’s specifications
• Examples include custom-made clothing, such as that offered by Tommy Hilfiger, predesigned
houses

Design-to-order (DTO):
• The product is designed and built entirely to the customer’s specifications
• This supply chain allows customers to design the product to fit their specific needs
• Examples include large construction projects, women’s designer dresses, custom-made men’s suits, and original architecture
house construction.

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Efficiency and responsiveness can be seen in the same supply chain
For example:
Gillette uses an efficient supply chain to manufacture its products
 It uses a responsive supply chain for the packaging and delivery processes to
be responsive to retailers
The packaging operation involves customization in the form of printing in
different languages

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SUPPLY CHAIN RISK
 • Japanese Tsunami (March
SUPPLY CHAIN 2011)
• In 1996 General Motors

RISK EXAM-
experienced an 18-day labor
Your Picture Here strike at a brake supplier
factory
PLES This strike idled workers at 26
assembly plants and led to an
estimated $900 million reduction
in earnings

• In 1997 a Boeing
supplier’s failure to deliver
two critical parts led to a
loss of $2.6 billion
Your Picture Here

• In 2000, a 10-minute fire at

a Phillips plant that
supplied integrated circuits
led to a $400 million loss
Assessing Risk Associated with OSCM Strategy

• All strategies have an inherent level of risk

• Uncertainty in the environment causes supply chain planners to evaluate the relative
riskiness of their strategies

• Supply chain risk: the likelihood of a disruption that would impact the ability
of a company to continuously supply products or services
1. Supply chain coordination risks are associated with the day-to-day management of the
supply chain
2. Disruption risks are caused by natural or manmade disasters
Risk Mitigation Framework
1. Identify the sources of potential disruptions
• Focus on highly unlikely events that would cause a significant disruption to normal
operations
2. Assess the potential impact of the risk
• Here the goal is to quantify the probability and the potential impact of the risk
• Could be based on financial impact, environmental impact, ongoing business viability brand
image/reputation, potential human lives, and so on
3. Develop plans to mitigate the risk
• A detailed strategy for minimizing the impact of the risk could take many different forms,
depending on the nature of the problem
Risk Mitigation Strategies
Risk Risk Mitigation Strategy

Natural disaster Contingency planning (alternate sites,

etc.) insurance
Country risks Hedge currency, produce/source
locally
Supplier failure Use multiple suppliers

Network provider failure Support redundant digital networks

Regulatory risk Up-front and continuing research;

good legal advice, compliance
Commodity price risks Multisource, commodity hedging
Risk Mitigation Strategies Continued
Risk Risk Mitigation Strategy

Logistics failure Safety stock, detailed tracking and

alternate suppliers
Inventory risks Pool inventory, safety stock

Major quality failure Carefully select and monitor suppliers

Loss of customers Service/product innovation

Theft and vandalism Insurance, security precautions,

knowledge of likely risks, patent
protection, etc.
Risk Assessment Matrix
Thank You