2-1 Competitiveness, Strategy, and Productivity
Operations Management
William J. Stevenson
8th edition
2-2 Competitiveness, Strategy, and Productivity
CHAPTER
2
Competitiveness, Strategy,
and Productivity
Operations Management, Eighth Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
2-3 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
2-4 Competitiveness, Strategy, and Productivity
Businesses Compete Using Marketing
Identifying consumer wants and needs
Pricing
Advertising and promotion
2-5 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Product and service design
Cost - Productivity
Location
Quality
Quick response
2-6 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Flexibility
Inventory management
Supply chain management
Service
Managers and workers
2-7 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
2-8 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
2-9 Competitiveness, Strategy, and Productivity
Mission/Strategy/Tactics
Mission Strategy Tactics
How does mission, strategies and tactics relate to
decision making and distinctive competencies?
2-10 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 –
How to?
2-11 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
2-12 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
2-13 Competitiveness, Strategy, and Productivity
Examples of Strategies
Low cost
Scale-based strategies
Specialization
Flexible operations
High quality
Service
2-14 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
Sustainability
2-15 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
2-16 Competitiveness, Strategy, and Productivity
Strategy Formulation
Distinctive competencies
Environmental scanning
SWOT
Michael Porter’s five forces model
Order qualifiers - minimum standards of acceptability
Order winners - perceived as better than the competition
2-17 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
2-18 Competitiveness, Strategy, and Productivity
Key External Factors
Economic conditions
Political conditions
Legal environment
Technology
Competition
Markets
2-19 Competitiveness, Strategy, and Productivity
Key Internal Factors
Human Resources
Facilities and equipment
Financial resources
Customers
Products and services
Technology
Suppliers
2-20 Competitiveness, Strategy, and Productivity
Supply chain Strategies
how the supply chain should function to achieve
supply chain goals
how the organization should work with suppliers
and policies relating to customer relationships and
sustainability.
2-21 Competitiveness, Strategy, and Productivity
Sustainability Strategy
increasing emphasis on corporate sustainability
practices
elevating sustainability to the level of
organizational governance;
formulating goals for products and services, for
processes, and for the entire supply chain;
measuring achievements and striving for
improvements; and
linking executive compensation to the achievement
of sustainability goals
2-22 Competitiveness, Strategy, and Productivity
Global Strategy
What works in one country or region will not
necessarily work in another
Take variabilities into account
Threat of political or social upheaval
2-23 Competitiveness, Strategy, and Productivity
Operations Strategy
Operations strategy – The approach,
consistent with organization strategy, that is
used to guide the operations function.
relates to products, processes, methods,
operating resources, quality, costs, lead
times, and scheduling.
2-24 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
2-25 Competitiveness, Strategy, and Productivity
Time-based Strategies
JAN FEB MAR APR MAY JUN
Planning
Designing
Processing
Changeover On time!
Delivery
2-26 Competitiveness, Strategy, and Productivity
TRANSFORMING
STRATEGY INTO
ACTION: THE
BALANCED
SCORECARD
2-27 Competitiveness, Strategy, and Productivity
Balanced Scorecard (BSC)
A top-down management system that
organizations can use to clarify their vision and
strategy and transform them into actions.
Idea was to move away from a purely financial
perspective of the organization and integrate other
perspectives such as customers, internal business
processes, and learning and growth.
2-28 Competitiveness, Strategy, and Productivity
2-29 Competitiveness, Strategy, and Productivity
2-30 Competitiveness, Strategy, and Productivity
2-31 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
2-32 Competitiveness, Strategy, and Productivity
Productivity
Partial measures
output/(single input)
Multi-factor measures
output/(multiple inputs)
Total measure
output/(total inputs)
Outputs
Productivity =
Inputs
2-33 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
2-34 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
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
2-35 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
2-36 Competitiveness, Strategy, and Productivity
Example 3 Solution
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)
$1000 + $520 + $2000
MFP = 2.20
2-37 Competitiveness, Strategy, and Productivity
Factors Affecting Productivity
Capital Quality
Technology Management
2-38 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
2-39 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
2-40 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
2-41 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