3 Achieving Superior Efficiency Economies of scaleUnit cost reductions associated with a large scale of outputAbility to spread fixed costs over a large production volumeAbility of companies producing in large volumes to achieve a greater division of labor and specializationDiseconomies of scaleUnit cost increases associated with a large scale of output
4 Production and Efficiency A typical long-run unit-cost curve:
8 Experience Curve Dangers of complacency with the experience curve It will bottom outNew technologies can make experience effects obsoleteSome technologies may not produce lower costs with higher volumes of outputFlexible manufacturing technologies may allow small manufacturers to product at low unit costs
9 Production and Efficiency: High Volume≠ Cost Advantage
10 Manufacturing and Mass Customization Flexible manufacturing technology (lean production)Reduced setup timesIncreased machine utilizationImproved quality controlLower inventory levelsMass customizationLow cost and product customization
11 Production and Efficiency: Flexible Manufacturing
12 Marketing and Efficiency Marketing strategy:Product designAdvertisingPromotionPricingDistributionCustomer retention
13 The Relationship Between Average Unit Costs and Customer Defection Rates
14 The Relationship Between Customer Loyalty and Profit per Customer
15 Materials Management, JIT, and Efficiency Getting materials into and through the production process and out through the distribution system to the end user.Just-In-Time (JIT)Reduce inventory holding costs by having materials arrive JIT to enter the production process.JIT risk: There are no buffer stocks for nondelivery or unanticipated increases in demand.
16 R&D Strategy and Efficiency Design easy-to-manufacture productsReduce numbers of parts per unit.Reduce assembly time.Closely coordinate R&D and production activities.Pioneer process innovationsInnovations create competitive advantage through gains in process efficiencies.
17 Human Resource Strategy and Efficiency Ways to increase employee productivity and lower unit costs:Provide training that upgrades employee skills.Establish self-managing teams to gain a more flexible work force and increase productivity.Use pay-for-performance incentives for teams to encourage meeting productivity and quality goals.
18 Information Systems, the Internet, and Efficiency Benefits of moving operations to the Internet:Cost savings in ordering and customer service.Reduced human resource requirements.Lowered internal and back-office costs.Increased employee productivity.For example, Cisco and Dell
19 Infrastructure (Leadership) and Efficiency Achieving superior efficiency requires a company-wide commitment built through top management leadership in:Articulating the vision.Facilitating cross- functional cooperation.
21 Achieving Superior Quality Total Quality Management (TQM):All company operations focused on improving product and service quality.Deming’s Five-Step “Chain Reaction”:Improved quality reduces costs.Improved productivity.Higher market share.Increased profitability.More jobs created.
22 Deming’s Revolutionary Ideas on Quality Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships. The bulk of the causes of low quality and productivity belong to the system and thus lie beyond the power of the work force.Drive out fear, so that everyone may work effectively for the companyCease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.End the practice of of awarding business on the basis of price tag. Instead, minimize total cost.Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly reduce costs.Break down barriers between departments.Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job. Institute training on the job to provide tools.Six sigma – TQM without the philosophy?
23 Textbook ideas on implementing TQM Build organizational commitment to qualityFocus on the customerFind ways to measure qualitySet goals and create incentives???Solicit input from employeesIdentify defects and trace them to sourceImprove supplier relationsDesign for ease of manufactureBreak down barriers between functions
25 Achieving Superior Quality (cont’d) Developing Superior AttributesLearn which attributes are most important to customersDesign products and associate services to embody the important attributesDecide which attributes to promote and how best to position them in consumers’ mindsMonitor competition for improvement in attributes and development of new attributes
26 Achieving Superior Innovation Innovation canResult in new products that better satisfy customer needsImprove the quality of existing productsReduce costsInnovation can be imitated so it must be continuousSuccessful new product launches are major drivers of superior profitability
27 Failure to Innovate Uncertainty Poor commercialization Quantum innovationIncremental innovationPoor commercializationPoor positioning strategyTechnological myopiaSlow to market
29 Achieving Superior Innovation Building competencies in innovation:Building skills in basic and applied researchProject selection and managementCross-functional integrationProduct development teamsPartly parallel development process
30 Sequential and Partly Parallel Development Processes
31 Achieving Superior Customer Responsiveness Developing a customer focus:Top leadership commitment to customers.Employee attitudes toward customers.Bringing customers into the company.Satisfying customer needs:Customization of the features of products and services to meet the unique need of groups and individual customers.
33 ExerciseYou are the management of a startup that produces disk drives in an industry with short life cycles, intense price competition, high fixed costs, and substantial economies of scale. OEMs put a lot of pressure on you to deliver products on timeWhat functional competencies are the most important to build?How will you design your internal processes that ensure those competencies are built?