1 Chapter 2 Competitiveness Strategy and Productivity

2 Competitiveness u Effectiveness in meeting customer needs vs. the rest –Commonly confused terminology: Effectiveness vs. efficiency (Distinctive) competencies u Price u Time u Quality u Flexibility, ability to respond to changes u Differentiation, special product features u Service

3 Strategy u Mission – The reason for existence of an organization u Mission Statement – A clear statement of purpose u Strategy – A plan for achieving organizational goals u Tactics – The actions taken to accomplish strategies u Operational decisions – Day to day decisions to support tactics

4 Example for Strategy 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 u Goal: Successful career, good income u Strategy: Obtain a college education u Tactics: Select a college and a major u Operations: Register, buy books, take courses, study, graduate, get job

5 Strategy Formulation u Order qualifier = Acceptable product features –A car with 40 miles per gallon u Order winner = Better-than-the-rest product features –A car with 60 miles per gallon: Toyota Prius dual powered car u Environmental Scanning – The consideration of internal and external events and trends that present threats or opportunities for a company. » Reading Financial times, Benchmarking, Stealing Employees – Figure out distinctive competencies » Price, quality, service u Emphasize one or more of the distinctive competencies with the strategy

6 Strategies u Quality-based strategies – Focuses on quality in all phases of an organization – Quality at the source » Sony TV » Toyota cars: Nummi plant rented from general motors. u Time-based strategies – Focuses on reduction of time needed to accomplish tasks » Technology start ups compete on turning ideas into products

7 Strategies u Product development strategy relates to Set of products/services and technologies for future operations –e.g. Be the technology leader »IBM workstations –e.g. Offer many products »Dell computers u Marketing and sales strategy relates to positioning, pricing and promotion of products/services –e.g. Never offer more than 40% discount –e.g. EDLP = every day low price »At Wal-Mart –e.g. Demand smoothing via coupons »BestBuy u Supply chain management strategy relates to procurement, transportation, storage and delivery –e.g. Never use more than 1 supplier for every input –e.g. Never expedite orders just because they are late

8 Big Retailer Strategies u Wal-Mart: Efficiency u Target: More quality and service u Carrefour: International, ambiance u K-Mart: Confused. –Squeezed between Target and Wal-Mart –Reliance on coupon sales –Do coupons stabilize or destabilize a Supply chain? u K-Mart and Sears merged in November 2004 »K-Mart gets cash »Sears gets presence outside malls

9 Productivity u Partial measures : output / single input –Output/energy, output/machine hour, output/labor u Multi – factor measures : output / multi input –Multi – factor : output/(energy + machine cost), output/(labor + capital) u Total measure : output / all inputs u In general, Productivity = output / input

10 Example for productivity u 10,000 items are produced u Price $10/item u 500 labor hours to accomplish the job u Labor rate : $9/hr u Cost of raw material is $5,000 u Cost of overhead is $25,000 u What is the labor productivity?

11 Example for productivity cont. u Output : 10,000 x $10/item = $100,000 u Input : 500 hours x $9 /hr = $4500 u Labor productivity=100,000 / 4500 = u MFP (multi factor productivity) = output / labor + materials u 100,000 / {4, , ,000} u MFP = 2.90 u What are the units of these productivity numbers?

12 Factors Affecting Productivity Positively u High Technology –Dual powered engine helps Toyota Prius u Effective Management u High Quality (products) –Less scrap u Extensive Training –University of Texas at Dallas u Low employee tenure/layoffs u High Standardization u Efficient Workplace Design-Ergonomics u Effective Goals and Incentives

13 Improving Productivity u Develop productivity measures –First measure, then manipulate u Develop methods for productivity improvements –Venues for ideas to prosper u Establish reasonable goals –High challenges vs. trivialities u Publicize improvements –Incentives, positive feedback, awards u Get management support u Productivity is more general than efficiency –Set the rules of the game to win it u Determine the critical operations = bottleneck

14 Bottleneck Operations Operation Bottleneck Operation Bottleneck Operation Low capacity

15 Summary u Competencies u Mission/Strategy/Tactics u Productivity