Operations Management William J. Stevenson 8th edition

Competitiveness, Strategy, and Productivity CHAPTER 2 Competitiveness, Strategy, and Productivity Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Businesses Compete Using Marketing Identifying consumer wants and needs Pricing Advertising and promotion

Businesses Compete Using Operations Product and service design Cost Location Quality Quick response

Businesses Compete Using Operations Flexibility Inventory management Supply chain management Service

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

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

Mission/Strategy/Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies?

Strategy Strategies Mission Mission Statement Goals Tactics 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

Planning and Decision Making Figure 2.1 Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Tactics Tactics Operating procedures Operating procedures Operating procedures

Strategy Example Mission: Live a good life 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

Examples of Strategies Low cost Scale-based strategies Specialization Flexible operations High quality Service

Strategy and Tactics Distinctive Competencies The special attributes or abilities that give an organization a competitive edge. Price Quality Time Flexibility Service Location

Examples of Distinctive Competencies Table 2.2 Banks, ATMs Convenience Location Disneyland Nordstroms Superior customer service Service Burger King Supermarkets Variety Volume Flexibility Express Mail, Fedex, One-hour photo, UPS Rapid delivery On-time delivery Time Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola High-performance design or high quality Consistent quality Quality U.S. first-class postage Motel-6, Red Roof Inns Low Cost Price

Operations Strategy Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.

Strategy Formulation Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners

Strategy Formulation Order qualifiers Order winners 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

Key External Factors Economic conditions Political conditions Legal environment Technology Competition Markets

Key Internal Factors Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers

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

Time-based Strategies JAN FEB MAR APR MAY JUN Planning Processing Changeover On time! Designing Delivery

Productivity Productivity Productivity ratios are used for 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

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

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

Examples of Partial Productivity Measures Table 2.5 Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Energy Productivity Units of output per dollar input Dollar value of output per dollar input Capital Productivity Units of output per machine hour machine hour Machine Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity

Example 3 7040 Units Produced Sold for $1.10/unit Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.20

Example 3 Solution MFP = Output Labor + Materials + Overhead MFP = (7040 units)*($1.10) $1000 + $520 + $2000 MFP = 2.20

Factors Affecting Productivity Capital Quality Technology Management

Other Factors Affecting Productivity Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers

Other Factors Affecting Productivity Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity

Bottleneck Operation Machine #1 Machine #2 Bottleneck Operation Figure 2.3 Bottleneck Operation Machine #1 Machine #3 Machine #4 10/hr 30/hr Machine #2

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