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2. Strategy, Competitiveness & Productivity

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    OPERATIONSOPERATIONS

    MANAGEMENTMANAGEMENT

    O MPSTRATEGY, COMPETITIVENESS & PRODUCTIVITY

    By: -By: -HAKEEMURREHMANHAKEEMURREHMAN

    PCBAUCPPCBAUCP

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    FOUR STEPS FORFOUR STEPS FOR

    STRATEGY FORMULATIONSTRATEGY FORMULATIONn DEFINING A PRIMARY TASK

    n What is the firm in the business of doing?

    n ASSESSING CORE COMPETENCIESn What does the firm do better than anyone

    else?

    n DETERMINING ORDER WINNERS ANDORDER QUALIFIERSn What wins the order?n What qualifies an item to be considered for

    purchase?

    n POSITIONING THE FIRMn How will the firm compete?

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    STRATEGY/MISSION/TACTICSTRATEGY/MISSION/TACTICSS

    n STRATEGY: Provides direction for achieving amission

    n MISSION: The reason for the existence of anorganization

    n MISSION STATEMENT: States the

    purpose of an organizationn GOALS: provide detail and scope of the

    mission

    n TACTICS: The methods and actions taken toaccomplish strategies

    Strategy TacticsMission

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    MAKINGMAKING

    Mission

    Goals

    Organizational Strategies

    Functional Goals

    FinanceStrategies

    OperationsStrategies

    MarketingStrategies

    Tactics Tactics Tactics

    Operating

    procedures

    Operating

    procedures

    Operating

    procedures

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    STRATEGY EXAMPLESTRATEGY EXAMPLE

    You are a business student at PCBA. You wouldlike to have a career in business, have a good

    job, and earn enough income to livecomfortably

    Mission: Live a good lifeGoal: Successful career, good incomeStrategy: Obtain a Business Degree from PCBA.Tactics: Select a business field of your interest and high

    market valueOperations: Register, buy books, take courses study, graduate,apply & get job

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    OPERATIONS STRATEGYOPERATIONS STRATEGY

    nThe approach, consistent withorganization strategy that is used toguide the operations function.

    n Organizational strategy is:n an over all big picture for the whole

    organization. Longer in time horizonn Less detailed and broader in scope.

    n Operational Strategy is:n Narrower in scope and in more detailn Prepared by middle management.n Should be in line with the Organization

    strategy

    STRATEGY DESIGN

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    STRATEGY DESIGNPROCESSPROCESS

    ExampleStrategy Process

    Customer Needs

    Corporate Strategy

    Operations Strategy

    Decisions on Processesand Infrastructure

    More Product

    Increase Org.Size

    Increase Production Capacity

    Build New Factory

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    FOUR STEPS FORFOUR STEPS FORSTRATEGY FORMULATIONSTRATEGY FORMULATIONn Defining a primary task

    n What is the firm in the business ofdoing?

    n

    Assessing core com petenciesn What does the firm do bet ter than

    anyone else?n Determ ining order winners and order

    qualifiersn What wins the order?n What qualifies an item to be

    considered for purchase?

    n Posit ioning the f irm

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    COMPETITIVENESSCOMPETITIVENESS

    Competitiveness is howeffectively an organization

    meets the needs andrequirements of customers

    relative to other(Competitors) organizationsthat offer similar goods or

    services.

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    COMPETITIVE DIMENSIONSCOMPETITIVE DIMENSIONSn Cost or Price

    n Make the Product or Deliver the ServiceCheap

    n Qualityn Make a Great Product or Deliver a Great

    Servicen Delivery Speed

    n Make the Product or Deliver the ServiceQuickly

    n

    Delivery Reliabilityn Deliver It When Promised

    n Coping with Changes in Demandn Change Its Volume

    n Flexibility and New Product

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    DEALING WITH TRADE-DEALING WITH TRADE-

    OFFSOFFS

    Cost

    Quality

    DeliveryFlexibility

    For example, if we

    improve customer serviceproblem solving by cross-training personnel to dealwith a wider-range ofproblems, they maybecome less efficient atdealing with commonlyoccurring problems.

    For example, if we

    improve customer serviceproblem solving by cross-training personnel to dealwith a wider-range ofproblems, they may

    become less efficient atdealing with commonlyoccurring problems.

    For example, if we reduce costs by reducing productquality inspections, we might reduce product quality.

    For example, if we reduce costs by reducing productquality inspections, we might reduce product quality.

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    FOUR STEPS FORFOUR STEPS FORSTRATEGY FORMULATIONSTRATEGY FORMULATIONn Defining a primary task

    n What is the firm in the business ofdoing?

    n

    Assessing core com petenciesn What does the firm do bet ter than

    anyone else?n Determ ining order winners and order

    qualifiersn What wins the order?n What qualifies an item to be

    considered for purchase?

    n Posit ioning the f irm

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    ORDER QUALIFIERS ANDORDER QUALIFIERS AND

    WINNERSWINNERSn ORDER QUALIFIERS?

    nThey are the basic criteria that permit the

    firms products to be considered ascandidates for purchase by customers.

    n ORDER WINNERS?nThey are the criteria that differentiates

    the products and services of one firmfrom another.

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    BREAKTHROUGHSBREAKTHROUGHS

    n A brand namecar can be anorder

    qualifier

    Repair services can be order winners

    Examples: Warranty, Roadside Assistance,Leases, etc.

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    OPERATIONS STRATEGY:TYPES OF PROCESS

    q

    MAKE TO STOCK: Producing in anticipation of demand. (e.g., Televisions, Mobiles,Books, airline flights, etc)

    Critical operations issues: Forecasting future demand, maintaininginventory levels

    qMAKE TO ORDER: Producing to customer specifications after an order has been

    received. (e.g., manufacturing furniture like bed, chairs etc.) Critical operations issues: Customer customization, minimizing the

    time required to complete the order

    qASSEMBLE TO ORDER (BUILD TO ORDER): adding options according to customer specifications. (e.g.,

    Computer systems, Industrial equipments, etc.) Critical operations issues: minimizing the inventory level of standard

    components, minimizing the delivery time of the finishedproducts.

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    OPERATIONS STRATEGY: PRODUCTS AND SERVICES

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    PROCESSES ANDPROCESSES AND

    TECHNOLOGYTECHNOLOGYn PROJECTn one-at-a-time production of a product

    to customer ordern BATCH PRODUCTION

    n systems process many different jobs atthe same time in groups (or batches)

    n MASS PRODUCTIONn

    large volumes of a standard product fora mass marketn CONTINUOUS PRODUCTION

    n used for very high volume commodity

    products

    THE PRODUCT PROCESSTHE PRODUCT PROCESS

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    THE PRODUCT-PROCESSTHE PRODUCT-PROCESSMATRIXMATRIX

    High

    High

    Low

    Low STANDARDIZATION

    VOLUME

    Projects

    BatchProduction

    MassProduction

    ContinuousProduction

    The most important characteristics (in terms of process choice) are degree ofStandardization and Demand Volume.

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    HIGH CONTACTHIGH CONTACT

    SERVICESSERVICES

    Customer is an essence in theproduction of services.

    Scheduling is difficult as customerdemand varies.

    Work force attitude effects the

    customers view of the services. Examples: Teachers, Doctors, Taxi

    drivers

    LOW CONTACTLOW CONTACT

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    LOW CONTACTLOW CONTACT

    SERVICESSERVICES

    Customer cannot strongly influencethe process by which the service isprovided.

    Standardization makes managerialcontrol easy and straightforward.

    Low contact service firms tend to have

    a systematic and predictableoperation.

    Example: Insurance Company, Post

    Office etc.

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    SERVICE STRATEGY:SERVICE STRATEGY:PROCESSES AND TECHNOLOGYPROCESSES AND TECHNOLOGY

    n PROFESSIONAL SERVICE

    n highly customized and very labor intensive (i.e.,Lawyer, Doctor)

    n

    SERVICE SHOPn customized and labor intensive (i.e., School,

    Hospital)

    n MASS SERVICE

    n

    less customized and less labor intensive (i.e.,Banking, Ticket Collectors at sports events andconcerts)

    n SERVICE FACTORY

    n least customized and least labor intensive (i.e.,Airlines)

    THE SERVICE PROCESSTHE SERVICE PROCESS

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    THE SERVICE-PROCESSTHE SERVICE-PROCESSMATRIXMATRIX

    Low

    Low

    High

    High Customization

    LabourIntensity

    Professional

    Service

    ServiceShop

    MassService

    ServiceFactory

    The most important characteristics (in terms of process choice) are degree ofCustomization and Labour Intensity.

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    FOUR STEPS FORFOUR STEPS FORSTRATEGY FORMULATIONSTRATEGY FORMULATIONn Defining a primary task

    n What is the firm in the business ofdoing?

    n Assessing core com petenciesn What does the firm do bet ter than

    anyone else?n Determ ining order winners and order

    qualifiersn What wins the order?n What qualifies an item to be

    considered for purchase?n

    Posit ioning the f irm

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    OPERATIONS STRATEGY:OPERATIONS STRATEGY:CAPACITY AND FACILITYCAPACITY AND FACILITY

    Capacity strategic decisions include:When, how much, and in what

    form to alter capacity

    Facility strategic decisions include:whether demand should be met

    with a few large facilities or withseveral smaller oneswhether facilities should focus on

    serving certain geographic

    regions, product lines, or

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    OPERATIONS STRATEGY:OPERATIONS STRATEGY:

    HUMAN RESOURCESHUMAN RESOURCES

    n What is skill levels required to operate productionsystem?

    n What are training requirements and selectioncriteria?

    n What are policies on performance evaluations,compensation, and incentives?

    n Will workers be salaried, paid an hourly rate, or paida piece rate?

    n Will workers perform individual tasks or work inteams?

    n Will they have supervisors or work in self-managedwork groups?

    n Will extensive worker training be necessary?n Should workforce be cross-trained?

    OPERATIONSOPERATIONS

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    OPERATIONSOPERATIONSSTRATEGY: QUALITYSTRATEGY: QUALITY

    n What is target level of quality for ourproducts and serv ices?

    n How will it be measured?

    n What will be the responsibilit ies of thequality department?

    n What types of system s will be set up to

    ensure quality?n How will quality awareness be

    maintained?n How will customer percept ions of

    quality be determined?

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    n PRODUCTIVITY

    n A measure of the effective use of resources, usuallyexpressed as the ratio of output to input

    n Productivity ratios are used for:

    n Planning workforce requirements

    n Scheduling equipment

    n Financial analysis

    WHAT IS PRODUCTIVITY?WHAT IS PRODUCTIVITY?

    Product ivity = Output / Input

    EFFECTIVENESS: It is the degree of accomplishment of the objectives that is:

    How well a set of result is accomplished?How well are the resources utilized?

    Effectiveness is obtaining the desired results. It may reflect output quantities, perceivedquality or both.

    EFFICIENCY: (Actual Output / Standard Output)

    This occurs when a certain output is obtained with a minimum of inputs.

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    EXAMPLE : EFFICIENCYEXAMPLE : EFFICIENCYManagement of a hotel is concerned with laborefficiency, especially when labor is costly. To

    determine how efficient labor is in a given situation,management sets an individual standard, a goalreflecting an average workers output per unit of timeunder normal working conditions. Say that the

    standard in a cafeteria is the preparation of 200 saladsper hour. If a labor input produces 150 salads per hour,how efficient is the salad operation ?

    ANSWER:Labor efficiency = Labor Outputs/Labor Input = 150 salads / 200 salads 100% = 75%

    So, compared with the standard, this operation is 75% efficientin the preparation of salads.

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    PRODUCTIVITYPRODUCTIVITYn PARTIAL MEASURES

    n output/(single input)

    n MULTI-FACTORMEASURESn output/(multiple inputs)

    n TOTAL MEASUREn output/(total inputs)

    Productivity =Output

    Inputs

    Product ivit y Growt h=Current Period Productivity Previous Period ProductivityPrev ious Period Product iv ity

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    M EASURES OF PRODUCTIVITYM EASURES 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

    MEASUREAll inputs used to produce them

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    EXAMPLE OF PRODUCTIVITYEXAMPLE OF PRODUCTIVITYMEASUREMENTMEASUREMENT

    You have just determined that your serviceemployees have used a total of 2400 hours oflabor this week to process 560 insurance forms.Last week the same crew used only 2000 hours

    of labor to process 480 forms. Is productivityincreasing or decreasing?

    ANSWER:Last weeks productivity = 480/2000 =0.24, and this weeks productivity is = 560/2400

    = 0.23. So, productivity is decreasing slightly.

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    EXAMPLE OF PRODUCTIVITYEXAMPLE OF PRODUCTIVITYMEASUREMENTMEASUREMENT

    A company that processes fruits and vegetables isable to produce 400 cases of canned peaches inone-half hour with four workers. What is labour

    productivity?

    ANSWER:

    LabourProductivity = Quantity produced Labour Hours = 400 cases __. 4 workers X (1/2) hour /Worker = 200 cases per labour hour

    O O CEXAMPLE OF PRODUCTIVITY

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    EXAMPLE OF PRODUCTIVITYEXAMPLE OF PRODUCTIVITYMEASUREMENTMEASUREMENT

    A Wrapping paper company produced2,000 rolls of paper one day.Standard price is $1/roll. Labour costwas $160, material cost was $50,and overhead was $320. Determinethe multifactor productivity.

    ANSWER: MFP = (2000 Rolls) ($1/roll) $160+$50+$320 = 3.77 rolls per dollar

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    FACTORS AFFECTINGFACTORS AFFECTINGPRODUCTIVITYPRODUCTIVITY

    CAPITAL QUALITY

    TECHNOLOGY MANAGEMENT

    BOTTLENECK OPERATIONS

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    BOTTLENECK OPERATIONBOTTLENECK OPERATION

    Machine #2Machine #2 BottleneckOperation

    BottleneckOperation

    Machine #1Machine #1

    Machine #3Machine #3

    Machine #4Machine #4

    10/hr

    10/hr

    10/hr

    10/hr

    30/hr

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    QUESTIONQUESTION

    SS