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2-1 Competitiveness, Strategy, and Productivity
William J. Stevenson
Operations Management
8thedition
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2-2 Competitiveness, Strategy, and Productivity
CHAPTER
2
Competitiveness, Strategy,and Productivity
McGraw-Hill/Irwin
Operations Management, Eighth Edition, by William J. StevensonCopyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
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2-3 Competitiveness, Strategy, and Productivity
Competitiveness:
How effectively an organization meets thewants and needs of customers relative toothers that offer similar goods or services
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2-4 Competitiveness, Strategy, and Productivity
Businesses Compete Using Marketing
Identifying consumer wants and needs-
achieving a perfect match between those wants
and needs and the organizations goods and/or
services.
Pricing- understand the trade-off decision
consumers make between price and other aspects
of a product/service such as quality
Advertising and promotion- inform potential
customers about features of their
products/services and attract buyers
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2-5 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Product and service design- specialcharacteristics or features of a product or
service can be a key factor in consumer buying
decisions
Cost- a key variable that affects pricing
decisions and profits. Productivity is an
important determinant of cost. High
productivity rates translate to competitive cost
advantage
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2-6 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Location- important in terms of cost and
convenience to customers
Quality- consumers judge quality in terms of how
well they think a product or service will satisfy its
intended purpose. Willingness to pay more for a
high quality product/service.
Quick response- quick in bringing the new
product/service to the market / quick in delivery of
an order / quick in handling customer complaints
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2-7 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Flexibility- ability to respond to changes likealterations in design features or changes in the
volume demanded by customers
Inventory management- can be a competitiveadvantage by effectively matching supplies of
goods with demand
Supply chain management- coordinatinginternal and external operations (buyers and
suppliers) to achieve timely and cost-effective
delivery of goods throughout the system.
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2-8 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Service- might involve after-sale activities
customers perceive as value-added such as
delivery, setup, warranty work, and technical
support
Managers and workerspeople at the heart and
soul of an organization, can provide a distinct
competitive edge by their skills and the ideas they
create. One often overlooked skill is answering thetelephone.
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2-9 Competitiveness, Strategy, and Productivity
Why Some Organizations Fail
Too much emphasis on short-term financialperformance at the expense of research and
development.
Failing to take advantage of strengths andopportunities
Failing to recognize competitive threats
Neglecting operations strategy
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2-10Competitiveness, Strategy, and Productivity
Why Some Organizations Fail
Too much emphasis in product and servicedesign and not enough on process design and
improvement
Neglecting investments in capital and humanresources
Failing to establish good internal
communications and cooperation amongdifferent functional areas
Failing to consider customer wants and needs
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2-11Competitiveness, Strategy, and Productivity
Mission/Strategy/Tactics
How does mission, strategies and tactics relate to
decision making and distinctive competencies?
Strategy TacticsMission
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2-12Competitiveness, 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
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2-13Competitiveness, Strategy, and Productivity
Planning and Decision MakingMission
Goals
OrganizationalStrategies
Functional Goals
FinanceStrategies
MarketingStrategies
OperationsStrategies
Tactics Tactics Tactics
Operatingprocedures
Operatingprocedures
Operatingprocedures
Figure 2.1. Hierarchical relationship that exist from the missiondown to actual operations
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2-14Competitiveness, Strategy, and Productivity
Strategy ExampleRita is a high school student. She would like to have acareer in business, have a good job, and earn enoughincome 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, takecourses, study, graduate, get job
Example 1
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E l f St t i i ti
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2-15Competitiveness, Strategy, and ProductivityExamples of Strategies an organization
might choose from
Low cost- outsource operations to third-worldcountries that have low labor costs
Scale-based strategies- use capital-intensive
methods to achieve high output volume andlow unit costs
Specialization- focus on narrow product lines
or limited service to achieve higher quality Flexible operations- focus on quick response
and/or customization
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2-16Competitiveness, Strategy, and ProductivityExamples of Strategies an organization
might choose from High quality- focus on achieving higher quality
than competitors
Service- focus on various aspects of service (e.g.,
helpful, courteous, reliable, etc.)
Sometimes organizations will combine two or more
of these or other approaches into their strategy to
compete and assess its own strengths and
weaknesses in order to take advantage of its
distinctive competencies
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2-17Competitiveness, 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
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2-18Competitiveness, Strategy, and Productivity
Distinctive Competencies
Organizations develop distinctive competencies
based on customer needs as well as on what the
competitionis doing
Marketing and operations work closely to match
customer needs with operations capabilities
Competitor competencies- if competitor is able to
supply high-quality products, make that high
quality as a baseline which means not only
matching the competitor but exceeding its quality
level or gain an edge by excelling in other
dimensions such as rapid delivery
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2-19Competitiveness, Strategy, and Productivity
Banks, ATMsConvenienceLocation
Disneyland
Nordstroms
Superior customer
serviceService
Burger King
Supermarkets
Variety
VolumeFlexibility
Express Mail, Fedex,
One-hour photo, UPSRapid delivery
On-time deliveryTime
Sony TV
Lexus, Cadillac
Pepsi, Kodak, Motorola
High-performance design
or high quality Consistent
quality
Quality
U.S. first-class postage,Wall-Mart
Motel-6, Red Roof Inns
Low CostPrice
Examples of Operations StrategiesTable 2.2
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2 20Competitiveness, Strategy, and Productivity
Operations Strategy
Operations strategyThe approach,consistent with organization strategy, that is
used to guide the operations function
It is narrower in scope, dealing primarilywith the operation aspect of the organization
It relates to products, processes, methods,
operating resources, quality, costs, leadtimes, and scheduling.
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2 21Competitiveness, Strategy, and Productivity
Strategy Formulation
Distinctive competencies Environmental scanning- the considering of
events and trends that present threats or
opportunities for a company SWOT
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2 22Competitiveness, 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 organizations goods or
services that cause it to be perceived as better
than the competition
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2 23Competitiveness, Strategy, and Productivity
Economic conditions- the general health anddirection of the economy, inflation and
deflation, interest rates, tax laws and tariffs
Political conditions- include favorable orunfavorable attitudes toward business,
political stability or instability, and wars
Key External Factors in Strategy Formulation
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2 24Competitiveness, Strategy, and Productivity
Key External Factors in Strategy Formulation
Legal environment- include antitrust laws,
government regulations, trade restrictions,
minimum wage laws, product liability laws, labor
laws and patents
Technology- includes the rate at which product
innovation are occurring, current and future
process technology (equipment, materials
handling), and design technology.
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2 25Competitiveness, Strategy, and Productivity
Key External Factors. . .
Competition- includes the number and strength of
competitors, the basis of competition (price,
quality, etc.) and the ease of market entry
Markets- includes size, location, brand loyalties,
ease of entry, potential for growth, long term
stability, and demographics
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p , gy, y
Human Resources- include the skills andabilities of managers and workers, special
talents, loyalty to org., expertise, dedication,
and experience
Facilities and equipment- capacities,
location, age, and cost to maintain or replace
can have significant impact on operations
Financial resources-cash flows, access to
additional funding, existing debt burden, and
cost of capital
Key Internal Factors in Strategy formulation
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p , gy, y
Key Internal Factors . . .
Customers- loyalty, existing relationships, and
understanding wants and needs
Products and services- include existing product
and services, and the potential for new products
and services
Technology- includes existing technology, the
ability to integrate new technology, and the
probable impact of technology on current andfuture operations
Suppliers- relationships, dependability of
suppliers, quality, flexibility, and service
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p , gy, y
Quality and Time Strategies
Quality-based strategies Focuses on maintaining or
improving the quality of an
organizations products or
services
Quality at the source
Time-based strategies
Focuses on reduction of timeneeded to accomplish tasks
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p , gy, y
Time-based StrategiesJAN FEB MAR APR MAY JUN
Planning
Processing
Changeover On time!
Designing
Delivery
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Organization have achieved time reduction
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p gy yOrganization have achieved time reduction
in some of the following:
Planning time- the time needed to react to a
competitive threat, develop strategies and select
tactics, adopt new technologies and so on
Product/service design time- the time needed to
develop and market new or redesigned products or
services
Processing time- the time needed to produce goods
or provide services
Changeover time- the time needed to change from
producing one type of product to another
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Organization have achieved time reduction
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p gy yOrganization have achieved time reduction
in some of the following:
Delivery time- the time needed to fill orders
Response time for complaints- customer
complaints about quality, timing of deliveries, and
incorrect shipments
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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
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Productivity
Partial measures output/(single input)
Multi-factor measures
output/(multiple inputs) Total measure
output/(total inputs)
Productivity =OutputsInputs
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Productivity Growth
Current Period Productivity
Previous Period ProductivityPrevious Period Productivity
Productivity Growth =
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Measures of ProductivityTable 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
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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
mul t i factor
product iv i ty?
Ans. 2.20
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Example 3 SolutionMFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)$1000 + $520 + $2000
MFP = 2.20
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Factors Affecting Productivity
Capital Quality
Technology Management
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Standardization- reducing variability canhave significant benefit for productivity
Quality differences- when comparisons are
made over time like comparing theproductivity of a factory now with one 30
years ago.
Use of Internet- can lower costs of a wide
range of transactions
Other Factors Affecting Productivity
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Other factors. . .
Computer viruses- can have an immense negative
impact on productivity
Searching for lost or misplaced items waste time-
can negatively affect productivity
Scrap rates- have adverse effect on productivity
signaling inefficient use of resources
New workers- tend to have lower productivity than
seasoned workers
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Safety- accidents can take a toll on productivity Shortage of IT workers- hampers the ability of
companies to update computing resources
Layoffs- effect on productivity could bepositive or negative
Labor turnover- have negative effect on
productivity Design of the workspace
Incentive plans that reward productivity
Other Factors Affecting Productivity
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Bottleneck OperationFigure 2.3
Machine #2 BottleneckOperation
Machine #1
Machine #3
Machine #4
10/hr
10/hr
10/hr
10/hr
30/hr
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Improving Productivity
Develop productivity measures Determine critical (bottleneck) operations
Develop methods for productivityimprovements
Establish reasonable goals
Get management support
Measure and publicize improvements Dont confuse productivity with efficiency