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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Chapter 2

Competitiveness, Strategy, and

Productivity

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Competitiveness:

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

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Competitiveness, Strategy, and Productivity

Competitiveness

Quality

Price

Time

Flexibility

Differentiation

Service

2-4

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Competitiveness, Strategy, and Productivity

Mission/Strategy/Tactics

How does mission, strategies and tactics relate todecision making and distinctive competencies?

Strategy TacticsMission

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Competitiveness, Strategy, and Productivity

Strategy

• Mission– The reason for existence for an organization

• Mission Statement– A clear statement of purpose

• Strategy– A plan for achieving organizational goals

• Tactics– The actions taken to accomplish strategies

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Strategy Example

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

Example 1

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Competitiveness, Strategy, and Productivity

Planning and Decision Making

Mission

Goals

Organizational strategy

Functional strategies

Finance Marketing Operations

Tactics Tactics Tactics

Finance operations

Marketingoperations

Operationsoperations

Figure 2-1

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Competitiveness, Strategy, and Productivity

Strategy Formulation

• Distinctive Competencies– The special attributes or abilities that give

an organization a competitive edge.

• Environmental Scanning– The considering of events and trends that

present threats or opportunities for a company.

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Competitiveness, Strategy, and Productivity

Banks, ATMsConvenienceLocation

DisneylandNordstroms

Superior customer service

Service

Burger KingSupermarkets

VarietyVolume

Flexibility

Express MailOne-hour photo

Rapid deliveryOn-time delivery

Time

Sony TVLexus, CadillacPepsi, Kodak, Motorola

High-performance design or high quality Consistent quality

Quality

U.S. first-class postageMotel-6, Red Roof Inns

Low CostPrice

Examples of Distinctive Competencies

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

• Economic conditions

• Political conditions

• Legal environment

• Technology

• Competition

• Markets

Key External Factors

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

• Human Resources

• Facilities and equipment

• Financial resources

• Customers

• Products and services

• Technology

• Suppliers

Key Internal Factors

2-12

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

New 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

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Processing

Changeover On time!

Designing

Delivery

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Competitiveness, Strategy, and Productivity

Productivity

• Partial measures– output/(single input)

• Multi-factor measures– output/(multiple inputs)

• Total measure– output/(total inputs)

Productivity = Outputs

Inputs

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Productivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Measures of Productivity

Table 2-4

Partial Output Output Output Outputmeasures Labor Machine Capital Energy

Multifactor Output Outputmeasures Labor + Machine Labor + Capital + Energy

Total Goods or Services Producedmeasure All inputs used to produce them

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Units of output per kilowatt-hourDollar value of output per kilowatt-hour

Energy Productivity

Units of output per dollar inputDollar value of output per dollar input

Capital Productivity

Units of output per machine hourmachine hour

Machine Productivity

Units of output per labor hourUnits of output per shiftValue-added per labor hour

Labor Productivity

Examples of Partial Productivity Measures

Table 2-5

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Example

10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000

What is the labor productivity?

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

•10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure

•(10,000 unit* $10/unit)/(500hrs* $9/hr) = 22.22

Can you think of any advantages or disadvantages of each approach?

Example--Labor Productivity

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Competitiveness, Strategy, and Productivity

Example--Multifactor Productivity

MFP = OutputLabor + Materials

MFP = (10,000 units)*($10)(500)*($9) + ($5000) + ($25000)

MFP = 2.90

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Annual Productivity Growth

-2

0

2

4

6

77 79 81 83 85 87 89 91 93 95 97 99

Year

An

nu

al %

C

han

ge

Figure 2-2

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Factors Affecting Productivity

Capital Quality

Technology Management

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

• Standardization

• Use of Internet

• Computer viruses

• Searching for lost or misplaced items

• Scrap rates

• New workers

• Cuts in health benefits

Factors Affecting Productivity

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

• Safety

• Shortage of IT workers

• Layoffs

• Labor turnover

• Design of the workspace

• Incentive plans that reward productivity

Factors Affecting Productivity

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

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

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Competitiveness, Strategy, and Productivity

Bottleneck Operation

OperationOperation

BottleneckOperation

BottleneckOperation

OperationOperation

OperationOperation

OperationOperation

Figure 2-3