Reporter: Robert V. Espiritu

Companies must be competitive to sell their goods in the marketplace. Competitiveness is an important factor in determining whether a company prospers, barely gets by, or fails.

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

Business organizations compete through some combination of marketing and operational functions.

Marketing influences competition in several ways: Identifying consumer wants and/or needs. Pricing Advertising and promotion

Operations influences competition is several ways: Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service

Product and service design should reflect joint efforts of many areas of the firm to achieve a match between financial resources, operations capabilities, supply chain capabilities, and consumer needs and wants.

Cost is a key variable that affects pricing decisions and profits. Productivity is an important determinant of cost. Organizations with higher productivity rates than their competitors have a competitive cost advantage. Outsourcing may help achieve lower costs, higher productivity or better quality.

Location can be important in terms of cost and convenience for customers. Locations near inputs result in lower input costs. Locations near markets can result in lower transportation costs and quicker delivery times.

Quality refers to materials, workmanship, design and service. Consumers judge quality of how well they think a product or service will satisfy its intended purpose.

Quick response can be a source of competitive advantage by quickly bringing new or improved products or services to the market or delivering existing products or services to the customer after they are ordered.

Flexibility is the ability to respond to changes. Changes might relate to alteration in design features of a product or a service or to the volume demanded by customers or the mix of products or services offered by an organization.

Inventory management can be a competitive advantage by effectively matching supplies of goods with demand.

Supply chain management involves coordinating internal and external operations (buyers and suppliers) to achieve timely and cost-effective delivery of goods throughout the system.

Service might involve after-sales activities that customers may perceive as value added such as delivery, setup, warranty and technical support.

Strategies are plans for achieving organizational goals. They can be long term, intermediate term or short term. To be effective, strategies must be designed to support the organization’s mission and its organizational goals.

Mission and Goals An organization’s mission is the reason for its

existence. It is expressed in its mission statement, which states the purpose of an organization and answers the question “What business are we in?”

A mission statement serves as the basis for organizational goals, which provide more detail and describe the scope of the mission.

Goals in turn provide the basis for strategies and tactics.

Tactics are methods and actions taken to accomplish strategies

Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

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, decide how to finance college

Operations: Register, buy books, take courses, study,

graduate, get job

Some strategies an organization may pursue: Low Cost: Outsource operations to countries

with low labor cost Scale-based: Use capital intensive methods to

achieve high output volume and low unit costs. Specialization: Focus on narrow product lines or

limited service to achieve higher quality. Flexible operations: Focus on quick response

and/or customization. High quality: Focus on achieving higher quality

than competitors. Service: Focus on various aspects of service

Generally strategies take into account the way organizations compete and a particular organization’s assessment of its own strengths and weaknesses in order to take advantage of its distinctive competencies.

Distinctive Competencies are the special attributes or abilities that give an organization a competitive edge.

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

Banks, ATMsConvenienceLocationLocation

DisneylandNordstroms

Superior customer service

ServiceService

Burger KingSupermarkets

VarietyVolume

FlexibilityFlexibility

Express Mail, Fedex,One-hour photo, UPS

Rapid deliveryOn-time delivery

TimeTime

Sony TVLexus, CadillacPepsi, Kodak, Motorola

High-performance design or high quality Consistent quality

QualityQuality

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

Low CostPricePrice

FACTOR Operations Strategy

Strategy formulation must take into account the distinctive competencies of the organization and a scan of the environment.

In formulating a successful strategy organizations must take into account order qualifiers and order winners.

Order qualifiers Characteristics that customers perceive as

minimum standards of acceptability to be considered as a potential for purchase.

Order winners Characteristics of an organization’s goods

or services that cause it to be perceived as better than the competition.

Environmental scanning is the considering of events and trends that present either threats or opportunities for the organization. This is known as external environmental scanning.

Internal factors that relate to strengths and weaknesses are part of the internal environment.

Key External Factors Economic Political Legal Technology Competition Markets

Other factors can be classified under: PEST analysis (Political, Economic, Social, and

Technological analysis) STEER analysis involving Socio-cultural,

Technological, Economic, Ecological, and Regulatory factors

EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal)

STEEPDG (Socio-cultural, Technological, Economic, Environmental, Politico-Legal, Demographic, Global)

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

The approach, consistent with the organization’s strategy, that is used to guide the operations functions.

Relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling.

Management Level

Time Horizon

Scope Level of Detail

Relates to

Mission Top Long Broad Low Survival, Profitability

Strategy Senior Long Broad Low Growth Rate, Market Share

Strategic Senior Moderate to Long

Broad Low Product design, Location, Technology

Tactical Middle Moderate Moderate Moderate Employment Level, Output Level, Facility Layout

Operational Low Short Narrow High Scheduling personnel, Output Rates, Inventory Management, Purchasing

ORGANIZATION

OPERATIONS

Two factors that tend to have universal strategic operations importance relate to quality and time.

Quality-based strategies focus on maintaining or improving quality in all phases of an organization.

Time-based strategies focus on reducing the time required to accomplish tasks.

Organizations have achieved time reduction in some of the following: Planning time Product/service design time Processing time Changeover time Delivery time Response time for complaints

Planning time: the time needed to react to a competitive threat, to develop strategies and select tactics, to approve proposed changes to facilities, to 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: time needed to produce goods or provide services. This can involve scheduling, repairing equipment, methods used, inventories, quality, training and the like.

Changeover time: The time needed to change from producing one type of product or service to another. This may involve new equipment settings and attachments, different methods, schedules and materials.

Delivery time: time needed to fill orders.

Response time for complaints: these might be customer complaints about quality, timing of deliveries, and incorrect shipments. These might also be complaints from employees about working conditions, equipment problems or quality problems.

Reducing the time needed to perform work is one of the ways an organization can improve a key measure: productivity

Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to input. Productivity =

Outputs

Inputs

A productivity ratio can be computed for a single person, a department, an organization or an entire country.

Productivity growth is the increase in productivity from one period to the next relative to the productivity in the preceeding period.

Productivity growth:

So for example, if productivity increased from 80 to 84 then the growth rate would be:

84 – 80 80

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

x 100 = 5%

Computing productivity can be based on a single input (partial productivity), on more than one input (multifactor productivity), or on all inputs (total productivity).

The choice of measure depends primarily on the purpose of measurement.

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

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

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 multifactorproductivity?

MFP = OutputLabor + Materials + Overhead

MFP = (7040 units)*($1.10)$1000 + $520 + $2000

MFP = 2.20 units per $1 input

Capital Quality

Technology Management

Standardization Quality differences Use of Internet Computer viruses Searching for lost or misplaced items New workers

Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward 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

Thank You!!!

Source: Operations Management 9th EditionWilliam J. StevensonMcGraw-HillIrwin