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Lesson 03
Productivity, Competitiveness & Strategy
Three separate but related topics
extremely important to businesssuccess
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A measure of the effective use of resources, usually expressed as the
ratio of output to input.
Productivity measures can be computed for a single operation, a
department, an organization, or even an entire country.
Productivity measures are useful for tracking performance over time(they tell whether performance is improving or not)
Productivity
InputOutputtyProductivi
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Single Factor (Partial)Productivity Measures
EnergyOutput
CapitalOutput
MachineOutput
Labor Output
Labor Productivity Units of output per labor hour, units of output
per shift, value-added per labor hour , dollarvalue of output per labor hourMachine Productivity Units of output per machine hour, dollar value
of output per machine hourCapital Productivity Units of output per dollar ($) input, dollar value
of output per dollar inputEnergy Productivity Units of output per kilowatt-hour, dollar value of
output per kilowatt-hour
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Example 2: Develop a productivity measure fora. 4 workers who install 720 yards of carpeting in 8 hours
Single Factor (Partial)Productivity Measures
yds/hour 22.58*4
720
HoursLabor
InstalledCarpetof YardsLabor Output
b. 1 machine produces 68 usable pieces in 2 hours
4 r pieces/hou3
2
68
TimeProduction
PiecesUsable
Labor
Output
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Multi-factor Productivity Measures
EnergyCapital Labor Output
Machine Labor Output
Labor Capital
Technology Energy
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Example 3: Develop a productivity measure for the combined input of
labor and machine time using the following data:Output: 7,040 unitsInputs: Labor - $1,000, Materials - $520, Overhead - $2,000
Multi-factor Productivity Measures
t$units/inpu 2,0005201,000
7,040 Overhead Material Labor Output 2
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Multi-factor Productivity Measures
Example 4 (not in textbook): Develop the following productivity
measures for a product that utilizes labor and machine time. Assume10,000 units are produced in 500 hours and are sold for $10/unit. Thelabor rate is $9/hour.
Option 1: Productivity as a measure of units.
5 units/hour 20
00
10,000 HoursLabor
UnitsOutput
Option 2: Productivity as a measure of $
5 $$/InputOutput22.29*00
10*10,000 $Labor $Output
Can you think of any advantages or disadvantages for each option?
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Example 5: Develop a productivity measures for a product that utilizes
labor machine time, raw materials and purchased materials. Assume10,000 units are produced in 500 hours and are sold for $10/unit. Thelabor rate is $9/hour, the cost of the raw materials is $5,000 and the costof purchased materials is $25,000.
Multi-factor Productivity Measures
$$/InputOutput2.934,500100,000
$Labor $Output
34,50025,0005,0009*500$Input
100,00010*10,000$Output
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Multi-factor Productivity Measures
Example 6: Develop a productivity measures for a product that utilizes
labor machine time, raw materials and purchased materials. Assume5,000 units are produced in 500 hours and are sold for $30/unit. Thelabor rate is $25/hour, the cost of the materials is $5,000 and the cost ofoverhead is 2X labor cost.
Overhead+Material+Labor Output=tyProductivirMultifacto
$25/hour)hours(500*2+$5,000+$25/hour)hours(500
$30/unitunits5,000=
3.5294=
500,42$
$150,000=
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Productivity Improvements
Productivity improvements are necessary to remain competitive. One of
the production managers responsibilities is to seek out productivityimprovements on a routine basis. Productivity improvements can resultwhen organizations
. Become more efficient
. Downsize
. Expand
. Retrench
. Achieve breakthroughs
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Productivity Improvements
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Productivity Improvements
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Example 7: Suppose you are a newly hired employee for a carpet retail
store and are given the assignment of planning carpet installationprojects. You are given the following productivity measure for a carpetinstallation team.
Productivity = 22.5 yards/per hour
What would you need to know in order to use this productivity measure?
Interpreting Productivity Measures
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Difficulties in developing productivity measures
. Identifying and prioritizing (Pareto) the factors thatmost affect output
. Not all factors are measurable in a quantitative way
(e.g creativity - invention of the automatic transmission)
. Assuring that the productivity measure will allow foridentification of improvement opportunities
Difficulties Developing Productivity Measures
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To improve productivity
. Develop productivity measures for each operationaldepartment (measurement is the key ingredient in managingand controlling operations)
. Determine critical operations by looking at the system as awhole to see how interrelationships or bottlenecks affectproductivity
How to Improve Productivity
Operation
BottleneckOperation
Operation
Operation
Operation
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How to Improve Productivity
To improve productivity (continued)
. Develop methods for soliciting improvement ideas (workers,teams, benchmarking competition, “best” industry practices,
consultants)
. Establish reasonable goals for improvement (remember the journey of 1000 miles begins with the first step - don’t turn
people off by creating impossible tasks - break them up intobite sized chunks)
. Make it clear that management supports improvement ideasand consider incentives for contributors
. Publicize productivity measures and make sure they areunderstood
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How to Improve Productivity
To improve productivity (continued)
. Do not confuse efficiency with productivity
- efficiency deals with the best way to do a job with thecurrent tools
- productivity deals with the best way to do a job and
may require operational changes, capital investmentsor retraining
efficiency
productivity
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Competitiveness
Competitiveness is a measure of how well an organization performs
relative to others who offer similar goods/services.
Measures of Competitiveness
. Market Share
. Profitability
. Growth
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Businesses compete on many fronts
. Price
. Quality
. Product differentiation
. Flexibility & service
. Delivery speed. Delivery reliability
. Ability to cope with changes in demand
. New product introduction
Competitiveness
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Strategy Tactics Mission
addresses the following questions
Why do you exist?
Where are you?
Where do you want to go?
How will you get there?
The development of a strategic plan begins with setting priorities.
Strategic Planning
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. Mission - why the organization exists- guides the formulation of the strategic plan
. Mission Statement - a clear statement of purpose
. Situation Analysis - current and future analysis of external andinternal factors that can affect your future
. Goals/Objectives - what the organization wants to accomplishtypically with a time frame in mind
. Strategy - a plan for achieving the goals/objectives
. Tactics - the actions to accomplish strategy
. Operations - executing the action items
Elements of a Strategic Plan
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Hierarchy of Planning & Decision Making
Mission
Goals
Organizational strategy
Functional strategies
Finance Marketing Operations
Tactics Tactics Tactics
Financeoperations
Marketingoperations
Operationsoperations
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Situational Analysis (Where are you?)
An objective assessment of an organizations current and future situation
relative to. Competition – what they currently do or have plans to do
. Distinctive competencies – what the organization does welland gives it a competitive advantage
. SWOT – a comparison of your strengths, weaknesses,opportunities and threats versus your competitors . External and internal factors
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Internal
. human resources
. facilities and equipment
. financial resources
. customers
. products/services
. technology
. suppliers
External
. economic conditions
. political conditions
. legal environment
. technology
. competition
. markets
. other
External and Internal Factors
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Strategic Planning Model
Socio-economic, political and businessenvironment
Future directions -global strategy, products,
services, etc
Competitive priorities -Cost, quality, time,
flexibility, etc
Capabilities -current, needed,
plans, SWOT
Corporate Strategy - mission, goals,competencies
Market analysis -ssegmentation, needs assessment
Functional area strategiesFinance, Operations, Marketing
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Marketplace
Corporate Strategy
Operations Strategy
Operations Management
Marketing StrategyFinance Strategy
People Plants Parts Processes
Planning & Control
Production System (5 P’s of Operations Management)
Inputs Outputs
Operations Strategy
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Quality-based strategies – Focus on quality at the source in all
phases of an organization
Operations Strategies
Time-based strategies – Focus on reduction of time
needed to accomplish tasks
Production-based strategies
– Focus on processes, flow,machinery, automation
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Focus on the time needed to accomplish tasks. Some critical areas are
. Planning time - the time needed to react to a competitivethreat, to develop strategies and select tactics, to approveproposed changes to facilities, to adopt new technologies
. Product/Service design time - the time needed to developand market new or redesigned products or services
. Processing time - the time needed to produce goods orprovide services
. Changeover time - the time needed to change from one
type of product to another. Delivery time - the time needed to fill orders. Response time for complaints - either from
customers or employees
Time Based Strategies
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Focus the transformation process
. Craft production – highly skilled workers use simple flexibletools to produce small quantities of customized goods
. Mass production – lower skilled workers use specialized
machinery to produce high volumes of standardized products. Lean production – uses minimal amounts of resources toproduce high volume of high quality goods
. Just –in-time production – concentrates on getting the rightpart to the right place at the right time
Production Strategies
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• A top-down management system that organizations can use to clarify their
vision and strategy and transform them into action – Develop objectives
– Develop metrics and targets for each objective
– Develop initiatives to achieve objectives
– Identify links among the various perspectives• Finance
• Customer
• Internal business processes
• Learning and growth – Monitor results
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Read and understand all material in the chapter.
Discussion and Review Questions
Recreate and understand all classroom examples
Exercises on chapter web page
Homework