Holly Archer
January 28, 2013
MGMT 34500 – Operations Management

Competitiveness, Strategy, and Productivity

1

Re-cap from Chapter 1
Operations Management effects Cost and Profit
Transforms Inputs to Outputs via Production
Similarities and Differences Goods and Services
Coordination of Operations, Marketing and Finance
Supply Chains and Value-Added Steps in Process
Matching Supply and Demand
Historical evolution of Scientific management
Lean manufacturing, six sigma
Use of models in OM (Mathematical)
Pareto Principle (80-20 Rule)
Current trends/challenges for Operations Managers
Triple Bottom Line and Ethics
2

Roadmap for Course:
Planning, Organizing, Controlling
Operations
Strategy
Forecasting
Capacity Planning
Product & Service Design
Process Selection/Layout
Work Design
Quality Management
Production Planning & Scheduling
Inventory Management
Project Management
Re-Planning
Supply Chain Management
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Chapter 2: Learning Objectives
List the three primary ways that business organizations compete
Explain reasons for the poor competitiveness of some companies
Define the term strategy and explain why strategy is important
Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two
Describe and give examples of time-based strategies
Define the term productivity and explain why it is important to organizations and countries
Provide some reasons for poor productivity and some ways of improving it
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A Cold Hard Fact
Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever and…
the bar is getting higher
5

Corporations Sometimes Compete Internally
Not just external competition
Multiple factories (DBAs) or amongst different divisions
Factors such as productivity, quality, price, responsiveness
Layoffs or shutdowns are at stake

6

Chapter Focus
This chapter focuses on three separate, but related, concepts that are vitally important to business organizations
Competitiveness
Strategy
Productivity
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Competitiveness
Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services
Organizations compete through some combination of their marketing and operations functions
What do customers want?
How can these customer needs best be satisfied?
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Influences on Competitiveness
Finance
Marketing
Operations
Identifying customer wants and/or needs
Price and quality
Advertising and promotion
Product and service design
Cost
Location
Quality
Quick response
Inventory management
Flexibility
Supply chain management
Why might these two functions within a company not work together or share information?
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Why Some Organizations Fail
Neglecting operations strategy
Failing to take advantage of strengths and opportunities and/or failing to recognize competitive threats and address weaknesses (SWOT)
Too much emphasis on short-term financial performance at the expense of Research & Development
Too much emphasis in product and service design and not enough on process design and improvement
Neglecting investments in capital and human resources
Failing to establish good internal communications and cooperation
Failing to consider customer wants and needs
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Hierarchical Planning
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Hierarchical Planning
Mission: What a Business Exists to Do

Goals: Detail and Scope of the Mission (Destination)

Organizational Strategies: The Plan for Achieving Business Goals (Roadmap)

Functional Strategies: Plans for Achieving Organizational (Marketing, Operations, Finance) Strategies

Tactics and Operating Procedures: Methods and Actions Employed to Actualize the Strategies

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Fed Ex Mission Statement
FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies.
Customer requirements will be met in the highest quality manner appropriate to each market segment served.
FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers.
Safety will be the first consideration in all operations.
Corporate activities will be conducted to the highest ethical and professional standards.
http://ir.fedex.com/documentdisplay.cfm?DocumentID=125
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Sample Operations Strategies
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Strategy Formulation
Effective strategy formulation requires taking into account:
Core competencies
Internal and External evaluation (SWOT Analysis)
Successful strategy formulation also requires taking into account:
Order qualifiers
Order winners
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SWOT
Strengths, Weaknesses, Opportunities and Threats (SWOT)
Internal Factors
Strengths and Weaknesses
External Factors (Environmental Scanning)
Opportunities and Threats
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Key Internal Factors
Human Resources
Facilities and equipment
Financial resources
Customers
Products and services
Technology
Suppliers
Other
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Key External Factors
Economic conditions
Political conditions
Legal environment
Technology
Competition
Markets
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Strategy Formulation
Order qualifiers
Characteristics that customers perceive as minimum standards of acceptability for a product or service 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
Marketing should determine the relative weighting of each characteristic and communicate to Operations
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Operations strategy
The approach, consistent with organization strategy, that is used to guide the operations function.
Operations Strategy
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Quality-Based Strategies
Quality-based strategy
Strategy that focuses on quality in all phases of an organization
Pursuit of such a strategy is rooted in a number of factors:
Trying to overcome a poor quality reputation
Desire to maintain a quality image
A desire to catch up with the competition
A part of a cost reduction strategy
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Time-Based Strategies
Time-based strategies
Strategies that focus on the reduction of time needed to accomplish tasks
It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved
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Time-Based Strategies
Areas where organizations have achieved time reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints
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Agile Operations
Agile operations
A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change
Involves the blending of several core competencies:
Cost
Quality
Reliability
Flexibility
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The Balanced Scorecard Approach
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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The Balanced Scorecard
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Productivity
Productivity
A measure of the effective use of resources, usually expressed as the ratio of output to input
Productivity measures are useful for
Tracking an operating unit’s performance over time
Judging the performance of an entire industry or country
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Why Productivity Matters
High productivity is linked to higher standards of living
As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living
Higher productivity relative to the competition leads to competitive advantage in the marketplace
Pricing and profit effects
For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry
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Productivity Measures
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What is the multifactor productivity?
Productivity Calculation Example
Output:
Units produced: 5,000
Standard price: $30/unit

Inputs:
Labor input: 500 hours
Cost of labor: $25/hour

Cost of materials: $5,000

Cost of overhead: 2x labor cost
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Solution
What is the implication of an unitless measure of productivity?
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U.S. Multifactor Productivity
(1976 – 2010)
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US Growth
Productivity growth and the economy
Source: Operations Management, 9th Edition, J.Heizer & B.Render, Pearson Prentice Hall, 2009
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Relative Contribution to Productivity Increases
Productivity = Outputs
Inputs
Source: Operations Management, 9th Edition, J.Heizer & B.Render, Pearson Prentice Hall, 2009
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Productivity Growth
Example: Labor productivity on the ABC assembly line was 25 units per hour in 2009. In 2010, labor productivity was 23 units per hour. What was the productivity growth from 2009 to 2010?
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Service sector productivity is difficult to measure and manage because
It involves intellectual activities
It has a high degree of variability
A useful measure related to productivity is process yield
Where products are involved
ratio of output of good product to the quantity of raw material input.
“Scrap” is bad product (scrap/loss percentage is 1 minus process yield)
Where services are involved, process yield measurement is often dependent on the particular process:
ratio of cars rented to cars available for a given day
ratio of student acceptances to the total number of students approved for admission.
Service Sector Productivity
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What are some reasons for
Poor Productivity?
Hint: Think of Range of Inputs
(Labor, Material, Energy, Overhead, Capital)
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Reasons for Poor Productivity
Lack of standard processes
Design of workspace
Wasted material (scrap from process design or poor quality)
Misapplied capital purchase or long payback time
Unsafe work conditions
Newly trained workers/high turnover rate
Layoffs

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Improving Productivity
Develop productivity measures for all operations
Determine critical (bottleneck) operations
Develop methods for productivity improvements opportunities
Establish reasonable goals
Make it clear that management supports and encourages productivity improvement
Measure and publicize improvements

Don’t confuse productivity with efficiency
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Productivity vs. Efficiency Ratio
Productivity = Output/Input
“Units produced per input unit”
or dollarize & convert to a ratio
Efficiency is narrower concept based upon fixed set of resources
Efficiency = Output / Capacity x 100%
[Different from “Efficiency Ratio” (financial concept) = Expenses (All Inputs) / Revenue (units sold in $)]
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Summary
Productivity is a key factor in a company’s competitiveness and is measured as a ratio of output to input
Businesses compete in three primary ways:
Low Cost
Responsiveness
Differentiation from competitors
Effective operations management strategies should be aligned with the organizational strategy
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Assignment for 1/30/13
Do Ch. 2 Exercise Problems #4, 5, 7, 9 (Productivity)
Bring to Class for Collection / Points
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