Section I | Part I
PRODUCTION AND
OPERATIONS MANAGEMENT
Topic 2:
OPERATIONS STRATEGY
AND COMPETITIVENESS
Attacking through Operations.
Section I | Part I
LEARNING OBJECTIVES
•Understand the concept of operations strategy
•Understand how to fit operations activities to
strategies
•Explain the concept of order qualifiers and order
winners
•Explain Productivity measurement
Section I | Part I
STRATEGY
• Setting broad objectives that direct an enterprise
towards achieving its overall goals.
• Planning the path that will achieve this goals.
• Emphasizing on the long term rather than the short
term objectives.
Section I | Part I
OPERATIONS STRATEGY AND
COMPETITIVENESS
BUSINESS STRATEGY Defines long-range plan for
a company
• Marketing Strategy
• Finance Strategy
• Operations Strategy
• Operations Strategy Role; Provides a plan that
makes use of resources of an organization and
supports the business strategy of an organization.
Section I | Part I
COMPETITIVENESS
✓Competitiveness-Companies must be competitive to
sell their goods and provide services in the market.
✓It is an important factor in determining whether a
company succeeds or fails.
• How effectively an organization meets the wants
and needs of customers relative to others that offer
similar goods or services
1
Section I | Part I
OPERATIONS PERFORMANCE
OBJECTIVES/COMPETITIVE
DIMENSIONS
Quality Advantage-Ensuring that operations does
things right e.g. not creating defective products or
poor service, the operation can provide a quality
advantage to the organization.
Speed Advantage-By doing things fast, an
organization can minimize the time between the
customer asking for the goods or services and the
customers receiving them in full. This increases
the availability of goods and services to
customers giving the organization the speed
advantage.
2
Section I | Part I
CONT’D
• Dependability Advantage-By doing things on time and
keeping the delivery promises made to customers.
• Flexibility Advantage-By being able to change what is
done. Able to vary operations activities and sometimes
give individual treatments to customers.
• Cost Advantage-By doing things cheaply-providing
value to customers at the lowest possible cost and still
keep the organization running.
• “Attacking through Operations”
Section I | Part I
Class Exercise
• Discuss how to fit operations activities to strategies
(Use a practical example)
Section I | Part I
ORDER QUALIFIERS AND
ORDER WINNERS
• Order Qualifiers-criterion that place the company’s
products in consideration for purchase.
• Order Winners-Features which result in getting
orders. Criterion that differentiates one firm’s
products/ services from another
Section I | Part I
PRODUCTIVITY MEASUREMENT
• An overall measure of the ability to produce a good or
service.
• It is an index that measures output (goods and services)
relative to the input (labor, materials, energy, etc used to
produce the output).
ways to increase productivity
• Increase the numerator(output)
• Decrease the denominator(input)
• Producing more output with the same level of input
Section I | Part I
WHY THE CONCEPT OF PRODUCTIVITY
• Organization improvement
• Comparison to competitors
• Productivity Measure; how well the resources of an
organization are being used to produce output.
Section I | Part I
PRODUCTIVITY MEASUREMENT
• It is normally expressed as, P= Outputs/Inputs
whereby outputs are represented by the letter Q and
the inputs depending on the type of input (Labor=L,
Capital=K, Energy=E etc).
• N/B; It is a relative measure and for it to make
sense, it has to be compared with something else.
Section I | Part I
PRODUCTIVITY COMPARISONS
• A company can compare itself with another
company that has similar operations in the industry
or it can compare itself with industry data.
• The comparison may also be between different units
of the same enterprise.
• To measure productivity overtime for the same
operation or for the same business unit.
Section I | Part I
FORMS OF PRODUCTIVITY
1.Partial-Factor Productivity-considers a single input in the
ratio
PFP=Total Output/Single input e.g. output/labor,
output/machine, output/capital, and output/energy.
2. Multi- Factor Productivity-Utilizes more than a single
factor as the input
MFP=Total Output/Subset of Inputs e.g. Total Output/Labor+
Capital+ Energy
3. Total- Factor Productivity-best form of productivity. Uses
all the inputs in the ratio.E.g. Total Output/Total inputs
Section I | Part I
POSITIVE IMPACT OF PRODUCTIVITY
MEASUREMENT
i.
Track performance over time.
ii. A scorecard of the effective use of resources.
iii. For business leaders; competitiveness.
Section I | Part I
EXAMPLE 1
• 4 workers installed 720 square yards of carpeting in
8 hours. Calculate the labor productivity.
• Solution
Productivity=Yards of carpet installed/labor hours
worked
=720 square yards/4 workers * 8 hours/worker
=720 yards/32 hours
22.5yards/hour
Section I | Part I
EXAMPLE 2
✓ 10 men installed 1800 square metres of ceiling in
18 hours. calculate the labour productivity.
productivity=Output(sq metres of ceiling installed)
labor hours
=1800m2
10m*18 hours
Lp =10m/hr
Section I | Part I
EXAMPLE 3
Determine the productivity for the following
combined input:
Labour
ksh.75,000
Materials ksh. 31,000
Overhead ksh. 150,000
Output is ksh. 200,000
Section I | Part I
SOLUTION
MFP=Output/Input
MFP=Q/Labor + Materials + Overhead
=200,000/75,000 + 31,000 + 150,000
=200,000/256,000
=0.7813 units/kshs
Section I | Part I
EXAMPLE 4
• Determine the multifactor productivity for the combined
input of labor,materials,and overheads time using the
following data:
• Output: 1,760 units
• Input
• Labor: $1,000
• Materials: $520
• Overhead: $2,000
• MFP=1,760/(1,000+520+2,000)
• MFP=1,760/3,520=0.5units/dollar
Section I | Part I
INDIVIDUAL ASSIGNMENT II(10 MARKS)
1.
A company that makes shopping carts for supermarkets recently purchased new equipment,
which reduced the labor content needed to produce the carts. Information concerning the old
system (before adding the new equipment) and the new system (after adding the new
machines) includes:
Old System
New System
Output/hr
80
84
Workers
5
4
Wage $/hr
Machine $/hr
10
10
40
50
a)
Compute labor productivity for both the Old System and the New System.
b)
Compute AFP productivity for both the Old System and the New System.
c)
Suppose production with old equipment was 30 units of cart A at a price of $100 per cart, and
50 units of cart B at a price of $120. Also suppose that production with new equipment is 50
units of cart A, at a price of $100 per cart, and 30 units of cart B at a price of $120. Compare
all-factor productivity for the old and the new systems.
Section I | Part I
INDIVIDUAL ASSIGNMENT II (25 MARKS)
Nairobi Bottlers ltd is facing the problem of a low
market share in the soft drinks industry. Assuming
you are the chief operations manager, explain how
Nairobi Bottlers should attack using operations to
gain a larger share of the market (10 marks)
3. Using Nairobi Bottlers as a case of reference,
explain the concept of order qualifiers and order
winners.
(5marks)
Section I | Part I
END
ANY QUESTIONS
Section I | Part I