Week 1 Notes
01-2: Competition
Competition: Why spend money in one place and not another?
● Easy way to get in and out, enjoy service provided, convenient location, attractive scent,
perks such as punch cards
● EX- CARS, some people want something to go to point a and point b if you’re concerned
about money, other people want to make a statement, others need reliability
How to compete:
-The mission statement
-What the organization has set forth to do
-companies trying to differentiate themselves
Strategy
-Long term plan w lasting implications that are difficult or impossible to undo
-3 Basic business strategies
-Differentiation
-Responsiveness
-Low cost
-There can be some overlap of the strategies
-Cannot have everything
1.) Differentiation
a.) Setting the company apart through (Apple as an example)
i.)
High quality
ii.)
Newness
iii.)
Variety
iv.)
Service
v.)
Location
2.) Responsiveness (amazon as an example)
a.) Short processing time from order to receiving good or service
b.) On-time delivery
c.) Customization options (limited or near total)
3.) Low cost
a.) Offer products at price less than what competitors are offering
b.) Support by reducing business costs and increasing volume of sales
Tactic
-Method and/or action carried out to move towards strategic objective
- Shorter term than strategic plans
-The “How to: portion of the process to achieve the mission through what has been laid
out by strategic planning
-Tactics
-Strategy: Eat a Boomer’s burger
-Option 1: Drive
2: Bus
3: Take Car
4: Have someone bring it to you
-Planning Hierarchy
-Operations Strategy
-Top Level decision making and planning
-Planning out quarters or years
-Concerning
-Product/Service design
-Product/Service volume
Choice of location (current and new)
-Choice of technology
-Operations Tactics
-Mid level decision makers
-”Middle management”
-Planning out weeks and months
-Concerning
-Employment level
-Output
-Equipment
-Facility layout
-Operations Procedures
-Low level decision makers
-Planning out weeks or days
-Concerning
-Personnel Schedules
-Output rate adjustment
-Inventory management
-Purchasing
-Training
01-3: Productivity
-Productivity is a ratio of what is received for what is put into the process
-How much “bang for your buck”
-Productivity=output/input
Output=units created or service performed
-Cars manufactured
-Houses painted
Input= resources used to create the output
-Labor
-Money
-Machinery
-Energy
-Materials
Partial Productivity=Appropriate when focusing on one aspect to determine productivity of
-Labor
-Capital
-Energy
-Machinery
-Materials
Labor productivity=Output/Labor
4 full time workers brew 150 kegs of beer per month
4 workers x 40 hours week x 4 weeks/month=640 hours/month
Labor productivity= 150 kegs/month divided by 640/hours month
Labor productivity= 0.23 kegs/hour
01-4 Multifactor Productivity
Multifactor productivity= Appropriate to use when looking for a combination of factors or when
separating is difficult to measure
All input factors need to be in the same units
Hours, dollars
For example, computing the multifactor productivity of labor and material cost
Multifactor productivity= Output/ Labor cost + Material Cost
Example:
5 workers
$22/hour
1600 raw materials overhead
1100 monthly overhead cost
75 hourly equipment rental rate
18550 Units produced this week
Multifactor Productivity Example
-Output=18550 units
-Input
-Labor=5 employees x 22/hr x 40 hrs/week =$4400
-Material=$1600
-Overhead=1100 $/month (1 month/4 weeks)=275
-Equipment= 75 $/hour x 40 hrs/week =3000
MFP= 1850 Units/ $4400 + 1600 + 275 + 3000 =2 units per $ input
Productivity Growth= Percent Change in productivity
Productivity Growth= Current-Previous/Previous x 100
Example: Current Productivity= 210 units/hr
Previous Productivity=195 units/hr
Productivity Growth: 210-195/195 x 100
Productivity growth= 7.69%
What to do w productivity figures?
Useful to compare multiple figures over time
-Measuring is the first step to improvement
-Able to better gauge variability
-Partial Productivity can lead to areas in need of improvement
01-5 Ratio Drivers
Ratios act as gauges
-Ratios are indicators as to what is happening within the business
-Improving ratios cannot be done at higher levels
IE Seek to improve Return on Invested Capital
-Gauge indicates a condition, addressing the condition will then change the gauge
DuPont Ratio Framework
-Return on Invested Capital provides a measure to how well a company is using it’s money to
earn a return on investment
-ROIC=Return/Revenue (Company’s margin) x revenue/invested capital (Company’s capital
turns)
-Return=Revenue-Fixed Costs-Variable Costs (Flow rate)
-Next, divide both sides by revenue
-So, REVENUE=PRICE(FLOW RATE)
-Substitute for Revenue
-Right side is margin!
-So the drivers of margin are fixed costs, variable costs, price, and flow rate
-Asset turns are equal to revenue/invested capital=price (flow rate)/invested capital
-Drivers of Asset Turns are price, flow rate, and invested capital
-Drivers of ratio are fixed costs, variable costs, price, flow rate, and invested capital
-Operations w/in a business affect ⅗ drivers (fixed costs, variable costs, and flow rate)
-To some extent price as well