Chapter 2 – Competitiveness
and Productivity
Operations Management
by
R. Dan Reid & Nada R. Sanders
2nd Edition © Wiley 2005
PowerPoint Presentation by R.B. Clough - UNH
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Business/Functional Strategy
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Operations Strategy – Designing
the Operations Function
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Competitive Priorities- The Edge


Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
All of the above? Some? Tradeoffs?
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Competing on Cost?

Typically high volume products

Often limit product range & offer little customization

May invest in automation to reduce unit costs

Can use lower skill labor

Probably use product focused layouts
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Competing on Quality?

High performance design:


Superior features, high durability, & excellent customer
service
Product & service consistency:



Meets design specifications
Close tolerances
Error free delivery
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Competing on Time?

Fast delivery:

Focused on shorter time between order placement and
delivery

On-time delivery:


Deliver product exactly when needed every time
Rapid development speed

Using concurrent processes to shorten product development
time
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Product Strategies and Process Choice
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Competing on Flexibility?

Product flexibility:



Easily switch production from one item to another
Easily customize product/service to meet specific
requirements of a customer
Volume flexibility:

Ability to ramp production up and down to match market
demands
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Productivity
Outputs
P
Inputs
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Measuring Productivity

Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input

Total Productivity Measure
Productivity relative to all inputs

Partial Productivity Measure
Productivity relative to a single input (e.g., labor hours)

Multifactor Productivity Measure
Productivity relative to a subgroup of inputs (e.g.,
labor and materials)
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Labor Productivity
Example:



Assume two workers paint twenty-four tables in
eight hours:
Inputs: 16 hours of labor (2 workers x 8 hours)
Outputs: 24 painted tables
Outputs 24 tables

 1.5 tables / hour
Inputs 16 hours
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Multifactor Productivity


Convert all inputs & outputs to $ values
Example (labor and materials productivity):



200 units produced that sell for $12.00 each
Materials cost $6.50 per unit
40 hours of labor were required at $10 an hour
200 units  $12 / unit
Outputs

Inputs
200 units  $6.50 / unit   40 hours  $10 / hour 

$2400
 1.41
$1700
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Interpreting Productivity
Measures



Is the productivity measure of 1.41 in
the previous example good or bad?
Can’t tell without a reference point
Compare to previous measures (e.g.:
last week) or to another benchmark
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Productivity Growth Rate

Can be used to compare a process’s
productivity at a given time (P2) to the
same process’ productivity at an earlier
time (P1)
P2  P1
Growth Rate 
P1
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Productivity Growth Rate
Example:


Last week a company produced 150 units using 200 hours of labor
This week, the same company produced 180 units using 250 hours of
labor
150 units
P1 
 0.75 units / hour
200 hours
180 units
P2 
 0.72 units / hour
250 hours
P2  P1 0.72  0.75
Growth Rate 

 0.04
P1
0.75
or a negative 4% growth rate
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Productivity Example - An automobile manufacturer has presented the
following data for the past three years in its annual report. As a potential
investor, you are interested in calculating yearly productivity and year to
year productivity gains as one of several factors in your investment
analysis.
Unit car
sales
2003
2002
2001
2,700,000
2,400,000
2,100,000
2003 2002 2001
Labor Productivity
Unit Car Sales/Employee
Employees
112,000
113,000
115,000
$ Sales
(billions$)
$49,000
$41,000
$38,000
Cost of
Sales
(billions)
$39,000
$32,000
21.2
Year-to-year Improvement 13.7%
18.3
15.8%
Total Productivity
Total Cost Productivity
$33,000
24.1
Year-to-year Improvement
1.26 1.24
1.6%
1.19
4.2%
Which is the best measurement?
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Homework
Ch. 2 Problems: 1, 5, 6, 8, 9.
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