2-1 Competitiveness, Strategy, and Productivity
William J. Stevenson
8 th edition

2-2 Competitiveness, Strategy, and Productivity
CHAPTER
2
Operations Management, Eighth Edition, by William J. Stevenson
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

2-3 Competitiveness, Strategy, and Productivity
Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

2-4 Competitiveness, Strategy, and Productivity
Businesses Compete Using Marketing
 Identifying consumer wants and needs
 Pricing
 Advertising and promotion

2-5 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
 Product and service design
 Cost
 Location
 Quality
 Quick response

2-6 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
 Flexibility
 Inventory management
 Supply chain management
 Service

2-7 Competitiveness, Strategy, and Productivity
Why Some Organizations Fail
 Too much emphasis on short-term financial performance
 Failing to take advantage of strengths and opportunities
 Failing to recognize competitive threats
 Neglecting operations strategy

2-8 Competitiveness, Strategy, and Productivity
Why Some Organizations Fail
 Too much emphasis in product and service design and not enough on improvement
 Neglecting investments in capital and human resources
 Failing to establish good internal communications
 Failing to consider customer wants and needs

2-9 Competitiveness, Strategy, and Productivity
Mission/Strategy/Tactics
Mission Strategy Tactics
How does mission, strategies and tactics relate to decision making and distinctive competencies?

2-10 Competitiveness, Strategy, and Productivity
Strategy
 Strategies
 Plans for achieving organizational goals
 Mission
 The reason for existence for an organization
 Mission Statement
 Answers the question “What business are we in?”
 Goals
 Provide detail and scope of mission
 Tactics
 The methods and actions taken to accomplish strategies

2-11 Competitiveness, Strategy, and Productivity
Planning and Decision Making
Figure 2.1
Mission
Goals
Organizational Strategies
Finance
Strategies
Functional Goals
Marketing
Strategies
Operations
Strategies
Tactics
Operating procedures
Tactics
Operating procedures
Tactics
Operating procedures

2-12 Competitiveness, Strategy, and Productivity
Strategy Example
Example 1
Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably
Mission:
 Goal:
 Strategy:
 Tactics:
 Operations:
Live a good life
Successful career, good income
Obtain a college education
Select a college and a major
Register, buy books, take courses, study, graduate, get job

2-13 Competitiveness, Strategy, and Productivity
Examples of Strategies
 Low cost
 Scale-based strategies
 Specialization
 Flexible operations
 High quality
 Service

2-14 Competitiveness, Strategy, and Productivity
Strategy and Tactics
 Distinctive Competencies
The special attributes or abilities that give an organization a competitive edge.
 Price
 Quality
 Time
 Flexibility
 Service
 Location

2-15 Competitiveness, Strategy, and Productivity
Examples of Distinctive Competencies
Table 2.2
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns
Quality
Time
Flexibility
Service
Location
High-performance design or high quality Consistent quality
Sony TV
Lexus, Cadillac
Pepsi, Kodak, Motorola
Rapid delivery
On-time delivery
Variety
Volume
Superior customer service
Convenience
Express Mail, Fedex,
One-hour photo, UPS
Burger King
Supermarkets
Disneyland
Nordstroms
Banks, ATMs

2-16 Competitiveness, Strategy, and Productivity
Operations Strategy
 Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.

2-17 Competitiveness, Strategy, and Productivity
Strategy Formulation
 Distinctive competencies
 Environmental scanning
 SWOT
 Order qualifiers
 Order winners

2-18 Competitiveness, Strategy, and Productivity
Strategy Formulation
 Order qualifiers
 Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase
 Order winners
 Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition

2-19 Competitiveness, Strategy, and Productivity
Key External Factors
 Economic conditions
 Political conditions
 Legal environment
 Technology
 Competition
 Markets

2-20 Competitiveness, Strategy, and Productivity
Key Internal Factors
 Human Resources
 Facilities and equipment
 Financial resources
 Customers
 Products and services
 Technology
 Suppliers

2-21 Competitiveness, Strategy, and Productivity
Quality and Time Strategies
 Quality-based strategies
 Focuses on maintaining or improving the quality of an organization’s products or services
 Quality at the source
 Time-based strategies
 Focuses on reduction of time needed to accomplish tasks

2-22 Competitiveness, Strategy, and Productivity
Time-based Strategies
JAN FEB MAR APR
Planning
Designing
Processing
MAY JUN
Changeover
Delivery
On time!

2-23 Competitiveness, Strategy, and Productivity
Productivity
 Productivity
 A measure of the effective use of resources, usually expressed as the ratio of output to input
 Productivity ratios are used for
 Planning workforce requirements
 Scheduling equipment
 Financial analysis

2-24 Competitiveness, Strategy, and Productivity
Productivity
 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)
Productivity =
Outputs
Inputs

2-25 Competitiveness, Strategy, and Productivity
Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity

2-26 Competitiveness, Strategy, and Productivity
Table 2.4
Partial Output Output Output Output measures Labor Machine Capital Energy
Multifactor measures
Output Output
Labor + Machine Labor + Capital + Energy
Total measure
Goods or Services Produced
All inputs used to produce them

2-27 Competitiveness, Strategy, and Productivity
Examples of Partial Productivity Measures
Table 2.5
Labor
Productivity
Machine
Productivity
Capital
Productivity
Energy
Productivity
Units of output per labor hour
Units of output per shift
Value-added per labor hour
Units of output per machine hour machine hour
Units of output per dollar input
Dollar value of output per dollar input
Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour

2-28 Competitiveness, Strategy, and Productivity
Example 3
7040 Units Produced
Sold for $1.10/unit
Cost of labor of $1,000
Cost of materials: $520
Cost of overhead: $2000
What is the multifactor productivity?
Ans. 2.20

2-29 Competitiveness, Strategy, and Productivity
Example 3 Solution
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)
$1000 + $520 + $2000
MFP = 2.20

2-30 Competitiveness, Strategy, and Productivity
Factors Affecting Productivity
Capital Quality
Technology Management

2-31 Competitiveness, Strategy, and Productivity
Other Factors Affecting Productivity
 Standardization
 Quality
 Use of Internet
 Computer viruses
 Searching for lost or misplaced items
 Scrap rates
 New workers

2-32 Competitiveness, Strategy, and Productivity
Other Factors Affecting Productivity
 Safety
 Shortage of IT workers
 Layoffs
 Labor turnover
 Design of the workspace
 Incentive plans that reward productivity

2-33 Competitiveness, Strategy, and Productivity
Bottleneck Operation
Figure 2.3
Machine #1
10/hr
Machine #2
10/hr
Bottleneck
Operation
30/hr
Machine #3
10/hr
Machine #4
10/hr

2-34 Competitiveness, Strategy, and Productivity
Improving Productivity
 Develop productivity measures
 Determine critical (bottleneck) operations
 Develop methods for productivity improvements
 Establish reasonable goals
 Get management support
 Measure and publicize improvements
 Don’t confuse productivity with efficiency

2-35 Competitiveness, Strategy, and Productivity
Value Results
VO10
ABTco example