Operation management 4th reil sanders wiley chapter 2

Chapter - Operations Strategy and Competitiveness Operations Management by R Dan Reid & Nada R Sanders 4th Edition © Wiley 2010 © Wiley 2010 The Role of Operations Strategy  Provide a plan that makes best use of resources which;   Specifies the policies and plans for using organizational resources Supports Business Strategy as shown on next slide © Wiley 2010 Business/Functional Strategy © Wiley 2010 Background: Business Strategy http://www.youtube.com/watch?v=mYF2_FBCvXw http://www.youtube.com/watch?v=ehMAwIHGN0Y © Wiley 2010 Importance of Operations Strategy  Companies often not understand the differences between operational efficiency and strategy    Operational efficiency is performing tasks well, even better than competitors Strategy is a plan for competing in the marketplace Operations strategy is to ensure all tasks performed are the right tasks © Wiley 2010 Developing a Business Strategy  A business strategy is developed after taking into many factors and following some strategic decisions such as;    What business is the company in (mission) Analyzing and understanding the market (environmental scanning) Identifying the companies strengths (core competencies) © Wiley 2010 Three Inputs to a Business Strategy © Wiley 2010 Examples from Strategies    Mission: Dell Computer- “to be the most successful computer company in the world” Environmental Scanning: political trends, social trends, economic trends, market place trends, global trends Core Competencies: strength of workers, modern facilities, market understanding, best technologies, financial know-how, logistics © Wiley 2010 Example: Nokia Nokia extended its already formidable dominance of the global handset business on Jan 24, announcing it had achieved 40% market share in the fourth quarter of 2007 But perhaps the biggest surprise was that the Finnish company achieved this long-promised and psychologically important milestone while also becoming more profitable http://www.businessweek.com/globalbiz/content/jan2008/gb20080124_974301.htm?chan=search © Wiley 2010 Developing an Operations Strategy    Operations Strategy is a plan for the design and management of operations functions Operation Strategy developed after the business strategy Operations Strategy focuses on specific capabilities which give it a competitive edge – competitive priorities © Wiley 2010 10 Measuring Productivity  Productivity is a measure of how efficiently inputs are converted to outputs Productivity = output/input  Total Productivity Measure: Total Productivity = (total output)/(total of all inputs)  Partial Productivity Measure: Partial Productivity = (total output)/(single input)  Multifactor Productivity Measure: Multi-factor Productivity = (total output)/(several inputs) © Wiley 2010 24 Total Productivity: example Bluegill Furniture makes kitchen chairs The weekly dollar value of its output, including finished goods and work-in-progress, is $14,280 The value of inputs (labor, materials, capital) is approximately $16,528 What is the total productivity measure for Bluegill? Total productivity = output/input = $14,280/$16,528 = 864 or 86.4% © Wiley 2010 25 Partial Productivity: example Bluegill Furniture has hired new workers to paint chairs Together they have painted 10 chairs in hours What is labor productivity for the pair? Labor productivity = output/labor = (10 chairs)/(2 x hr) = (10 chairs)/(8 hr) or 1.25 chairs/hr © Wiley 2010 26 Multifactor Productivity: example Bluegill Furniture averages 35 chairs/day Labor costs average $480, material costs are typically $200, and overhead cost is $250 Bluegill sells the chairs to a retailer for $70/unit Find multifactor productivity Multifactor productivity = (value of output)/(labor + material + overhead costs) = ($70/chair x 35 chairs)/(480+200+250) = ($2450)/($930) or 2.63 © Wiley 2010 27 Interpreting Productivity Measures   Productivity measures must be compared to something, i.e another year, a different company Raw productivity calculations not tell the complete story unless there are no major structure differences © Wiley 2010 28 Interpreting Productivity Measures  Other productivity measure questions;    Is this partial productivity measurement enough to make an investment decision? Should you also look at productivity measures for the two major competitors for comparison? Productivity measure provides information on how the firm is doing relative to what is critical to the firm © Wiley 2010 29 Productivity, Competitiveness, and the Service Sector  Productivity is a scorecard on effective resource use     A nation’s Productivity effects its standard of living US productivity growth averaged 2.8% from 1948-1973 Productivity growth slowed for the next 25 years to 1.1% Productivity growth in service industries has been less than in manufacturing © Wiley 2010 30 Productivity and the Service Sector  Measuring service sector productivity is a unique challenge    Traditional measures focus on tangible outcomes Service industries primarily produce intangible outcomes Measuring intangibles is challenging © Wiley 2010 31 Operations Strategy Across the Organization     Business strategy defines longterm plan Operations strategy support the business strategy Marketing strategy needs to fully understand operations capability Financial plans in effect support operations activities © Wiley 2010 32 Review of Learning Objectives      Define the role of Business Strategy Explain how a Business strategy is developed Explain the role of Operations Strategy in the organization Explain the relationship between business strategy and operations strategy Describe how an operations strategy is developed © Wiley 2010 33 Review of Learning Objectives     Identify competitive priorities for of the operations function Explain the strategic role of technology Define productivity and identify productivity measures Compute productivity measures © Wiley 2010 34 Chapter Highlights     Business Strategy is a long range plan and vision Each individual business function develop needs to support the business strategy An organization develops its business strategy by doing environmental scanning and considering its mission and its core competencies The role of operations strategy is to provide a long-range plan for the use of the company’s resources in producing the company’s primary goods and services The role of business strategy is to serve as an overall guide for the development of the organization’s operations strategy © Wiley 2010 35 Chapter Highlights      The operations strategy focuses on developing specific capabilities called competitive priorities There are four categories of competitive priorities: cost, quality, time, and flexibility Technology can be sued by companies to gain a competitive advantage and should be acquired to support the company’s chosen competitive priorities Productivity is a measure that indicates how efficiently an organization is using its resources Productivity is computed as the ratio or organizational outputs divided by inputs © Wiley 2010 36 Example: Detroit Edison DTE's journey into the distributed-energy business began in 1994 when CEO Anthony Earley took over Detroit Edison Convinced that the utility industry was on an eventual collision course with customer needs…Distributed generation soon became a strategic goal of the company The idea behind distributed generation is that a school, hospital, or office complex can produce its own power just as cheaply as it can buy it from the grid When rates go up, it can produce extra energy and sell it back to the grid When rates go lower, it can shut down its generator and buy the cheaper electricity from the utility This approach allows customers to get slightly cheaper electricity from a more stable source that won't suffer interruptions (which is especially important to computer-intensive companies) and can flexibly meet changing demands © Wiley 2010 http://www.businessweek.com/bwdaily/dnflash/jul2001/nf2001072_224.htm?chan=search 37 Example: Nestle Brabeck's other strategic goal is transforming Nestle from a set of far-flung operations into a single global machine He has inked a $200 million deal with SAP to link its five e-mail systems and permit Nestle's headquarters in Vevey, Switzerland, to know for the first time how many raw materials its subsidiaries buy, in total, from around the world The company then will be able to negotiate better contracts with suppliers and centralize production Last year alone, Brabeck closed 38 different factories All told, he has slashed $1.6 billion in costs, without labor strife http://www.businessweek.com/magazine/content/01_24/b3736644.htm?chan=search © Wiley 2010 38 ... http://www.businessweek.com/globalbiz/content/jan2008/gb20080 124 _974301.htm?chan=search © Wiley 20 10 Developing an Operations Strategy    Operations Strategy is a plan for the design and management of operations functions Operation. .. slide © Wiley 20 10 Business/Functional Strategy © Wiley 20 10 Background: Business Strategy http://www.youtube.com/watch?v=mYF2_FBCvXw http://www.youtube.com/watch?v=ehMAwIHGN0Y © Wiley 20 10 Importance... http://www.businessweek.com/tech nology/content/dec2007/tc2007 122 8_106857.htm?chan=search © Wiley 20 10 18 Translating to Production Requirements  Specific Operation requirements include two general