Operations management 12th stevenson ch02 competitiveness strategy

Chapter Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc All rights reserved Chapter 2: Learning Objectives  You should be able to: List the three primary ways that business organizations compete Explain five reasons for the poor competitiveness of some companies Define the term strategy and explain why strategy is important Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two Describe and give examples of time-based strategies Define the term productivity and explain why it is important to organizations and countries Provide some reasons for poor productivity and some ways of improving it Instructor Slides 2-2 A Cold Hard Fact Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever and… the bar is getting higher Instructor Slides 2-3 Chapter Focus This chapter focuses on three separate, but related that are vitally important to business organizations  Competitiveness  Strategy  Productivity Instructor Slides 2-4 Competitiveness Competitiveness:  How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services  Organizations compete through some combination of their marketing and operations functions • What customers want? • How can these customer needs best be satisfied? Instructor Slides 2-5 Marketing’s Influence Identifying consumer wants and/or needs Pricing Advertising and promotion Instructor Slides 2-6 Businesses Compete Using Operations 10 Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service Managers and workers Instructor Slides 2-7 Why Some Organizations Fail Neglecting operations strategy Failing to take advantage of strengths and opportunities and/or failing to recognize competitive threats Too much emphasis on short-term financial performance at the expense of R&D Too much emphasis in product and service design and not enough on process design and improvement Neglecting investments in capital and human resources Failing to establish good internal communications and cooperation Instructor Slides 2-8 Failing to consider customer wants and needs Hierarchical Planning Mission Goals Organizational Strategies Functional Strategies Tactics Instructor Slides 2-9 Planning and Decision Making Figure 2.1 Mission Goals Organizational Strategies Functional Goals Finance Strategies Tactics Operating procedures Marketing Strategies Tactics Operating procedures Operations Strategies Tactics Operating procedures The Balanced Scorecard Instructor Slides 2-33 Productivity Productivity  A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity measures are useful for  Tracking an operating unit’s performance over time  Judging the performance of an entire industry or country Instructor Slides 2-34 Why Productivity Matters  High productivity is linked to higher standards of living  As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living  Higher productivity relative to the competition leads to competitive advantage in the marketplace  Pricing and profit effects  For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry Instructor Slides 2-35 Productivity Measures Productivity = Output Input Partial Measures    Output Ouput Output ;    ;    Single Input Labor Capital Multifactor Measures    Output Ouput Output ;    ;    Multiple Inputs Labor + Machine Labor + Capital + Energy Goods or services produced Total Measure    All inputs used to produce them Instructor Slides 2-36 Example 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr What is the labor productivity? Cost of raw material: $5,000 Cost of purchased material: $25,000 Example Labor Productivity 10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure (10,000 unit* $10/unit)/(500hrs* $9/hr) = 22.22 Can you think of any advantages or disadvantages of each approach? Example 7040 Units Produced Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans 2.0 units per dollar of input Example Solution MFP = Output Labor + Materials + Overhead MFP = (7040 units) $1000 + $520 + $2000 MFP = 2.0 units per dollar of input Productivity Calculation Example Units produced: 5,000 Standard price:$30/unit Labor input: 500 hours Cost of labor: $25/hour Cost of materials: $5,000 Cost of overhead: 2x labor cost What is the multifactor productivity? Instructor Slides 2-41 Solution Multifactor Productivity = Output Labor + Material + Overhead = 5,000 units $30/unit (500 hours $25/hour) + $5,000 + (2(500 hours $25/hour)) = $150,000 $42,500 = 3.5294 What is the implication of an unitless measure of productivity? Instructor Slides 2-42 U.S Multifactor Productivity (1976 – 2010) Instructor Slides 2-43 Productivity Growth Current productivity ­ Previous productivity Productivity Growth  =   100% Previous productivity Example: Labor productivity on the ABC assembly line was 25 units per hour in 2009 In 2010, labor productivity was 23 units per hour What was the productivity growth from 2009 to 2010? 23 ­ 25 Productivity Growth  =   100%  8% 25  Instructor Slides 2-44 Service Sector Productivity Service sector productivity is difficult to measure and manage because  It involves intellectual activities  It has a high degree of variability A useful measure related to productivity is process yield  Where products are involved ratio of output of good product to the quantity of raw material input  Where services are involved, process yield measurement is often dependent on the particular process: ratio of cars rented to cars available for a given day ratio of student acceptances to the total number of students approved for admission Instructor Slides 2-45 Factors Affecting Productivity Methods Capital Technology Instructor Slides Quality Management 2-46 Improving Productivity Develop productivity measures for all operations Determine critical (bottleneck) operations Develop methods for productivity improvements Establish reasonable goals Make it clear that management supports and encourages productivity improvement Measure and publicize improvements Don’t confuse productivity with efficiency Instructor Slides 2-47 ... reasons for the poor competitiveness of some companies Define the term strategy and explain why strategy is important Discuss and compare organization strategy and operations strategy, and explain... Suppliers Other Instructor Slides 2-26 Operations Strategy  Operations strategy  The approach, consistent with organization strategy, that is used to guide the operations function Decision Area... competencies and strategies need to be aligned Instructor Slides 2-20 Sample Operations Strategies Organizational Strategy Operations Strategy Examples of Companies or Services Low Price Low Cost U.S first-class