2 Competitiveness, Strategy, and Productivity CHAPTER 2 Competitiveness, Strategy, and Productivity Operations Management BUS ADM 370 Dr. Xiang Fang

Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Businesses Compete Using Operations Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service and service quality Managers and workers Product and service design

Mission/Goals/Strategy/Tactics The reason for existence for an organization Mission Statement Answers the question “What business are we in?” Goals Provide detail and scope of mission Strategies Plans for achieving organizational goals Tactics The methods and actions taken to accomplish strategies Nike: To bring inspiration and innovation to every athlete in the world

Example Mission: Live a good life Goal: Successful career, good income 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: Live a good life Goal: Successful career, good income Strategy: Obtain a college education Tactics: Select a college and a major Operations: Register, buy books, take courses, study, graduate, get job

Planning and Decision Making Figure 2.1 Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Tactics Tactics Operating procedures Operating procedures Operating procedures

Examples of Operations Strategies Table 2.2 Price Low Cost U.S. first-class postage Motel-6, Red Roof Inns Quality High-performance design or high quality Consistent quality Motorola, Sony TV Lexus, Cadillac Pepsi, Kodak, Six Sigma is a set of practices originally developed by Motorola to systematically improve processes by eliminating defects.[1] A defect is defined as nonconformity of a product or service to its specifications. Defect rate is below 3.4 defects per (one) million (DPMO)[3]. On average, there is less than 3.4 defective units among every million units. Time Rapid delivery On-time delivery Express Mail, Fedex, One-hour photo, UPS Flexibility Variety Volume Burger King Supermarkets Service Superior customer service Disneyland Nordstroms, BMW Location Convenience Banks, ATMs

Productivity Productivity = Outputs Inputs Productivity A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity = Outputs Inputs

Productivity Partial measures Multi-factor measures Total measure output/(single input) Multi-factor measures output/(multiple inputs) Total measure output/(total inputs)

Measures of Productivity Table 2.5 Partial Output Output Output Output measures Labor Machine Capital Energy Multifactor Output Output measures Labor + Machine Labor + Capital + Energy Total Goods or Services Produced measure All inputs used to produce them

Examples of Partial Productivity Measures Table 2.6 Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Energy Productivity Units of output per dollar input Dollar value of output per dollar input Capital Productivity Units of output per machine hour Machine Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity

Example 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?

Example Solution MFP = Output Labor + Materials + Overhead MFP = (7040 units)*($1.10) $1000 + $520 + $2000 MFP = 2.20

Productivity Growth Productivity Growth = Current Period Productivity – Previous Period Productivity Previous Period Productivity E.g. If current MFP = 2.20, previous MFP = 2, then Multi-factor productivity growth = (2.20-2)/2= 10%

Questions True/False 1. The mission of a firm should be designed to support the firm’s overall strategy. 2. Operations managers measure productivity as the ratio of output to input. 3. Productivity can be measured only on workers. 4. A company can compete with other companies manufacturing a similar product only by reducing its price. Multiple-choice 1. If inputs decrease while output remains constant, what will happen to productivity? a. It will increase. b. It will decrease. c. It will remain the same. d. It is impossible to tell. e. It depends on which input decreases. F T F F a.

Factors Affecting Productivity Capital Quality Technology Management

Other Factors Affecting Productivity Standardization Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers

Other Factors Affecting Productivity Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward 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

System productivity =30/hr Bottleneck Operation Figure 2.3 10/hr Machine #1 30/hr 10/hr Machine #2 Machine #5 Machine #3 10/hr Bottleneck Machine Machine #4 10/hr System productivity =30/hr

Problem 1 The manager of a crew that installs carpeting has tracked the crew’s output over the past several weeks, obtaining these figures: Compute the labor productivity for each of the weeks. On the basis of your calculations, what can you conclude about crew size and productivity? Week Crew Size Yards Installed Labor Productivity 1 4 960 240 yards 2 3 702 234 968 242 500 250 5 696 232 6 Answer: Possibly even-sized crews are better than odd sizes, and a crew of 2 works the best.