Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

You should be able to: 1. List the three primary ways that business organizations compete 2. Explain five reasons for the poor competitiveness of some companies 3. Define the term strategy and explain why strategy is important 4. Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two 5. Describe and give examples of time-based strategies 6. Define the term productivity and explain why it is important to organizations and countries 7. Provide some reasons for poor productivity and some ways of improving it 2-2 Student Slides

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 do customers want? How can these customer needs be best satisfied? Student Slides 2-3

1. Product and service design 2. Cost 3. Location 4. Quality 5. Quick response 6. Flexibility 7. Inventory management 8. Supply chain management 9. Service 10. Managers and workers 2-4 Student Slides

Mission & Vision Business Goals and Objectives Organizational Strategies Strategy formulation (roadmap) Functional Strategies 2-5 Student Slides

Corporate Mission Business Strategy Product/Service Plans Competitive Priorities Operations Strategy Assessment of Global BusinessConditionsAssessment BusinessConditionsDistinctiveCompetenciesorWeaknessesDistinctiveCompetenciesorWeaknesses

l A corporate mission is a set of long-range goals and including statements about: l the kind of business the company wants to be in l who its customers are l its basic beliefs about business l its goals of survival, growth, and profitability

l Business strategy is a long-range game plan of an organization and provides a road map of how to achieve the corporate mission. l Inputs to the business strategy are l Assessment of global business conditions - social, economic, political, technological, competitive l Distinctive competencies or weaknesses - workers, sales force, R&D, technology, management

Strengths Weaknesses Opportunities Threats Student Slides 2-9

Core Competencies The special attributes or abilities that give an organization a competitive edge To be effective, core competencies and strategies need to be aligned Student Slides 2-10

Effective strategy formulation requires taking into account(SWOT analysis): Core competencies Environmental scanning Successful strategy formulation also requires taking into account: Order qualifiers (minimum requirements for a potential purchase) Order winners (characteristics that win over the customer) 2-11 Student Slides

Operations strategy The approach, consistent with organization strategy, that is used to guide the operations function. Decision AreaWhat the Decisions Affect Product and service designCosts, quality, liability, and environmental issues CapacityCost, structure, flexibility Process selection and layout Costs, flexibility, skill level needed, capacity Work designQuality of work life, employee safety, productivity LocationCosts, visibility QualityAbility to meet or exceed customer expectations InventoryCosts, shortages MaintenanceCosts, equipment reliability, productivity SchedulingFlexibility, efficiency Supply chainsCosts, quality, agility, shortages, vendor relations ProjectsCosts, new products, services, or operating systems Student Slides 2-12

1. Cost 2. Quality 3. Response time 4. Customer service 2-13 Student Slides

l Low Production Costs l Definition Unit cost (labor, material, and overhead) of each product/service l Some Ways of Creating l Redesign of product/service l New technology l Increase in production rates l Reduction of scrap/waste l Reduction of inventory

l Delivery Performance l Definition a) Fast deliveryb) On-time delivery l Some Ways of Creating a) larger finished-goods inventory a) faster production rates a) quicker shipping methods b) more-realistic promises b) better control of production of orders b) better information systems

l High-Quality Products/Services l Definition Customers’ perception of degree of excellence exhibited by products/services l Some Ways of Creating Improve product/service’s l Appearance l Performance and function l Wear, endurance ability l After-sales service

l Customer Service and Flexibility l Definition Ability to quickly change production to other products/services. Customer responsiveness. l Some Ways of Creating l Change in type of processes used l Use of advanced technologies l Reduction in WIP through lean manufacturing l Increase in capacity

l Operations strategy is a long-range game plan for the production of a company’s products/services, and provides a road map for the production function in helping to achieve the business strategy.

l Positioning the production system l Product/service plans l Outsourcing plans l Process and technology plans l Strategic allocation of resources l Facility plans: capacity, location, and layout

l Select the type of product design l Standard l Custom l Select the type of production processing system l Product focused l Process focused l Select the type of finished-goods inventory policy l Produce-to-stock l Produce-to-order

As a product is designed, all the detailed characteristics of the product are established. Each product characteristic directly affects how the product can be made. affects how the product can be made. How the product is made determines the design of the production system. the design of the production system.

l Introduction- Sales begin, production and marketing are developing, profits are negative. l Growth - sales grow dramatically, marketing efforts intensify, capacity is expanded, profits begin. l Maturity - production focuses on high-volume, efficiency, low costs; marketing focuses on competitive sales promotion; profits are at peak. l Decline - declining sales and profit; product might be dropped or replaced.

Introduction Growth Maturity Decline Introduction Growth Maturity Decline B&W TV Automobile Video Recorder CD Player Color Copier Cell Phone Internet Radio Internet Radio Fax Machine Dot-Matrix Printer Printer

l Outsourcing refers to hiring out or subcontracting some of the work that a company needs to do. l This strategy is being used more and more as companies strive to operate more efficiently. l Outsourcing has many advantages and disadvantages. l Companies try to determine the best level of out- sourcing to achieve their operations & business goals. l More outsourcing requires a company to have less equipment, fewer employees, and a smaller facility.

l A company might outsource any of the following manufacturing related functions: l Designing the product l Purchasing the basic raw materials l Processing the subcomponents, subassemblies, major assemblies, and finished product l Distributing the product

l Many companies even outsource some service functions such as: l Payroll l Billing l Order processing l Developing/maintaining a website l Employee recruitment l Facility maintenance

l An essential part of operations strategy is the determination of how products/services will be produced. l The range of technologies available to produce products/services is great and is continually changing.

l For most companies, the vast majority of the firm’s resources are used in production/operations. l Some or all of these resources are limited. l The resources must be allocated to products, services, projects, or profit opportunities in ways that maximize the achievement of the operations objectives.

l How to provide the long-range capacity to produce the firm’s products/services is a critical strategic decision. l The location of a new facility may need to be decided. l The internal arrangement (layout) of workers, equipment, and functional areas within a facility affects the ability to provide the desired volume, quality, and cost of products/services.

Services Products Output Intangible Tangible Output Inventoried NoYes Customer Contact Extensive Little Lead Time Short Long Intensity Labor Capital Quality Subjective Objective

l The competitive priorities listed earlier for manufacturers apply to service firms as well l Low production costs l Fast and on-time delivery l High-quality products/services l Customer service and flexibility l Providing all the priorities simultaneously to customers is seldom possible.

l Type of Service Design l Standard or custom products l Amount of customer contact l Mix of physical goods and intangible services l Type of Production Process l Quasi manufacturing l Customer-as-participant l Customer-as-product

l Example: McDonald’s l Highly standardized service design l Low amount of customer contact l Physical goods dominating intangible services l Quasi-manufacturing approach to back-room production process

l Support the product plans and competitive priorities defined in the business strategy. l Adjust to the evolving positioning strategies. l Link to the marketing strategies. l Look at alternative operations strategies.

l The characteristics of production systems tend to evolve as products move through their product life cycles. l Operations strategies must include plan for modifying production systems to a changing set of competitive priorities as products mature. l The capital and production technology required to support these changes must be provided.

VolumeVeryLowLowHighVeryHigh Prod mode ProcessProcessProductProduct Inventory.To-OrderTo-OrderTo-StockTo-Stock BatchSizeVerySmallSmallLargeVeryLarge ProductCustomSlightlyStandardStandardHighlyStandard LifeStageIntro.EarlyGrowthLateGrowthMaturity

l Operations Strategy l Product-focused l Make-to-stock l Standardized products l High volume l Marketing Strategy l Low production cost l Fast delivery of products l Quality l Example: TV sets

l Operations Strategy l Product-focused l Make-to-order l Standardized products l Low volume l Marketing Strategy l Low production cost l Keeping delivery promises l Quality l Example: School buses

l Operations Strategy l Process-focused l Make-to-stock l Custom products l High volume l Marketing Strategy l Flexibility l Quality l Fast delivery of products l Example: Medical instruments

l Operations Strategy l Process-focused l Make-to-order l Custom products l Low volume l Marketing Strategy l Keeping delivery promises l Quality l Flexibility l Example: Large supercomputers

l Start-up and Small Manufacturers Usually prefer positioning strategies with: l Custom products l Process-focused production l Produce-to-order policies These systems are more flexible and require less capital.

l Start-up and Small Services Successfully compete with large corporations by: l Carving out a specialty niche l Emphasizing close, personal customer service l Developing a loyal customer base

l Technology-Intensive Business l Production systems must be capable of producing new products and services in high volume soon after introduction l Such companies must have two key strengths: l Highly capable technical people l Sufficient capital

l Put customers first l Get new products/services to market faster l Are high quality producers l Have high labor productivity & low production costs l Carry little excess inventory l... more

l Think more globally in purchasing and selling l Quickly adopt and develop new technologies l Trim organizations to be lean and flexible l Are less resistant to strategic alliances/joint ventures l Consider relevant social issues when setting strategies

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 Student Slides 2-46

Capital Process & Methods TechnologyManagement Quality Student Slides 2-47 Product Design

Student Slides 2-48

1. Develop productivity measures for all operations 2. Determine critical (bottleneck) operations 3. Develop methods for productivity improvements 4. Establish reasonable goals 5. Make it clear that management supports and encourages productivity improvement 6. Measure and publicize improvements Don’t confuse productivity with efficiency Student Slides 2-49