1. 2 Competitiveness, Strategy, and Productivity
CHAPTER 2
Competitiveness, Strategy, and Productivity
Operations Management BUS ADM 370
Dr. Xiang Fang

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

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

10. 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

11. 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

12. 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?

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

14. 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%

15. 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.

16. Factors Affecting Productivity
Capital
Quality
Technology
Management

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

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

19. Improving Productivity
Develop productivity measures
Determine critical (bottleneck) operations
Develop methods for productivity improvements
Establish reasonable goals
Get management support
Measure and publicize improvements

20. 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

21. 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.