Ch 2-Competitiveness, Strategy

8/12/2019 Ch 2-Competitiveness, Strategy

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2-1 Competitiveness, Strategy, and Productivity

William J. Stevenson

Operations Management

8thedition


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CHAPTER

2

Competitiveness, Strategy,and Productivity

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. StevensonCopyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.


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Competitiveness:

How effectively an organization meets thewants and needs of customers relative toothers that offer similar goods or services


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Businesses Compete Using Marketing

Identifying consumer wants and needs-

achieving a perfect match between those wants

and needs and the organizations goods and/or

services.

Pricing- understand the trade-off decision

consumers make between price and other aspects

of a product/service such as quality

Advertising and promotion- inform potential

customers about features of their

products/services and attract buyers


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Businesses Compete Using Operations

Product and service design- specialcharacteristics or features of a product or

service can be a key factor in consumer buying

decisions

Cost- a key variable that affects pricing

decisions and profits. Productivity is an

important determinant of cost. High

productivity rates translate to competitive cost

advantage


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Location- important in terms of cost and

convenience to customers

Quality- consumers judge quality in terms of how

well they think a product or service will satisfy its

intended purpose. Willingness to pay more for a

high quality product/service.

Quick response- quick in bringing the new

product/service to the market / quick in delivery of

an order / quick in handling customer complaints


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Flexibility- ability to respond to changes likealterations in design features or changes in the

volume demanded by customers

Inventory management- can be a competitiveadvantage by effectively matching supplies of

goods with demand

Supply chain management- coordinatinginternal and external operations (buyers and

suppliers) to achieve timely and cost-effective

delivery of goods throughout the system.

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Service- might involve after-sale activities

customers perceive as value-added such as

delivery, setup, warranty work, and technical

support

Managers and workerspeople at the heart and

soul of an organization, can provide a distinct

competitive edge by their skills and the ideas they

create. One often overlooked skill is answering thetelephone.



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Why Some Organizations Fail

Too much emphasis on short-term financialperformance at the expense of research and

development.

Failing to take advantage of strengths andopportunities

Failing to recognize competitive threats

Neglecting operations strategy



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2-10Competitiveness, Strategy, and Productivity

Why Some Organizations Fail

Too much emphasis in product and servicedesign and not enough on process design and

improvement

Neglecting investments in capital and humanresources

Failing to establish good internal

communications and cooperation amongdifferent functional areas

Failing to consider customer wants and needs



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Mission/Strategy/Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?

Strategy TacticsMission



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Strategy

Strategies Plans for achieving organizational goals

Mission

The reason for existence for an organization

Mission Statement

Answers the question What business are we in?

Goals

Provide detail and scope of mission

Tactics

The methods and actions taken to accomplish strategies

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Planning and Decision MakingMission

Goals

OrganizationalStrategies

Functional Goals

FinanceStrategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

Figure 2.1. Hierarchical relationship that exist from the missiondown to actual operations



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Strategy ExampleRita is a high school student. She would like to have acareer in business, have a good job, and earn enoughincome 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, takecourses, study, graduate, get job

Example 1


E l f St t i i ti


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2-15Competitiveness, Strategy, and ProductivityExamples of Strategies an organization

might choose from

Low cost- outsource operations to third-worldcountries that have low labor costs

Scale-based strategies- use capital-intensive

methods to achieve high output volume andlow unit costs

Specialization- focus on narrow product lines

or limited service to achieve higher quality Flexible operations- focus on quick response

and/or customization


E l f St t i i ti


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2-16Competitiveness, Strategy, and ProductivityExamples of Strategies an organization

might choose from High quality- focus on achieving higher quality

than competitors

Service- focus on various aspects of service (e.g.,

helpful, courteous, reliable, etc.)

Sometimes organizations will combine two or more

of these or other approaches into their strategy to

compete and assess its own strengths and

weaknesses in order to take advantage of its

distinctive competencies



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Strategy and Tactics Distinctive Competencies

The special attributes or abilities that give an

organization a competitive edge.

Price

Quality

Time

Flexibility

Service Location

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Distinctive Competencies

Organizations develop distinctive competencies

based on customer needs as well as on what the

competitionis doing

Marketing and operations work closely to match

customer needs with operations capabilities

Competitor competencies- if competitor is able to

supply high-quality products, make that high

quality as a baseline which means not only

matching the competitor but exceeding its quality

level or gain an edge by excelling in other

dimensions such as rapid delivery



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Banks, ATMsConvenienceLocation

Disneyland

Nordstroms

Superior customer

serviceService

Burger King

Supermarkets

Variety

VolumeFlexibility

Express Mail, Fedex,

One-hour photo, UPSRapid delivery

On-time deliveryTime

Sony TV

Lexus, Cadillac

Pepsi, Kodak, Motorola

High-performance design

or high quality Consistent

quality

Quality

U.S. first-class postage,Wall-Mart

Motel-6, Red Roof Inns

Low CostPrice

Examples of Operations StrategiesTable 2.2



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2 20Competitiveness, Strategy, and Productivity

Operations Strategy

Operations strategyThe approach,consistent with organization strategy, that is

used to guide the operations function

It is narrower in scope, dealing primarilywith the operation aspect of the organization

It relates to products, processes, methods,

operating resources, quality, costs, leadtimes, and scheduling.



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Strategy Formulation

Distinctive competencies Environmental scanning- the considering of

events and trends that present threats or

opportunities for a company SWOT



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Strategy Formulation

Order qualifiers Characteristics that customers perceive as

minimum standards of acceptability to be

considered as a potential purchase

Order winners

Characteristics of an organizations goods or

services that cause it to be perceived as better

than the competition



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Economic conditions- the general health anddirection of the economy, inflation and

deflation, interest rates, tax laws and tariffs

Political conditions- include favorable orunfavorable attitudes toward business,

political stability or instability, and wars

Key External Factors in Strategy Formulation



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Key External Factors in Strategy Formulation

Legal environment- include antitrust laws,

government regulations, trade restrictions,

minimum wage laws, product liability laws, labor

laws and patents

Technology- includes the rate at which product

innovation are occurring, current and future

process technology (equipment, materials

handling), and design technology.



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Key External Factors. . .

Competition- includes the number and strength of

competitors, the basis of competition (price,

quality, etc.) and the ease of market entry

Markets- includes size, location, brand loyalties,

ease of entry, potential for growth, long term

stability, and demographics



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p , gy, y

Human Resources- include the skills andabilities of managers and workers, special

talents, loyalty to org., expertise, dedication,

and experience

Facilities and equipment- capacities,

location, age, and cost to maintain or replace

can have significant impact on operations

Financial resources-cash flows, access to

additional funding, existing debt burden, and

cost of capital

Key Internal Factors in Strategy formulation



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p , gy, y

Key Internal Factors . . .

Customers- loyalty, existing relationships, and

understanding wants and needs

Products and services- include existing product

and services, and the potential for new products

and services

Technology- includes existing technology, the

ability to integrate new technology, and the

probable impact of technology on current andfuture operations

Suppliers- relationships, dependability of

suppliers, quality, flexibility, and service



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p , gy, y

Quality and Time Strategies

Quality-based strategies Focuses on maintaining or

improving the quality of an

organizations products or

services

Quality at the source

Time-based strategies

Focuses on reduction of timeneeded to accomplish tasks



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p , gy, y

Time-based StrategiesJAN FEB MAR APR MAY JUN

Planning

Processing

Changeover On time!

Designing

Delivery


Organization have achieved time reduction


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p gy yOrganization have achieved time reduction

in some of the following:

Planning time- the time needed to react to a

competitive threat, develop strategies and select

tactics, adopt new technologies and so on

Product/service design time- the time needed to

develop and market new or redesigned products or

services

Processing time- the time needed to produce goods

or provide services

Changeover time- the time needed to change from

producing one type of product to another


Organization have achieved time reduction


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p gy yOrganization have achieved time reduction

in some of the following:

Delivery time- the time needed to fill orders

Response time for complaints- customer

complaints about quality, timing of deliveries, and

incorrect shipments



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Productivity

Productivity A measure of the effective use of resources,

usually expressed as the ratio of output to input

Productivity ratios are used for Planning workforce requirements

Scheduling equipment

Financial analysis



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Productivity

Partial measures output/(single input)

Multi-factor measures

output/(multiple inputs) Total measure

output/(total inputs)

Productivity =OutputsInputs



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Productivity Growth

Current Period Productivity

Previous Period ProductivityPrevious Period Productivity

Productivity Growth =



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Measures of ProductivityTable 2.4

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


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Example 3

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

mul t i factor

product iv i ty?

Ans. 2.20



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Example 3 SolutionMFP = Output

Labor + Materials + Overhead

MFP = (7040 units)*($1.10)$1000 + $520 + $2000

MFP = 2.20



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Factors Affecting Productivity

Capital Quality

Technology Management



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Standardization- reducing variability canhave significant benefit for productivity

Quality differences- when comparisons are

made over time like comparing theproductivity of a factory now with one 30

years ago.

Use of Internet- can lower costs of a wide

range of transactions

Other Factors Affecting Productivity



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Other factors. . .

Computer viruses- can have an immense negative

impact on productivity

Searching for lost or misplaced items waste time-

can negatively affect productivity

Scrap rates- have adverse effect on productivity

signaling inefficient use of resources

New workers- tend to have lower productivity than

seasoned workers


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Safety- accidents can take a toll on productivity Shortage of IT workers- hampers the ability of

companies to update computing resources

Layoffs- effect on productivity could bepositive or negative

Labor turnover- have negative effect on

productivity Design of the workspace

Incentive plans that reward productivity

Other Factors Affecting Productivity


B ttl k O ti


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Bottleneck OperationFigure 2.3

Machine #2 BottleneckOperation

Machine #1

Machine #3

Machine #4

10/hr

10/hr

10/hr

10/hr

30/hr


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Improving Productivity

Develop productivity measures Determine critical (bottleneck) operations

Develop methods for productivityimprovements

Establish reasonable goals

Get management support

Measure and publicize improvements Dont confuse productivity with efficiency

Ch 2-Competitiveness, Strategy

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