Chapter 2Competitiveness, Strategy, and Productivity

A Cold Hard FactBetter 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

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Chapter Focus Competitiveness Strategy Productivity

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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 units performance over time Judging the performance of an entire industry or country

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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

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Productivity MeasuresOutput Productivity= InputOutput Ouput Output Partial Measures ; ; Single Input Labor CapitalMultifactor Measures Output ; Multiple Inputs Ouput ; Labor+Machine Output Labor+Capital+Energy

Total Measure

Goods or services produced All inputs used to produce them

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Productivity Calculation ExampleUnits produced: 5,000 Standard price: $35/unit Labor input: 500 hours Cost of labor of $25/hour Cost of materials: $5,000 Cost of overhead: 2x labor cost What is the multifactor productivity?2-7

SolutionMultifactor Productivity==

Output Labor+Material+Overhead5,000 units $35/unit (500 hours $25/hour)+$5,000+(2(500 hours $25/hour))

=4.12What is the implication of a unitless measure of productivity?

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U.S. Multifactor ProductivityU.S. Multifactor Productivity (1975 - 2008)MFP (Index, 2000 = 100)115 110 105 100 95 90 85 80

19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 20 07Year

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Productivity GrowthCurrent productivity-Previous productivity 100% Previous productivity

Productivity Growth =

Example: Labor productivity on the ABC assembly line was 25 units per hour in 2006. In 2007, labor productivity was 23 units per hour. What was the productivity growth from 2006 to 2007?

Productivity Growth =

23- 25 100% 8% 25

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MFP Growth - Non-FarmMFP Growth in the Private Non-Farm Business Sector

Average Annual Percent Change

5 4 3 2 1 01948-1973 1973-1990 1990-1995 1995-2000 2000-2007

1.9 1.1 0.4 0.6 1.3

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MFP Growth - Manufacturing

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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

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Improving Productivity1. 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 Dont confuse productivity with efficiency

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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 do customers want? How can these customer needs best be satisfied?

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McDonalds Mission Statement McDonald's brand mission is to

"be our customers' favorite place and way to eat." Ourworldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience -- People, Products, Place, Price and Promotion. We are committed to improving our operations and enhancing our customers' experience. http://www.mcdonalds.com/corp/about/mcd_faq/student_research.html

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Businesses Compete Using Operations1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service Managers and workers

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Sample StrategiesOrganizational StrategyLow PriceHigh Quality

Operations StrategyLow CostHigh performance design and/or high quality processing Consistent Quality

Examples of Companies or ServicesU.S. first-class postage Wal-MartSony TV Lexus

Coca-Cola; electric power Short Time Quick Response McDonalds Restaurants Express mail FedEx; One-hour photo 3M Express mail Burger King (Have it your way) McDonalds (Buses Welcome) Disneyland IBM Supermarkets Mall Stores 2-18

On-time deliveryNewness Variety Innovation Flexibility Volume Superior customer service

Service

Location

Convenience

Operations Strategy Operations strategy The approach, consistent with organization strategy, that is used to guide the operations function.

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Strategic OM Decision AreasDecision AreaProduct and service design Capacity Process selection and layout

What the Decisions AffectCosts, quality, liability, and environmental issues Cost, structure, flexibility Costs, flexibility, skill level needed, capacity

Work design Location Quality Inventory

Quality of work life, employee safety, productivity Costs, visibility Ability to meet or exceed customer expectations Costs, shortages

MaintenanceScheduling Supply chains Projects

Costs, equipment reliability, productivityFlexibility, efficiency Costs, quality, agility, shortages, vendor relations Costs, new products, services, or operating systems

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Quality-Based Strategies Quality-based strategy Strategy that focuses on quality in all phases of an organization Pursuit of such a strategy is rooted in a number of factors: Trying to overcome a poor quality reputation Desire to maintain a quality image A part of a cost reduction strategy

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Time-Based Strategies Time-based strategies Strategies that focus on the reduction of time needed to accomplish tasks It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved

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Time-Based Strategies Areas where organizations have achieved time reductions: Planning time Product/service design time Processing time Changeover time Delivery time Response time for complaints

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Agile Operations Agile operations A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change Involves the blending of several core competencies: Cost Quality Reliability Flexibility

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