Professional Documents
Culture Documents
2-1
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?
LO 2.1 2-2
Identifying consumer wants and/or needs
Pricing and quality
Advertising and promotion
LO 2.1 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
LO 2.1 2-4
Mission
Goals
Organizational Strategies
Functional Strategies
Tactics
LO 2.3 2-5
Tactics
The methods and actions taken to accomplish strategies
The “how to” part of the process
Operations
The actual “doing” part of the process
LO 2.3 2-6
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
LO 2.3 2-7
Organizational
Strategy Operations Strategy Examples of Companies or Services
Low Price Low Cost U.S. first-class postage
Wal-Mart
Responsiveness Short processing times McDonald’s restaurants
On-time delivery FedEx
Differentiation: High performance design Sony TV
High Quality and/or high quality processing
Consistent Quality Coca-Cola
Differentiation: Innovation 3M, Apple
Newness
Differentiation: Flexibility Burger King (Have it your way”)
Variety Volume McDonald’s (“Buses Welcome”)
Differentiation: Superior customer service Disneyland
Service IBM
Differentiation: Convenience Supermarkets; Mall Stores
Location
LO 2.4 2-8
Effective strategy formulation requires taking into
account:
Core competencies
Environmental scanning
SWOT
Successful strategy formulation also requires taking
into account:
Order qualifiers
Order winners
LO 2.4 2-9
Order qualifiers
Characteristics that customers perceive as minimum
standards of acceptability for a product or service to be
considered as a potential for purchase
Order winners
Characteristics of an organization’s goods or services that
cause it to be perceived as better than the competition
LO 2.4 2-10
Environmental Scanning is necessary to identify
Internal Factors
Strengths and Weaknesses
External Factors
Opportunities and Threats
LO 2.4 2-11
1. Economic conditions
2. Political conditions
3. Legal environment
4. Technology
5. Competition
6. Markets
LO 2.4 2-12
1. Human Resources
2. Facilities and equipment
3. Financial resources
4. Customers
5. Products and services
6. Technology
7. Suppliers
8. Other
LO 2.4 2-13
Operations strategy
The approach, consistent with organization strategy,
that is used to guide the operations function.
LO 2.4 2-14
Decision Area What the Decisions Affect
Product and service design Costs, quality, liability, and environmental issues
Capacity Cost, structure, flexibility
Process selection and Costs, flexibility, skill level needed, capacity
layout
Work design Quality of work life, employee safety, productivity
Location Costs, visibility
Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems
LO 2.4 2-15
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 desire to catch up with the competition
A part of a cost reduction strategy
2-16
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
LO 2.5 2-17
Areas where organizations have achieved time
reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints
LO 2.5 2-18
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
2-19
A top-down management system that organizations can use to
clarify their vision and strategy and transform them into action
Develop objectives
Develop metrics and targets for each objective
Develop initiatives to achieve objectives
Identify links among the various perspectives
Finance
Customer
Internal business processes
Learning and growth
Monitor results
2-20
2-21
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
LO 2.6 2-22
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
LO 2.6 2-23
Output
Productivi ty =
Input
LO 2.6 2-24
Units produced: 5,000
Standard price: $30/unit
Labor input: 500 hours
Cost of labor: $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost
What is the
multifactor
productivity?
LO 2.6 2-25
Output
Multifactor Productivity =
Labor +Material +Overhead
5,000 units $30/unit
=
(500 hours $25/hour) + $5,000 + (2(500 hours $25/hour))
$150,000
=
$42,500
= 3.5294
What is the implication of an unitless measure of productivity?
LO 2.6 2-26
Current productivity - Previous productivity
Productivity Growth = 100%
Previous productivity
Example: Labor productivity on the ABC assembly line was 25 units per hour in
2014. In 2015, labor productivity was 23 units per hour. What was the
productivity growth from 2014 to 2015?
23 - 25
Productivity Growth = 100% 8%
25
LO 2.6 2-27
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
Where products are involved
ratio of output of good product to the quantity of raw material
input.
Where services are involved, process yield measurement is
often dependent on the particular process:
ratio of cars rented to cars available for a given day
ratio of student acceptances to the total number of students
approved for admission.
LO 2.6 2-28
Methods
Capital Quality
Technology Management
LO 2.7 2-29
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
LO 2.7 2-30
2-31
Company Background:
Gardening business
Established 5 years ago
Substantially business growth
Each year 10 new clients and a new employee
Currently 8 seasonal employees
2-32
Company Background:
Assign crew to do tasks
Crew size range from 2 to 4 workers
Largest job took longer time
Take a investigation
2-33
Question 1
Which crew size had the highest productivity?
Which crew size had the lowest productivity?
What are some possible explanations for these
results?
Crew Average Productivity per Crew
Size
2 4,234 square feet per day
3 5,352 square feet per day
4 7,860 square feet per day
2-34
𝑂𝑢𝑡𝑝𝑢𝑡 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑝𝑒𝑟 𝐶𝑟𝑒𝑤
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = =
𝐼𝑛𝑝𝑢𝑡 𝐶𝑟𝑒𝑤 𝑆𝑖𝑧𝑒
Productivity ratios
Crew Size Average Productivity per Crew Productivity Ratio
2 4,234 square feet per day 2,117 ↑
3 5,352 square feet per day 1,784 ↓
4 7,860 square feet per day 1,965 →
2-35
Productivity Paradox
1. New workers
(Grouping of employees with different experience level)
2. Quality of tools
2-36
Question 2
After a recent storm, a customer called in a panic,
saying that she had planned a garden party for
the upcoming weekend and her garden was
shambles. The owner decided to send a crew of
four workers, even though a two-worker crew
would have a higher productivity. Explain the
rationale for this decision.
2-37
Critical activity
with high
importance and
urgency
2-38
• Time pressure
Crew Size Average Productivity per Crew Productivity Ratio
2 4,234 square feet per day ↓ 2,117 ↑
3 5,352 square feet per day → 1,784 ↓
4 7,860 square feet per day ↑ 1,965 →
2-39
• Assumption: Garden size 20,000 square feet
Case 1 Case 2
Crew size 2 Crew size 4
4,234 ft²/day 7,860 ft²/day
Duration: 4.7 Duration: 2.5 days
days
2-40
Question 3
What is a possible qualitative issue that may very
well influence productivity levels that the
productivity ratios fail to take into account?
2-41
1. New company:
• Founded only 5 years ago
• Low employee loyalty
Solutions:
Offer long-term contracts
Provide a career path
Develop relationships
2-42
2. Seasonal work: (weather conditions, location)
6 month operating time
No continuous work flow through the whole year
Employees may look for permanent jobs → drop
outs
2-43
3. Standardization:
Standardized processes increase the productivity
level of employees
Solution: Introduction of standard operation
procedures
2-44
4. Incentive plans that reward productivity can
increase productivity
Productivity level influenced by structural
division between management and labor
Goal: Willingness that workers give their best
2-45
5. Experience of workers
Employees with longer experience have
usually a higher productivity level than less
experienced workers
6. Quality of tools
Has an impact of the productivity level
2-46
SaveMart needs 1000 coffee makers per year. The
cost of each coffee maker is $78. Ordering cost is
$100 per order. Carrying cost is 40% of per unit
cost. Lead time is 5 days. SaveMart is open 365
days/yr.
2-47
Operations Management by William J. Stevenson (11th Edition).
2-48