Chapter 2

Competitiveness, Strategy,
and Productivity

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
 Competitiveness:

How effectively an organization meets the

wants and needs of customers relative to
others that offer similar goods or services
 Businesses Compete Using
Marketing

 Identifying consumer wants and needs

 Pricing
 Advertising and promotion
 Businesses Compete Using
Operations

 Product and service design

 Cost

 Location

 Quality

 Quick response
 Businesses Compete Using
Operations

 Flexibility
 Inventory management
 Supply chain management
 Service
Why Some Organizations Fail

 Too much emphasis on short-term

financial performance
 Failing to take advantage of strengths
and opportunities
 Failing to recognize competitive threats
 Neglecting operations strategy
 Why Some Organizations Fail

 Too much emphasis in product and service

design and not enough on improvement
 Neglecting investments in capital and human
resources
 Failing to establish good internal
communications
 Failing to consider customer wants and needs
 Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?
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
Planning and Decision Making
Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
Strategy Example
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
Examples of Strategies

 Low cost
 Scale-based strategies
 Specialization
 Flexible operations
 High quality
 Service
Strategy and Tactics

 Distinctive Competencies

The special attributes or abilities that give an

organization a competitive edge.

 Price
 Quality
 Time
 Flexibility
 Service
 Location
 Examples of Distinctive
Competencies
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns

Quality High-performance design Sony TV

or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Motorola

Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer Disneyland

service Nordstroms

Location Convenience Banks, ATMs

Operations Strategy

 Operations strategy – The approach,

consistent with organization strategy,
that is used to guide the operations
function.
 Strategy Formulation
 Distinctive competencies
 Environmental scanning
 SWOT
 Order qualifiers
 Order winners
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 organization’s goods or
services that cause it to be perceived as better
than the competition
Key External Factors

 Economic conditions
 Political conditions
 Legal environment
 Technology
 Competition
 Markets
Key Internal Factors

 Human Resources
 Facilities and equipment
 Financial resources
 Customers
 Products and services
 Technology
 Suppliers
Quality and Time Strategies

 Quality-based strategies
 Focuses on maintaining or
improving the quality of an
organization’s products or
services
 Quality at the source
 Time-based strategies
 Focuses on reduction of time
needed to accomplish tasks
Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover On time!

Delivery
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
Productivity

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

Outputs
Productivity =
Inputs
 Productivity Growth
Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
 Measures of Productivity

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
 Examples of Partial Productivity Measures

Labor Units of output per labor hour

Units of output per shift
Productivity Value-added per labor hour

Machine Units of output per machine hour

machine hour
Productivity
Capital Units of output per dollar input
Dollar value of output per dollar input
Productivity
Energy Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Productivity
Example 3

7040 Units Produced

Sold for $1.10/unit

What is the
Cost of labor of $1,000 multifactor
productivity?
Cost of materials: $520
Ans. 2.20
Cost of overhead: $2000
Example 3 Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20
Factors Affecting Productivity

Capital Quality

Technology Management
Other Factors Affecting
Productivity

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

 Safety
 Shortage of IT workers
 Layoffs
 Labor turnover
 Design of the workspace
 Incentive plans that reward productivity
 Bottleneck Operation
10/hr
Machine #1

10/hr
Machine #2
Bottleneck 30/hr
Operation
Machine #3
10/hr

Machine #4 10/hr
Improving Productivity

 Develop productivity measures

 Determine critical (bottleneck)
operations
 Develop methods for productivity
improvements
 Establish reasonable goals
 Get management support
 Measure and publicize improvements
 Don’t confuse productivity with
efficiency