Chapter 2 Competitiveness and Productivity Operations Management by

Chapter 2 – Competitiveness and Productivity Operations Management by R. Dan Reid & Nada R. Sanders 2 nd Edition © Wiley 2005 Power. Point Presentation by R. B. Clough - UNH © Wiley 2005 1

Business/Functional Strategy © Wiley 2005 2

Operations Strategy – Designing the Operations Function © Wiley 2005 3

Competitive Priorities- The Edge n n Four Important Operations Questions: Will you compete on – Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs? © Wiley 2005 4

Competing on Cost? n Typically high volume products n Often limit product range & offer little customization n May invest in automation to reduce unit costs n Can use lower skill labor n Probably use product focused layouts © Wiley 2005 5

Competing on Quality? n High performance design: n n Superior features, high durability, & excellent customer service Product & service consistency: n n n Meets design specifications Close tolerances Error free delivery © Wiley 2005 6

Competing on Time? n Fast delivery: n Focused on shorter time between order placement and delivery n On-time delivery: n n Deliver product exactly when needed every time Rapid development speed n Using concurrent processes to shorten product development time © Wiley 2005 7

Product Strategies and Process Choice © Wiley 2005 8

Competing on Flexibility? n Product flexibility: n n n Easily switch production from one item to another Easily customize product/service to meet specific requirements of a customer Volume flexibility: n Ability to ramp production up and down to match market demands © Wiley 2005 9

Productivity © Wiley 2005 10

Measuring Productivity n Productivity is a measure of how efficiently inputs are converted to outputs Productivity = output/input n Total Productivity Measure Productivity relative to all inputs n Partial Productivity Measure Productivity relative to a single input (e. g. , labor hours) n Multifactor Productivity Measure Productivity relative to a subgroup of inputs (e. g. , labor and materials) © Wiley 2005 11

Labor Productivity Example: n n n Assume two workers paint twenty-four tables in eight hours: Inputs: 16 hours of labor (2 workers x 8 hours) Outputs: 24 painted tables © Wiley 2005 12

Multifactor Productivity n n Convert all inputs & outputs to $ values Example (labor and materials productivity): n n n 200 units produced that sell for $12. 00 each Materials cost $6. 50 per unit 40 hours of labor were required at $10 an hour © Wiley 2005 13

Interpreting Productivity Measures n n n Is the productivity measure of 1. 41 in the previous example good or bad? Can’t tell without a reference point Compare to previous measures (e. g. : last week) or to another benchmark © Wiley 2005 14

Productivity Growth Rate n Can be used to compare a process’s productivity at a given time (P 2) to the same process’ productivity at an earlier time (P 1) © Wiley 2005 15

Productivity Growth Rate Example: n n Last week a company produced 150 units using 200 hours of labor This week, the same company produced 180 units using 250 hours of labor © Wiley 2005 16

Productivity Example - An automobile manufacturer has presented the following data for the past three years in its annual report. As a potential investor, you are interested in calculating yearly productivity and year to year productivity gains as one of several factors in your investment analysis. Unit car sales 2003 2002 2001 2, 700, 000 2, 400, 000 2, 100, 000 2003 2002 2001 Labor Productivity Unit Car Sales/Employees 112, 000 113, 000 115, 000 $ Sales (billions$) $49, 000 $41, 000 $38, 000 Cost of Sales (billions) $39, 000 $32, 000 21. 2 Year-to-year Improvement 13. 7% 18. 3 15. 8% Total Productivity Total Cost Productivity $33, 000 24. 1 Year-to-year Improvement 1. 26 1. 24 1. 6% 1. 19 4. 2% Which is the best measurement? © Wiley 2005 17