Chapter 2 Competitiveness Strategy and Productivity Mc GrawHillIrwin

Chapter 2 Competitiveness, Strategy, and Productivity Mc. Graw-Hill/Irwin Copyright © 2009 by The Mc. Graw-Hill Companies, Inc. All Rights Reserved.

Chapter 2: Learning Objectives • You should be able to: – List and briefly discuss the primary ways that business organizations compete – List five reasons for the poor competitiveness of some companies – Define the term strategy and explain why strategy is important for competitiveness – Contrast strategy and tactics – Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two 2 -2

Chapter 2: Learning Objectives (contd. ) • You should be able to: – Describe and give examples of time-based strategies – Define the term productivity and explain why it is important to organizations and to countries – List some of the reasons for poor productivity and some ways of improving it 2 -3

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? 2 -4

Hierarchical Planning Mission Goals Organizational Strategies Functional Strategies Tactics 2 -5

Mission, Goals, and Strategy • Mission – The reason for an organization’s existence • Goals – Provide detail and the scope of the mission • Goals can be viewed as organizational destinations • Strategy – A plan for achieving organizational goals • Serves as a roadmap for reaching the organizational destinations 2 -6

Tactics and Operations • Tactics – The methods and actions taken to accomplish strategies – The “how to” part of the process • Operations – The actual “doing” part of the process 2 -7

Strategy Formulation • Effective strategy formulation requires taking into account: – Core( distinctive ) competencies – Environmental scanning • SWOT • Successful strategy formulation also requires taking into account: – Order qualifiers – Order winners 2 -8

Operations Strategy • Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function. Decision Area What the Decisions Affect Product and service design Costs, quality, liability, and environmental issues Capacity Cost, structure, flexibility Process selection and layout Costs, flexibility, skill level needed, capacity 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 2 -9

Time- and Quality-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 • 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 2 -10

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 2 -11

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 unit’s performance over time – Judging the performance of an entire industry or country 2 -12

Productivity Measures 2 -13

Total Productivity: example Bluegill Furniture makes kitchen chairs. The weekly dollar value of its output, including finished goods and work-in-progress, is $14, 280. The value of inputs (labor, materials, capital) is approximately $16, 528. What is the total productivity measure for Bluegill? Total productivity = output/input = $14, 280/$16, 528 =. 864 or 86. 4% © Wiley 2010 14 2 -14

Partial Productivity: example Bluegill Furniture has hired 2 new workers to paint chairs. Together they have painted 10 chairs in 4 hours. What is labor productivity for the pair? Labor productivity = output/labor = (10 chairs)/(2 x 4 hr) = (10 chairs)/(8 hr) or 1. 25 chairs/hr © Wiley 2010 15 2 -15

Multifactor Productivity: example Bluegill Furniture averages 35 chairs/day. Labor costs average $480, material costs are typically $200, and overhead cost is $250. Bluegill sells the chairs to a retailer for $70/unit. Find multifactor productivity. Multifactor productivity = (value of output)/(labor + material + overhead costs) = ($70/chair x 35 chairs)/(480+200+250) = ($2450)/($930) or 2. 63 © Wiley 2010 16 2 -16

Interpreting Productivity Measures • Productivity measures must be compared to something, i. e. another year, a different company © Wiley 2010 17 2 -17

Improving Productivity 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 2 -18

• The manager of a crew that installs carpeting has trucked the crew’s output over the past several weeks, obtaining these figures: Week Crew Size 1 4 Yards Installed 96 2 3 72 3 4 92 4 2 50 5 3 69 6 2 52 2 -19

Compute labor productivity for each of the weeks. on the basis of calculation what can you conclude about labor productivity Week Crew Size Yards Installed Labor Productivity 1 4 96 24 yards 2 3 72 24 3 4 92 23 4 2 50 25 5 3 69 23 6 2 52 26 A crew of 2 seems to work best. 2 -20

• Compute the multifactor productivity for each of the weeks shown. what do productivity figures suggest ? assume 40 –hour weeks and an hourly wage of $12, overhead is 1. 5 times weekly labor cost , material cost is $6 per pound. standard price is $140 per unit. workers Materials Week 1 Output 30, 000 6 450 2 33, 600 7 470 3 32, 200 7 460 4 35, 400 8 480 2 -21

(1) (2) (3) (4) (5) (6) (7) Worker Cost@ $12 x 40 Overhead Material Total Cost @1. 5 Cost@$6 Cost MFP (2) (6) Week Output 1 30, 000 2, 880 4, 320 2, 700 9, 900 3. 03 Consider standard price* (7)x$140 424. 24 2 33, 600 3, 360 5, 040 2, 820 11, 220 2. 99 419. 25 3 32, 200 3, 360 5, 040 2, 760 11, 160 2. 89 403. 94 4 35, 400 3, 840 5, 760 2, 880 12, 480 2. 84 397. 12 Multifactor productivity dropped steadily from a high of 3. 03 to about 2. 84. 2 -22