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CHAPTER

Competitiveness, Strategy
2 and Productivity

• How do companies compete ?

• Which strategies lead to


competitiveness?
Strategy and Tactics
Strategy formulation

• How is productivity computed?


Computing productivity
Example problems
Factors affecting productivity
Competitiveness

How effectively an organization meets the


needs of customers relative to others that
offer similar goods or services

How ?
Some combination of Marketing and Operations functions
Businesses Compete Using Marketing

• Identifying consumer wants and needs


• Basic input in decision making
• Central to competitiveness
• Pricing
• Key factor in consumer buying decision
• Trade-off between price and features provided
• Advertising and promotion
• Ways to inform and attract customers
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om/2008/05/apple-iphone.jpg,
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LG Vu: $99
Example of Pricing

Iphone: $199
Example of Advertising

 Google earned more than $30 billion in advertising


 Close to $1 billion on advertising its own products

 Coke spent more than $2.5 billion on advertising its products

 eBay spent close to 20% of its revenue on advertising


Influence of Operations on Competitiveness

• Product and service design


• Joint collaboration
• Innovation and time-to-market
• Cost
• Outsource to reduce the price
• Location
• Quality
• Flexibility
• Inventory management
• Matching supplies with demand
• Supply chain management
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Influence of Operations on Competitiveness

 Quick response
 Quick delivery and quick repair time
 Examples of long wait time for Toyota prius & Honda
Civic Hybrid

 Service
 Managers and workers must be competent and
motivated
 Automobile dealers
Why Some Organizations Fail
• Too much emphasis on short-term financial
performance at the expense of R&D
• Failing to take advantage of strengths &
opportunities
• Failing to recognize competitive threats
• Failing to consider customer wants & needs
• Neglecting operations strategy (capability)
• And more…
Mission/Strategy/Tactics

Mission Strategy Tactics

Mission Statement: Reason for the existence


of the organization
Goals: Detail and scope of the mission

`s mission is to organize the world's


information and make it universally accessible and
useful.
Mission/Strategy/Tactics

Mission Strategy Tactics

Plans for achieving organizational goals

Organizational & Functional

 Provides focus for decision making


Mission/Strategy/Tactics

Mission Strategy Tactics

Methods/actions taken to accomplish strategies

“How To”
 Provide guidance for operations
Missions and goals are add no value unless they are put to practice
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 degree
Tactics: Select a college and a major; decide how to finance
college
Operations: Register, buy books, take courses, study…
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
Examples of Strategies
• Low cost – outsourcing
• Scale-based strategies – capital-intensive, economies of scale
• Specialization – narrow product lines, high quality
• Flexible operations - quick response/customization, Dell (in sourcing)
• High quality
• Service – helpful, courteous, reliable
• Newness – focus on innovation
• Sustainability – focus on environmental-friendly and energy efficient operations. GE, Audi A3,
Toyota Prius, Levi’s eco jeans

Firms need to identify and take advantage of their Core Competencies


Strategy and Tactics
• Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge
• Strategy Factors
• Price
• Quality
• Time
• Flexibility
• Service
• Location
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Examples of Operations Strategies

Price Low Cost U.S. first-class postage


Walmart

Quality High-performance Sony TV


design or high Lexus, Cadillac
quality Consistent Pepsi, Kodak, Motorola
quality
Time Rapid delivery Express Mail, FedEx,
On-time delivery One-hour photo,
Variety dominos
Burger King
Flexibili
Volume Supermarkets
ty
Service Superior customer Disneyland
service Nordstrom

Locatio Convenience Banks, ATMs

n
Strategy Formulation
• Link strategy directly to organization’s mission statement
• Identify Core competencies
• SWOT Analysis
Strengths Weaknesses

Opportunities Threats
• Coordinate with marketing to identify Order Qualifiers and Order
Winners and rate importance to characteristics
• Order qualifiers: minimum standards of acceptability for a
potential purchase (A car with 25 miles per gallon)
• Order winners: goods or services that cause it to be better than
the competitors (A car with 50 miles per gallon: Toyota Prius 2010)
Strategy Formulation
• Environmental scanning
• Recent events, trends, traditions

• External Factors
• Economic conditions, Political conditions, Legal conditions,
Technology, Competition, Markets

• Internal factors
• Human resources, facilities and equipment, financial resources,
customers, products and services, technology, suppliers, etc.

Read the Text


Big Retailer Strategies
• Low cost. But what in Japan ?
• More quality and service
• International, ambiance

• Squeezed between Target and Wal-Mart
• and merged in November 2004
• K-Mart gets cash
• Sears gets presence outside malls


high quality hard to find gourmet foods
Strategic OM Decisions
Decision Area Affects
Product and service design Costs, quality liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, 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


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
 Robots used at Volvo are known to work for
extended periods of time under extreme
temperature

 Time-based strategies
 Focuses on reduction of time needed to accomplish
tasks
 DHL known for its urgent package delivery
Productivity

Productivity is a measure of the effective


use of resources, usually expressed as the
ratio of output to input.

Outputs
= Inputs
Productivit
y
•Planning workforce requirements
• Scheduling equipment

• Financial analysis
Computing Productivity

Partial Output Output Output Output


OM’ers
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

Business, Industry, Country


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
Productivity
Capital Units of output per dollar input
Productivity Dollar value of output per dollar input

Energy Units of output per kilowatt-hour


Productivity Dollar value of output per kilowatt-hour
Productivity Growth

Current Period Productivity – Previous Period Productivity


Previous Period Productivity

Previous Productivity = 80
Current Productivity = 84 Growth = 84 – 80 × 100 = 5%
80

Profits = revenue – cost = (price – cost) × output


Inflation
Same price  greater profit
Lower price  more competitive
Wages ↑  standard of living ↑
Solved Problems

• Problem 1
• A company that processes fruits
and vegetables is able to produce
400 cases of canned peaches in
one-half hour with four workers.
What is labor productivity?
• Answer: 200 cases per labor hour

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Example

• 10,000 Units Produced


• Sold for $10/unit
What is the
• 500 labor hours labor productivity?
• Labor rate: $9/hr
• Cost of raw material: $5,000
• Cost of purchased material: $25,000
Solutions to Example
• Output : 10,000 x $10/item = $100,000
• Input : 500 hours x $9 /hr = $4500
• Labor productivity= 100,000 / 4500 = 22.22

• MFP (multi factor productivity)


= output / labor + materials
• 100,000 / {4,500 + 25,000 + 5,000}
• MFP = 2.90

• What are the units of these productivity numbers?


Shopping Cart Production Example

Prior to New Equipment Labor Productivity


Workforce: 5 workers
Output: 80 carts/hr 80 carts/hr
Labor: $10/hr Before: 5 workers
Machine: $40/hr
= 16 carts per worker
per hour
With New Equipment
Workforce: 4 workers 84 carts/hr
Output: 84 carts/hr After: 4 workers
Labor: $10/hr
Machine: $50/hr = 21 carts per worker
per hour
Shopping Cart Production Example

Prior to New Equipment Multifactor Productivity


Workforce: 5 workers
Output: 80 carts/hr
80 carts/hr
Labor: $10/hr Before:
$10/hr × 5 + $40/hr
Machine: $40/hr
= 0.89 carts/$
With New Equipment
Workforce: 4 workers 84 carts/hr
Output: 84 carts/hr After:
$10/hr × 4 + $50/hr
Labor: $10/hr
Machine: $50/hr = 0.93 carts/$
Factors Affecting Productivity

CapitalManagement

Technology Quality

• Standardization • Safety
• Quality differences • Shortage of Tech
workers
• Use of the Internet
• Layoffs
• Computer viruses
• Labor turnover
• Scrap rates
• Design of the workspace
• New workers • Incentive plans that
reward productivity
Improving Productivity
• Develop productivity measures
• First measure, then manipulate
• Look at System as a whole
• Identify critical operations. Bottlenecks
• Value of improvements. Effectiveness
• Develop methods for improvements
• Idea generation
• Studying other firms
• Reexamine work procedures
• Establish reasonable goals
• Incentives, rewards, encouragement from mgmt
• Measure improvements and publicize them
Bottleneck Operation
Recap

• Competencies • Productivity
• Operations + • Computing productivity,
marketing multifactor, examples
• Mission
• Factors affecting
productivity
• Strategy
• Improving productivity
• tactics
• Systems approach,
• operations strategy,
bottleneck, effectiveness
examples
• Strategy formulation

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