Week 2 - Productivity, Competitiveness and Strategy PDF

EXPRODU
Productivity, Competitiveness and Strategy

Agenda – Week 2
EXPRODU
 Productivity
 Global View of Operations
 Developing Missions and Strategies
 Achieving Competitive Advantage through Operations
 Strategy Development and Implementation
 Global Operations Strategy Options
2
What is productivity?
Productivity
 Productivity is the ratio of outputs (goods and services) divided by the inputs
(resources such as labor and capital)
 Production is a measure of output only and not a measure of efficiency
 Objective of production: to improve efficiency
3
Formula for productivity
Productivity
Units produced
Productivity =
Input used
 Measure of process improvement
 Represents output relative to input
 Only through the increase in productivity can our standard of living improve
4
Productivity Calculations – Labor Productivity
Productivity
Units produced
Productivity =
Labor-hours used
1,000
= = 4 units/labor-hour
250
 Also known as single factor productivity
5
Productivity Calculations – Multi-Factor Productivity
Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in dollars/ currency
6
Collins Contract Drafters Company
Productivity
Old System:
Staff of 4 works 8 hrs/day 8 contracts/day

Payroll cost = $640/day Overhead = $400/day
8 contracts/day
Old labor
productivity = = 0.25 titles/labor-hr
32 labor-hrs
7
Productivity
Old System:

8 titles/day
Old labor
32 labor-hrs
New System:

14 titles/day
New labor
32 labor-hrs
8
Productivity
Old System:

8 titles/day
Old labor
32 labor-hrs
1.75 or 75%
New System: = 0.4375/0.25 increase in labor
productivity
14 titles/day
New labor
32 labor-hrs
9
Productivity Measurement Problems
Productivity
 Quality may change while the quantity of inputs and outputs remains constant
– Compare a radio from this decade with one of the 1940s
 External elements may cause an increase or decrease in productivity

– Employee‟s work attitude, management decisions, etc
 Precise units of measure may be lacking

– Different products dictate different units of measure
10
Three Productivity Variables
Productivity
 Labor
– Improvement in the contribution of labor to productivity is the result of a
healthier, better educated, and better-nourished work force
 Three variables for improved labor productivity
– Basic education appropriate for effective labor force
– Diet of the labor force
– Social overhead that makes labor available, such as transportation and sanitation
 Capital
– Human beings are tool using animals. Capital investment provide those
tools
 Management
– A factor of production and an economic resource
– Responsible for ensuring that labor and capital are effectively used to
increase productivity
11
How can Taco Bell Improve Productivity?
Productivity
12
Taco Bell Improves Productivity to Lower Costs
Productivity
 Revised the menu

 Designed meals for easy preparation
– Beef is now pre-cooked
– Dishes are delivered in plastic boil bags for easy sanitary reheating
 Shifted some preparation to suppliers
 Efficient layout and automation Effect:
 Training and employee empowerment - Reduced to 8-10 seconds the time needed to
prepare tacos/burrito
- Management span of control increased from 5
to 30 branches
- In-store labor cut by 15 hours/day
-Stores handle twice the volume with half the
labor
-Fast-food low-cost leader
-73% share of the Mexican Fast-Food Market
(2001)
13
Ethics and Social Responsibility Challenges to Operations
Managers
Productivity
 Developing safe quality products

 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments
14
Agenda – Week 2
EXPRODU
 Productivity
15
Global Strategies
Global Company Profile
 Boeing –sales and production are worldwide
 Benetton –moves inventory to stores around the world faster than its
competition by building flexibility into design, production, and distribution
 Sony –purchases components from suppliers in Thailand, Malaysia, and

around the world
 Volvo –considered a Swedish company but it is controlled by an

American company, Ford. The current Volvo S40 is built in Belgium and
shares its platform with the Mazda 3 built in Japan and the Ford Focus
built in Europe.
 Haier –A Chinese company, produces compact refrigerators (it has one-

third of the US market) and wine cabinets (it has half of the US market) in
South Carolina 16
Six Reasons to Globalize
Global View of Operations
 Reduce costs (labor, taxes, tariffs, etc.) Foreign locations with lower wage rates
can lower direct and indirect costs
– Maquiladoras
– World Trade Organization (WTC)
– North American Free Trade Agreement (NAFTA)
– APEC, SEATO, MERCOSUR
– European Union (EU)
 Improve the Supply Chain Locating facilities closer to unique resources

– Auto design to California
– Athletic shoe production to China
– Perfume manufacturing in France
17
 Provide Better Goods and Services Objective and subjective characteristics of

goods and services
– On-time deliveries
– Cultural variables
– Improved customer service
 Understand Markets Interacting with foreign customer and suppliers can lead to
new opportunities
– Cell phone design from Europe Sir Jonathan Paul
– Cell phone fads from Japan "Jony" Ive, KBE is a
British designer and
– Extend the product life cycle
the senior vice
president of industrial
design at Apple Inc.
18
 Learn to Improve Operations Remain open to the free flow of ideas

– General Motors partnered with a Japanese auto manufacturer to learn
– Scandinavian design ideas have been used to improve equipment design and layout
 Attract and Retain Global Talent Offer better employment opportunities

– Better growth opportunities and insulation against unemployment
– Relocate unneeded personnel to more prosperous locations
– Incentives for people who like to travel
– Training abroad
19
Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different towards:

– Punctuality
– Lunch breaks
– Environment
– Intellectual property
– Thievery
– Bribery
– Child labor
20
Cultural and Ethical Issues
 National literacy rate  Work ethic

 Rate of innovation  Tax rates
 Rate of technology change  Inflation
 Number of skilled workers  Availability of raw materials
 Political stability  Interest rates
 Product liability laws  Population
 Export restrictions  Number of miles of highway
 Variations in language  Phone system
21
Agenda – Week 2
EXPRODU
 Productivity
 Ten Strategic OM Decisions
22
The difference of Mission and Strategy
Developing Missions and Strategies
 Mission
– Mission statements tell an organization where it is going
– Organization‟s purpose for being
– Answers „What do we provide society?‟
– Provides boundaries and focus
 Strategy
– The Strategy tells the organization how to get there
23
FedEx Mission Statement
 FedEx is committed to our People-Service-Profit philosophy. We will produce

outstanding financial returns by providing total reliable, competitively superior,
global air-ground transportation of high priority goods and documents that require
rapid, time-certain delivery. Equally important, positive control of each package
will be maintained using real time electronic tracking and tracing systems. A
complete record of each shipment and delivery will be presented with our request
for payment. We will be helpful, courteous, and professional to each other and the
public. We will strive to have a completely satisfied customer at the end of each
transaction.
24
Coca-Cola Mission Statement
 Our Roadmap starts with our mission, which is enduring. It declares our purpose
as a company and serves as the standard against which we weigh our actions
and decisions.
– To refresh the world...
– To inspire moments of optimism and happiness...
– To create value and make a difference.
25
Hard Rock Cafe Mission Statement
 To spread the spirit of Rock „n‟ Roll by delivering an exceptional entertainment

and dining experience. We are committed to being an important, contributing
member of our community and offering the Hard Rock family a fun, healthy, and
nurturing work environment while ensuring our long-term success.
26
Nestlé Mission Statement
 At Nestlé, we believe that research can help us make better food so that people
live a better life.
 Good Food is the primary source of Good Health throughout life. We strive to
bring consumers foods that are safe, of high quality and provide optimal nutrition
to meet physiological needs. In addition to Nutrition, Health and Wellness, Nestlé
products bring consumers the vital ingredients of taste and pleasure.
27
Strategy
 Action plan to achieve mission
 Functional areas have strategies
 Strategies exploit opportunities and strengths, neutralize threats, and avoid

weaknesses
28
Strategic Process
Organization’s
Mission
Functional Area
Missions
Finance/
Marketing Operations Accounting
29
Agenda – Week 2
EXPRODU
 Productivity
30
Strategies for Competitive Advantage
Achieving Competitive Advantage through Operations
 Competing on Differentiation
– Disneyland
 Competing on Cost
– Cebu Pacific
 Competing on Response
– Toyota
31
Competing on Differentiation
 Uniqueness can go beyond both the physical characteristics and service

attributes to encompass everything that impacts customer‟s perception of value
– Safeskin gloves – leading edge products
– Walt Disney Magic Kingdom – experience differentiation
– Hard Rock Cafe – theme experience
32
Competing on Cost
 Provide the maximum value as perceived by customer.

 Does not imply low quality.
– Southwest Airlines –secondary airports, no frills service, efficient utilization of equipment
– Wal-Mart –small overheads, and distribution costs (U,S, super store)
– Franz Colruyt –no bags, low light, no music, doors on freezers (one of Belgium's top
three supermarket and retail companies)
No frills is a term used to describe any

service or product for which the non-
essential features have been removed
to keep the price low
33
Competing on Response
 Flexibility is matching market changes in design innovation and volumes

– Institutionalization at Hewlett-Packard
 Reliability is meeting schedules

– German machine industry
 Timeliness is quickness in design, production, and delivery

– Johnson Electric, Bennigan‟s, Motorola, Pizza Hut
34
OM’s Contribution to Strategy
35
10 Strategic OM Decisions
Operations
Decisions Goods Services
Goods and Product is usually Product is not
service tangible tangible
design
Quality Many objective Many subjective
standards standards
Process and Customers not Customer may be
capacity involved directly involved
design Capacity must
match demand
36
Operations
Location Near raw materials Near customers
selection and labor
Layout Production Enhances product

design efficiency and production
Human Technical skills, Interact with
resources constant labor customers, labor
and job standards, output standards vary
design based wages
37
Operations
Supply-chain Relationship critical Important, but may
mgmt to final product not be critical
Inventory Raw materials, Cannot be stored

work-in-process,
and finished goods
may be held
Scheduling Level schedules Meet immediate

possible customer demand
38
Operations
Maintenance Often preventive Often “repair” and
and takes place at takes place at
production site customer‟s site
39
Process Design
High Process-focused Mass Customization

JOB SHOPS Customization at
(Print shop, high Volume
emergency room, (Dell Computer’s PC)
Variety of Products
machine shop, fine Repetitive

dining (modular) focus
ASSEMBLY LINE
Moderate (Cars, appliances,
TVs, fast-food
restaurants) Product focused
CONTINUOUS
(steel, beer,
paper, bread,
institutional
Low kitchen)
Low Moderate High

Volume 40
Product Life Cycle
 May be any length from a few hours to decades
 The operations function must be able to introduce new products successfully
41
Product Life Cycle (2006)
Introduction Growth Maturity Decline

Best period to Practical to Poor time to Cost control
increase market change price or change image, critical
Company Strategy/Issues
share quality image price, or quality
R&D engineering Strengthen niche Competitive costs

is critical become critical
Defend market
position Fax
CD-ROM machines
Internet Drive-
through
Colored restaurants
Sales printers
3 1/2”
Flat- Floppy
screen DVD disks
monitors
42
Product Life Cycle
 Introduction
– Fine tuning
 Research
 Product development
 Process modification and enhancement
 Supplier development
 Growth
– Product design begins to stabilize
– Effective forecasting of capacity becomes necessary
– Adding or enhancing capacity may be necessary
 Maturity
– Competitors now established
– High volume, innovative production may be needed
– Improved cost control, reduction in options, paring down of product line
 Decline
– Unless product makes a special contribution to the organization, must plan to terminate
offering
43
Agenda – Week 2
EXPRODU
 Productivity
44
The operations manager’s job is to implement an OM strategy,
provide competitive advantage, and increase productivity
Strategy Development and Implementation
 Identify Critical Success Factors (CSF)

 Build and staff the organization
 Integrate OM with other activities
 What are “Critical Success Factors”?

– CSF‟s are those activities or factors that are key to achieve competitive advantage
 Operations strategy is the total pattern of decisions which shape the long-term
capabilities of any type of operations and their contribution to the overall strategy,
through the reconciliation of market requirements with operations resources.
 Operations strategy is the tool that helps to define the methods of producing
goods or a service offered to the customer
45
Strategy Development Process
Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and
competitors.
Determine Corporate Mission

State the reason for the firm’s existence and identify the
value it wishes to create.
Form a Strategy
Build a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability,
after-sale service, broad product lines.
46
SWOT Analysis
Mission
Internal External
Strengths Opportunities
Analysis
Internal External
Weaknesses Threats
Strategy
47
Agenda – Week 2
EXPRODU
 Productivity
48
Terms
Global Operations Strategy Options
 Economies of scale
– in microeconomics, refers to the cost advantages that a business obtains due to
expansion.
– "Economies of scale" is a long run concept and refers to reductions in unit cost as the
size of a facility and the usage levels of other inputs increase
 Diseconomies of scale
– Diseconomies of scale are the forces that cause larger firms and governments to
produce goods and services at increased per-unit costs.
How many 10” pizzas

can fit in an area of a
30” x 30” x 12.5” Brick
Oven?
49
Four International Operations Strategies
High Global Operations Strategy Options

Cost Reduction Considerations
International
Strategy
 Import/export or license existing
product
 no investment outside of their home
country.
Examples
U.S. Steel
Harley Davidson
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
50

Global
Strategy
 Standardized product
 Cross-cultural learning
 Economies
International Strategy of scale
 One corporate office
 Import/export
or Same product strategy in
license
existing product
all markets
Examples
Examples
U.S. Steel
Kodak Caterpillar
Harley Davidson
American Standard
Low
Low High
51

Global Strategy
Multidomestic
 Economies of scale
Strategy
Examples
Use existing
Texas Instruments
Caterpillar
domestic model globally
Otis Elevator
Franchise, joint ventures,
subsidiaries
Strategy Managers
Country
International
No coordinated product
 Import/export
offerings in each country
or license
existing product
Examples
Examples
KFC
U.S. Steel The Body Shop
McDonald’s Hard Rock Cafe
Harley Davidson
Low
Low High
52

Global Strategy
Transnational
Move material, people, ideas

Examples
Texas Instruments
across national boundaries
Caterpillar
Otis Elevator
Economies of scale
Cross-cultural learning
Central corporate facility Multidomestic
International Strategy
but Strategy
give decision-making, R&D and
 Use existing
marketing powers to each
 Import/export
or license
domestic model globally
 Franchise, joint ventures,
individual
existing product foreign market.
subsidiaries
Examples
Examples Examples
HarleyCoca-Cola
U.S. Steel
Davidson Nestlé Nokia
Heinz The Body Shop
McDonald’s Hard Rock Cafe
Low
Low High
53

Global Strategy Transnational Strategy
 Move material, people, ideas
Standardized product
 across national boundaries

 Economies of scale  Cross-cultural learning
 One corporate office  central corporate facility but
 Same product strategy in
give decision-making, R&D
all markets and marketing powers to
Examples each individual foreign
Kodak Caterpillar
market.
American Standard Examples
Coca-Cola Nestlé Nokia
International Strategy Multidomestic Strategy

 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
 No investment outside  Country Managers
home country  No coordinated product
offerings in each country
Examples Examples
U.S. Steel KFC The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe
Low
Low High
54

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EXPRODU

Productivity, Competitiveness and Strategy

 Global View of Operations

 Developing Missions and Strategies

 Achieving Competitive Advantage through Operations

 Strategy Development and Implementation

 Global Operations Strategy Options

 Production is a measure of output only and not a measure of efficiency

 Objective of production: to improve efficiency

 Measure of process improvement

 Represents output relative to input

Staff of 4 works 8 hrs/day 8 contracts/day

Staff of 4 works 8 hrs/day 8 contracts/day

Staff of 4 works 8 hrs/day 14 contracts/day

Staff of 4 works 8 hrs/day 8 contracts/day

 External elements may cause an increase or decrease in productivity

 Precise units of measure may be lacking

 Revised the menu

 Developing safe quality products

 Global View of Operations

 Developing Missions and Strategies

 Achieving Competitive Advantage through Operations

 Strategy Development and Implementation

 Global Operations Strategy Options

 Boeing –sales and production are worldwide

 Sony –purchases components from suppliers in Thailand, Malaysia, and

 Volvo –considered a Swedish company but it is controlled by an

 Haier –A Chinese company, produces compact refrigerators (it has one-

 Improve the Supply Chain Locating facilities closer to unique resources

 Provide Better Goods and Services Objective and subjective characteristics of

 Learn to Improve Operations Remain open to the free flow of ideas

 Attract and Retain Global Talent Offer better employment opportunities

 Cultures can be quite different

 Attitudes can be quite different towards:

 National literacy rate  Work ethic

 Global View of Operations

 Developing Missions and Strategies

 Achieving Competitive Advantage through Operations

 Ten Strategic OM Decisions

 Strategy Development and Implementation

 Global Operations Strategy Options

 FedEx is committed to our People-Service-Profit philosophy. We will produce

 To spread the spirit of Rock „n‟ Roll by delivering an exceptional entertainment

 Action plan to achieve mission

 Functional areas have strategies

 Strategies exploit opportunities and strengths, neutralize threats, and avoid

 Global View of Operations

 Developing Missions and Strategies

 Achieving Competitive Advantage through Operations

 Strategy Development and Implementation

 Global Operations Strategy Options

 Uniqueness can go beyond both the physical characteristics and service

– Walt Disney Magic Kingdom – experience differentiation

– Hard Rock Cafe – theme experience

 Provide the maximum value as perceived by customer.

– Wal-Mart –small overheads, and distribution costs (U,S, super store)

No frills is a term used to describe any

 Flexibility is matching market changes in design innovation and volumes

 Reliability is meeting schedules

 Timeliness is quickness in design, production, and delivery

Layout Production Enhances product

Inventory Raw materials, Cannot be stored

Scheduling Level schedules Meet immediate