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and Productivity
Operations Management
by
© Wiley 2005 1
Business/Functional Strategy
© Wiley 2005 2
Operations Strategy – Designing
the Operations Function
© Wiley 2005 3
Competitive Priorities- The Edge
Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
All of the above? Some? Tradeoffs?
© Wiley 2005 4
Competing on Cost?
Typically high volume products
Often limit product range & offer little customization
May invest in automation to reduce unit costs
Can use lower skill labor
Probably use product focused layouts
© Wiley 2005 5
Competing on Quality?
High performance design:
Superior features, high durability, & excellent customer
service
© Wiley 2005 6
Competing on Time?
Fast delivery:
Focused on shorter time between order placement and
delivery
On-time delivery:
Deliver product exactly when needed every time
© Wiley 2005 7
Product Strategies and Process Choice
© Wiley 2005 8
Competing on Flexibility?
Product flexibility:
Easily switch production from one item to another
Easily customize product/service to meet specific
requirements of a customer
Volume flexibility:
Ability to ramp production up and down to match market
demands
© Wiley 2005 9
Productivity
Outputs
P
Inputs
© Wiley 2005 10
Measuring Productivity
Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input
Total Productivity Measure
Productivity relative to all inputs
Partial Productivity Measure
Productivity relative to a single input (e.g., labor hours)
Multifactor Productivity Measure
Productivity relative to a subgroup of inputs (e.g.,
labor and materials)
© Wiley 2005 11
Labor Productivity
Example:
Assume two workers paint twenty-four tables in
eight hours:
Inputs: 16 hours of labor (2 workers x 8 hours)
Outputs: 24 painted tables
Outputs 24 tables
1.5 tables / hour
Inputs 16 hours
© Wiley 2005 12
Multifactor Productivity
Convert all inputs & outputs to $ values
Example (labor and materials productivity):
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
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
Can be used to compare a process’s
productivity at a given time (P2) to the
same process’ productivity at an earlier
time (P1)
P2 P1
Growth Rate
P1
© Wiley 2005 15
Productivity Growth Rate
Example:
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
150 units
P1 0.75 units / hour
200 hours
180 units
P2 0.72 units / hour
250 hours
P2 P1 0.72 0.75
Growth Rate 0.04
P1 0.75
or a negative 4% growth rate
© 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.
Total Productivity
$ Sales $49,000 $41,000 $38,000
(billions$)
Total Cost Productivity 1.26 1.24 1.19
© Wiley 2005 17
Homework
Ch. 2 Problems: 1, 5, 6, 8, 9.
© Wiley 2005 18