Chap002

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CHAPTER 2 Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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Strategic operations Management Strategic operations management is that part of business organization. Which is responsible for strategic formulation and coordinating the use of the organizations resources to convert input into outputs.

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Strategy Strategy is the direction and scope of an organization over the long term, which achieves the advantages for the organization through its configuration of resources, within a challenging environment, to meet the needs of markets and fulfill the expectations of share holders

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Three level of Strategy Corporate level strategy- overall org strategy. Business unit strategy- when you target a particular market for offering a particular product. Operational strategy- strategy of different departments and its sub units

Mission/Strategy/Tactics: 

Mission/Strategy/Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies? Strategy Tactics Mission Mission The reason for existence for an organization Strategies Plans for achieving organizational goals Tactics The methods and actions taken to accomplish strategies

Strategy: 

Strategy Strategies Plans for achieving organizational goals Mission The reason for existence for an organization Mission Statement Answers the question “What business are we in?” Goals Provide detail and scope of mission Tactics The methods and actions taken to accomplish strategies

Strategy Example: 

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 education Tactics: Select a college and a major Operations: Register, buy books, take courses, study, graduate, get job Example 1

Examples of Strategies: 

Examples of Strategies Low cost Scale-based strategies Specialization-quality, cost, features, customer intimacy. Flexible operations High quality Service

Operations Strategy: 

Operations Strategy Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations functions Or all the inter related activities, to convert raw material into finished goods is called operations strategy.

Points in Strategy Formulation: 

Points in Strategy Formulation Distinctive competencies-cost, quality, agility, location, flexibility, unique product Environmental scanning- internal, external, pest, political, economical, social, technological. SWOT Order qualifiers Order winners

Examples of Distinctive Competencies: 

Banks, ATMs Convenience Location Disneyland Nordstroms Superior customer service Service Burger King Supermarkets Variety Volume Flexibility Express Mail, Fedex, One-hour photo, UPS Rapid delivery On-time delivery Time Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola High-performance design or high quality Consistent quality Quality U.S. first-class postage Motel-6, Red Roof Inns Low Cost Price Examples of Distinctive Competencies Table 2.2

Strategy Formulation: 

Strategy Formulation Order qualifiers Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase Order winners Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition

Quality and Time Strategies: 

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 Time-based strategies Focuses on reduction of time needed to accomplish tasks

Time-based Strategies: 

Time-based Strategies JAN FEB MAR APR MAY JUN Planning Processing Changeover On time! Designing Delivery

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4 points in time based strategy Planning time. Changing over time. Delivery time. Response time.

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Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Businesses Compete Using Marketing: 

Businesses Compete Using Marketing Identifying consumer wants and needs Pricing Advertising and promotion

Businesses Compete Using Operations: 

Businesses Compete Using Operations Product and service design Cost Location Quality Quick response

Businesses Compete Using Operations: 

Businesses Compete Using Operations Flexibility Inventory management Supply chain management Service

Why Some Organizations Fail: 

Why Some Organizations Fail Too much emphasis on short-term financial performance Too much emphasis in product and service design and not enough on improvement Failing to take advantage of strengths and opportunities Failing to recognize competitive threats

Why Some Organizations Fail: 

Why Some Organizations Fail 5. Failing to establish good internal communications 6. Failing to consider customer wants and needs 7. Neglecting investments in capital and human resources 8. Neglecting operations strategy

Productivity: 

Productivity Productivity A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity ratios are used for Planning workforce requirements Scheduling equipment Financial analysis

Productivity: 

Productivity Partial measures output/(single input) Multi-factor measures output/(multiple inputs) Total measure output/(total inputs) Productiv ity = Outputs Inputs

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Productivity Growth Current Period Productivity – Previous Period Productivity Previous Period Productivity Productivity Growth =

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Measures of Productivity Table 2.4 Partial Output Output Output Output 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

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Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Energy Productivity Units of output per dollar input Dollar value of output per dollar input Capital Productivity Units of output per machine hour machine hour Machine Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity Examples of Partial Productivity Measures Table 2.5

Example 3: 

Example 3 7040 Units Produced Sold for $1.10/unit Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.20

Example 3 Solution: 

Example 3 Solution MFP = Output Labor + Materials + Overhead MFP = (7040 units)*($1.10) $1000 + $520 + $2000 MFP = 2.20

Factors Affecting Productivity: 

Factors Affecting Productivity Capital Quality Technology Management

Other Factors Affecting Productivity: 

Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers Other Factors Affecting Productivity

Other Factors Affecting Productivity: 

Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity Other Factors Affecting Productivity

Bottleneck Operation: 

Bottleneck Operation Figure 2.3 Machine #2 Bottleneck Operation Machine #1 Machine #3 Machine #4 10/hr 10/hr 10/hr 10/hr 30/hr

Improving Productivity: 

Improving Productivity Develop productivity measures Determine critical (bottleneck) operations Develop methods for productivity improvements Establish reasonable goals Get management support Measure and publicize improvements Don’t confuse productivity with efficiency

Conglomerate Merger: 

Conglomerate Merger What Does Conglomerate Merger Mean? A merger between firms that are involved in totally unrelated business activities. There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.

Leveraged Buyout - LBO: 

Leveraged Buyout - LBO What Does Leveraged Buyout - LBO Mean? The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.