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Competitiveness, Strategy, and Productivity Y.-H. Chen, Ph.D. International College Ming-Chuan University Business Goals Better quality Higher productivity Lower cost The ability to quickly respond to customer needs How to achieve these goals? Competitiveness, Strategy, and Productivity Competitiveness: How effective an organization is in the marketplace compared with other organizations that offer similar products or services. Strategy: The plans that determine the direction an organization takes in pursuing its goals. Productivity: The effective use of resources. Competitiveness How to achieve competitiveness? Identifying consumer wants and / or needs Pricing and quality Advertising and promotion Operations and Competitiveness How do operations affect competitiveness? Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service Managers and workers Why some organizations fail? Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy Too much emphasis in product and service design and not enough on improvement Neglecting investments in capital and human resources Failing to establish good internal communications Failing to consider customer wants and needs Competitiveness Summary What customers want? What is the best way to satisfy those wants? Strategies Plans for achieving organizational goals. Can be long term, intermediate term, or short term. Must be designed to support the organization’s missions and its goals. Mission, Strategy, and Tactic Mission: The reason for existence for an organization. The basis for organizational goals. Mission Statement: A clear statement of purpose. (Table 2.1, p.39) Strategy: A plan (roadmap) for achieving organizational goals. Tactics: The methods or actions taken to accomplish strategies. Mission, Strategy, and Tactics in Production / Operations Management Mission Goals Organizational strategy Functional strategies Finance Marketing Operations Tactics Tactics Tactics Finance operations Marketing operations Operations operations Mission, Strategy, and Tactic 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: Goal/Mission: Strategy: Tactics: Operations: Live a good life Successful career, good income Obtain a college education Select a college and a major Register, buy books, take courses, study, graduate, get job Strategy Formulation Take into account the realities of operations' strength and weakness. Capitalizing on strength and dealing with weakness. (This is generally ignored in a business.) SWOT approach (strength, weakness, opportunity, and threat) critically examines factors that could have either positive or negative effects. SWOT Analysis Strength Domain knowledge. Breadth of solution. Business strategy. Opportunity Service to existing customers. Improve resource util. by integrating products. Strengths are our best weapons. Weakness Lack of trans. knowledge. Frequent change of strategy. Lack of customer references. Overlapped products. Threat Network effect of company X. Lack of product compatibility to legacy products. Multiple business acquisition consumes resource. Strategy Examples Distinctive competencies Environmental scanning Technological change Order qualifiers and order winners Quality and time Price Outsourcing Quality Globalization Time Distinctive Competencies The special attributes or abilities that give an organization a competitive edge. Price Quality Time Flexibility Service Location Distinct Competitiveness Examples Price Low Cost U.S. first-class postage Motel-6, Red Roof Inns Quality High-performance design or high quality Consistent quality Rapid delivery On-time delivery Variety Volume Superior customer service Convenience Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola Express Mail, Fedex, One-hour photo, UPS Burger King Supermarkets Disneyland Nordstroms Banks, ATMs Time Flexibility Service Location Environmental Scanning Strategy External factors Economic conditions Political conditions Legal environment Technology Competition Markets Internal factors Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers Technological Change Strategy Technological changes occur in Products Services High-definition TV, improved computer chips, improved cellular telephone systems, and improved design of earthquake structures. Fast order processing and fast delivery. Processes Robotics, automation, computer-assisted processing, point-of-sale scanners, and flexible manufacturing systems. Order Qualifiers and Order Winners Strategies 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-based strategies focus on satisfying customers by integrating quality into all phases of the organization. Time-based strategies focus on reducing the time required to accomplish various activities. The rationale is that, by reducing time, cost is generally less, productivity is higher, quality tends to be higher, product innovation appears on the market sooner, and customer service is improved. A company that can bring out new products three times faster than its competitors enjoys a huge advantage. Outsourcing Strategy Reduce overhead Gain flexibility Take advantage of suppliers’ expertise Globalization Increased market share Risks May work only locally Political or social upheaval Coordination and management Productivity Effective use of resources. An index that measures output relative to the input. Outputs Productivity = Inputs Productivity Reality Check? Productivity gains involves getting employees to work harder. False. The fact is that many productivity gains in the past have come from technological improvements. Productivity is the same as efficiency. Efficiency is a narrow concept that pertains to getting the most out of a given set of resources; productivity is a broader concept that pertains to effective use of overall resources. Example: An efficiency perspective on mowing a lawn given a hand mower would focus on the best way to use the hand mower; a productivity perspective would include the possibility of using a power mower. Productivity Quality Technology Management Productivity is directly related to Capital Competitiveness Standard of living Inflation Productivity measures can be used to track performance over time. When improvements are needed. Factors Affect Productivity methods, capital, quality, technology, and management. Examples: Standardization, Internet, computer viruses, scrap rate, new worker, safety, short of IT skill, layoff, labor turnover, workplace design, training, equipment breakdown, material shortage. Productivity Improvement Establish reasonable goals Develop productivity measures Look at the system as a whole Develop methods for achieving productivity improvement (e.g. quality circle) Management support Measure and publish results Productivity Measures Partial measures Multi-factor measures output/(single input) output/(multiple inputs) Total measure output/(total inputs) Productivity Measures Partial measures Output Labor Multifactor measures Output Labor + Machine Total measure Output Machine Output Capital Output Energy Output Labor + Capital + Energy Goods or Services Produced All inputs used to produce them Productivity Measure Example 10,000 Units Produced Sold for $10/unit 500 labor hours What is the labor productivity? Labor rate: $9/hr Cost of raw material: $5,000 Cost of purchased material: $25,000 Productivity Measure Example, Labor Productivity 10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure (10,000 unit* $10/unit)/(500hrs* $9/hr) = 22.22 Productivity Measure Example, Multifactor Productivity MFP = Output Labor + Materials MFP = (10,000 units)*($10) (500)*($9) + ($5000) + ($25000) MFP = 2.90 Productivity Measure Example #1 Determine the productivity for these cases : a. Four workers installed 720 square yards of carpeting in eight hours. b. A machine produced 68 usable pieces in two hours. Productivity Measure Example #1 Solution a. Four workers installed 720 square yards of carpeting in eight hours. Productivity= 720 square yards 4 workers or 720 square yards 4 workers x 8 hours/worker = 180 square yards/worker or 22.5 square yards/hour b. A machine produced 68 usable pieces in two hours. Productivity= 68 pieces 2 hours = 34 pieces/hour Productivity Measure Example #2 Determine the multifactor productivity for the combined input using the following data: Output: 1760 units Input: Labor $1000, Material $520, Overhead $2000. Productivity Measure Example #2 Solution Output: 1760 units Input: Labor $1000, Material $520, Overhead $2000. Multifactor Productivity = = Output Labor + Material + Overhead 1760 units $1000 + $520 + $2000 = 0.50 units/dollar Productivity Measure Summary Calculation of multifactor productivity requires a common unit of measurement. It is best to treat productivities as approximate indicators rather than precise measurements.