Production Operatoin Management -Chap002

8/10/2019 Production Operatoin Management -Chap002

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McGraw-Hil l / Irwin Copyrig ht 2009 by The McGraw -Hil l Companies, Inc. All Rights Reserved.

Chapter 2

Competitiveness, Strategy, and

Productivity


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A Cold Hard Fact

Better quality, higher productivity, lower costs,

and the ability to respond quickly to customer

needs are more important than ever and

the bar is getting higher


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Chapter Focus

Competitiveness

Strategy

Productivity


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Competitiveness

Competitiveness: How effectively an organization meets the wants and

needs of customers relative to others that offer similar

goods or services Organizations compete through some combination of

their marketing and operations functions

What do customers want?

How can these customer needs best be satisfied?


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Keys that business use to

compete with one another5

Price:the amount a customer must pay for theproduct or service.

Quality:it relates to the buyers perception of how

well the product or service will serve its purpose. Product differentiation:refers to any special

features that cause a G or S to be perceived by the

buyer as more suitable than a competitors product

or service

Lecturer: Ahmed El Rawas


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Keys that business use to

compete with one another6

Flexibility: is the ability to respond to changes.

Time:refers to a number of different aspects of anorg operation, one is how quickly a product or

service is delivered to a customer, another is howquickly new product or service are developed and

brought to the market.



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Hierarchical Planning

Mission

Goals

Organizational Strategies

Tactics

Functional Strategies


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Goals

The mission statement serves as the basis for

organizational goals

Goals

Provide detail and the scope of the mission Goals serve as the basis for organizational strategies


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Strategies

StrategyA plan for achieving organizational goals

Serves as a roadmap for reaching the organizationalobjectives

Organizations have

Organizational strategies

Overall strategies that relate to the entire organization

Support the achievement of organizational goals and mission

Functional level strategies

Strategies that relate to each of the functional areas and that

support achievement of the organizational strategy


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Tactics and Operations

Tactics

The methods and actions taken to accomplish

strategies

The how to part of the process Operations

The actual doing part of the process


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Core Competencies

Core CompetenciesThe special attributes or abilities that give an

organization a competitive edge

To be effective core competencies andstrategies need to be aligned


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Sample Strategies

OrganizationalStrategy Operations Strategy

Examples of Companies orServices

High Quality High performance design

and/or high quality

processing

Consistent Quality

Sony TV

Lexus

Coca-Cola; electric power

Short Time Quick Response

On-time delivery

McDonalds Restaurants

Express mail

FedEx;

Newness Innovation microsoft

Express mail

Variety Flexibility

Volume

Burger King (Have it your way)

McDonalds (Buses Welcome)

Service Superior customer service Disneyland

IBM

Location Convenience Supermarkets

Mall Stores


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Strategy Formulation

Effective strategy formulation requires takinginto account: Core competencies

Environmental scanning

SWOT Successful strategy formulation also requires

taking into account: Order qualifiers

Order winners


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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 organizations goods or

services that cause it to be perceived as better

than the competition


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Economic conditions

Political conditions

Legal environment

Technology Competition

Markets

Key External Factors


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Human Resources

Facilities and equipment

Financial resources

Customers Products and services

Technology

Suppliers

Key Internal Factors


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Quality-Based Strategies

Quality-based strategy

Strategy that focuses on quality in all phases of an

organization

Pursuit of such a strategy is rooted through

Trying to overcome a poor quality reputation

Desire to maintain a quality image


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Time-Based Strategies

Time-based strategies

Strategies that focus on the reduction of time needed

to accomplish tasks

It is believed that by reducing time, costs are lower,

quality is higher, productivity is higher, time-to-market is

faster, and customer service is improved


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Time-Based Strategies

Areas where organizations have achieved time

reductions:

Planning time

Product/service design time Processing time

Delivery time

Response time for complaints


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Productivity

Productivity

A measure of the effective use of resources, usually

expressed as the ratio of output to input

Productivity measures are useful for Tracking an operating units performance over time

Judging the performance of an entire industry or

country


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Productivity Measures

Partial MeasuresOutput

Single Input;

Ouput

Labor;

Output

Capital

Multifactor MeasuresOutput

Multiple Inputs;

Ouput

Labor +Machine;

Output

Labor +Capital +Energy

Total MeasureGoods or services produced

All inputs used to produce the

Productivity= OutputInput


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Labor Productivity

is the ratio of (the real value of) output to the inputof labor. Where possible, hours worked, rather thanthe numbers of employees, is used as the measureof labor input. Specifically, how many goods or

services are produced within one working hour.With an increase in part-time employment, hoursworked provides the more accurate measure oflabor input. Labor productivity should be interpretedvery carefully if used as a measure of efficiency. In

particular, it reflects more than just the efficiency orproductivity of workers.


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Labor Productivity

Labor productivity is the ratio of output to labor input;and output is influenced by many factors that are outsideof workers' influence, including the nature and amount ofcapital equipment which is used to produce othercommodities, introduction of new technologies,

agricultural resources and management practices. Thereis an inverse relationship between the demand for laborand the wage rate that a business needs to pay for eachadditional worker employed. When the wages perworker are less, then labor becomes relatively cheaperthan for example using capital equipment and it

becomes more profitable for the business to take onmore employees.


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Multifactor Productivity

is the ratio of the real value of output to the combinedinput of labor and capital. The Standard neo-classicallabor market theory assumes that businesses seek tomaximize profits. They will therefore search in the longrun for the mix of factors of production (labor and capital)that produces the required level of output as efficientlyas possible for the lowest possible total cost.Sometimesthis measure is referred to as total factor productivity. Inprinciple, multifactor productivity is a better indicator ofefficiency. It measures how efficiently and effectively themain factors of production - labor and capital - combineto generate output


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What is themul t i factor

product iv i ty?

Productivity Calculation Example

Units produced: 5,500Standard price: $35/unitLabor input: 500 hours

Cost of labor of $25/hourCost of materials: $5,000Cost of overhead: 2x labor cost


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Answer Question no (1)32

Productivity for may = output / input

800 / (200+100+400+50) = 1.07

Productivity for June= output / input

1200 / ( 400+150+ 500+60) = 1.08

The change between may and June productivity

increases by 0.01



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Question (2)33

The weekly output of a fabrication process is 400units. The standard selling price is L.E 125 perunit. Assume the number of workers are 15, eachwork 40 hours a week and hourly wage of L.E 15.

material cost is L.E 50 per unit and overheadcharged at the rate of 2000 plus 10% of the laborcost.

Compute: 1- labor productivity.

2- multifactor productivity.



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Answer for Question (2)34

Labor productivity= output / labor input.

400 x 125 / ( 15 x 40 x 15 )= 5.6

Total productivity= total output / total input

400 x 125 / ( 15 x 40 x 15 ) + ( 50 x 400 ) + ( 2000+ 10% x ( 15 x 40 x 15 )= 1.57



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productivity growth

At the national level, productivity growth raises livingstandards because more real income improvespeople's ability to purchase goods and services,enjoy leisure, improve housing and education andcontribute to social and environmental programs.

Productivity growth is important to the firm becauseit means that the firm can meet its (perhapsgrowing) obligations to customers, suppliers,workers, shareholders, and governments (taxes andregulation), and still remain competitive or even

improve its competitiveness in the market place


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Growth - Manufacturing

0.2

1.2

21.6

0

1

2

3

4

5

1987-1990 1990-1995 1995-2000 2000-2006

Growth in the Manufacturing Sector


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Importance of national productivitygrowth

Productivity growth is a crucial source of growth in livingstandards. Productivity growth means more value isadded in production and this means more income isavailable to be distributed.

At a firm or industry level, the benefits of productivity

growth can be distributed in a number of different ways:1.to the workforce through better wages and conditions

2.to shareholders through increased profits and dividenddistributions

3.to customers through lower prices

4.to the environment through more environmentalprotection

5.to governments through increases in tax payments(which can be used to fund social and environmentalprograms).


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Sources of productivity growth

In the most immediate sense, productivity is determinedby:1.the available technology or know-how for converting

resources into outputs desired in an economy; and2.the way in which resources are organized in firms and

industries to produce goods and services. Average productivity can improve as firms move toward

the best available technology; plants and firms with poorproductivity performance cease operation; and as newtechnologies become available. Firms can changeorganizational structures (e.g. core functions andsupplier relationships), management systems and workarrangements to take the best advantage of newtechnologies and changing market opportunities. Anation's average productivity level can also be affectedby the movement of resources from low-productivity tohigh-productivity industries and activities.


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Factors Affecting Productivity

Capital

Methods

Technology Management

Quality


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Improving Productivity

1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations

3. Develop methods for productivity improvements

4. Establish reasonable goals

5. Make it clear that management supports and encouragesproductivity improvement

6. Measure and publicize improvements

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Production Operatoin Management -Chap002