Productivity, Competitiveness, & Strategy

8/10/2019 Productivity, Competitiveness, & Strategy

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Lesson 03

Productivity, Competitiveness & Strategy

Three separate but related topics

extremely important to businesssuccess


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A Cold Hard Fact

Better quality, higher productivity, lower costs, and the ability to respondquickly to customer needs are more important than ever and

the bar is getting higher


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A measure of the effective use of resources, usually expressed as the

ratio of output to input.

Productivity measures can be computed for a single operation, a

department, an organization, or even an entire country.

Productivity measures are useful for tracking performance over time(they tell whether performance is improving or not)

Productivity

InputOutputtyProductivi


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Single Factor (Partial)Productivity Measures

EnergyOutput

CapitalOutput

MachineOutput

LaborOutput

Labor Productivity Units of output per labor hour, units of output

per shift, value-added per labor hour, dollarvalue of output per labor hourMachine Productivity Units of output per machine hour, dollar value

of output per machine hourCapital Productivity Units of output per dollar ($) input, dollar value

of output per dollar inputEnergy Productivity Units of output per kilowatt-hour, dollar value of

output per kilowatt-hour


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Example 2: Develop a productivity measure fora. 4 workers who install 720 yards of carpeting in 8 hours

Single Factor (Partial)Productivity Measures

yds/hour22.58*4

720

HoursLabor

InstalledCarpetofYardsLaborOutput

b. 1 machine produces 68 usable pieces in 2 hours

4 rpieces/hou3

2

68

TimeProduction

PiecesUsable

Labor

Output


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Multi-factor Productivity Measures

EnergyCapitalLaborOutput

MachineLaborOutput

Labor Capital

Technology Energy


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Example 3: Develop a productivity measure for the combined input of

labor and machine time using the following data:Output: 7,040 unitsInputs: Labor - $1,000, Materials - $520, Overhead - $2,000


t$units/inpu2,0005201,000

7,040OverheadMaterialLabor Output 2


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Example 4 (not in textbook): Develop the following productivity

measures for a product that utilizes labor and machine time. Assume10,000 units are produced in 500 hours and are sold for $10/unit. Thelabor rate is $9/hour.

Option 1: Productivity as a measure of units.

5units/hour20

00

10,000HoursLabor

UnitsOutput

Option 2: Productivity as a measure of $

5 $$/InputOutput22.29*00

10*10,000$Labor $Output

Can you think of any advantages or disadvantages for each option?


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Example 5: Develop a productivity measures for a product that utilizes

labor machine time, raw materials and purchased materials. Assume10,000 units are produced in 500 hours and are sold for $10/unit. Thelabor rate is $9/hour, the cost of the raw materials is $5,000 and the costof purchased materials is $25,000.


$$/InputOutput2.934,500100,000

$Labor$Output

34,50025,0005,0009*500$Input

100,00010*10,000$Output


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Example 6: Develop a productivity measures for a product that utilizes

labor machine time, raw materials and purchased materials. Assume5,000 units are produced in 500 hours and are sold for $30/unit. Thelabor rate is $25/hour, the cost of the materials is $5,000 and the cost ofoverhead is 2X labor cost.

Overhead+Material+LaborOutput=tyProductivirMultifacto

$25/hour)hours(500*2+$5,000+$25/hour)hours(500

$30/unitunits5,000=

3.5294=

500,42$

$150,000=


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Productivity measures are very important and useful to the operations

manager because they

. Are critical to the planning process

. Are performance scorecards for departments/organizations

. Track performance over time

. Indicate where improvements must be made

. Show how much improvement is achieved

Why Have Productivity Measures?

Caution must be used when interpreting productivity measures: thesituation and conditions under which a productivity measure is createdmay not be relative to another set of conditions or situation.


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Productivity Improvements

Productivity improvements are necessary to remain competitive. One of

the production managers responsibilities is to seek out productivityimprovements on a routine basis. Productivity improvements can resultwhen organizations

. Become more efficient

. Downsize

. Expand

. Retrench

.Achieve breakthroughs


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Example 7: Suppose you are a newly hired employee for a carpet retail

store and are given the assignment of planning carpet installationprojects. You are given the following productivity measure for a carpetinstallation team.

Productivity = 22.5 yards/per hour

What would you need to know in order to use this productivity measure?

Interpreting Productivity Measures


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Measuring Productivity Growth/Decline %

%100typroductiviPrevious

typroductiviPrevious-typroductiviCurrent=

lineGrowth/DectyProductivi

Be sure to always explain whether productivity is growing or declining.

Example 8: Labor productivity on the ABC assembly linewas 25 units per hour in2009. In 2010, labor productivity was 23 units per hour. What was the productivitygrowth/decline from 2009 to 2010?

%8%1002525-23=DeclinetyProductivi


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To improve productivity

. Develop productivity measures for each operationaldepartment (measurement is the key ingredient in managingand controlling operations)

. Determine critical operations by looking at the system as awhole to see how interrelationships or bottlenecks affectproductivity

How to Improve Productivity

Operation

BottleneckOperation

Operation

Operation

Operation


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To improve productivity (continued)

. Develop methods for soliciting improvement ideas (workers,teams, benchmarking competition, best industry practices,

consultants)

. Establish reasonable goals for improvement (remember thejourney of 1000 miles begins with the first step - dont turnpeople off by creating impossible tasks - break them up intobite sized chunks)

. Make it clear that management supports improvement ideasand consider incentives for contributors

. Publicize productivity measures and make sure they areunderstood


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To improve productivity (continued)

. Do not confuse efficiencywithproductivity- efficiencydeals with the best way to do a job with the

current tools-productivitydeals with the best way to do a job and

may require operational changes, capital investmentsor retraining

efficiency

productivity


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Competitiveness

Competitiveness is a measure of how well an organization performs

relative to others who offer similar goods/services.

Measures of Competitiveness.Market Share

. Profitability

. Growth


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. Too much emphasis on short-term financial performance at the trade-

off of research and development. Failure to identify distinctive competencies (strengths and

weaknesses) and failure to capitalize on the strengths whileimproving the weaknesses

. Failure to recognize competitive threats (e.g. apparel industry). Too much emphasis on product/service design and not enough onthe process of producing the product/service

. Neglecting investments in both capital and human resources

. Failure to establish good internal communications system and

cooperative environment between different functional areas. Failure to consider customer wants and needs

Reasons for Failure


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Strategy TacticsMission

addresses the following questions

Why do you exist?

Where are you?

Where do you want to go?

How will you get there?

The development of a strategic plan begins with setting priorities.

Strategic Planning


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. Mission - why the organization exists- guides the formulation of the strategic plan

. Mission Statement-a clear statement of purpose

. Situation Analysis-current and future analysis of external andinternal factors that can affect your future

. Goals/Objectives-what the organization wants to accomplishtypically with a time frame in mind

. Strategy-a plan for achieving the goals/objectives

. Tactics-the actions to accomplish strategy

. Operations-executing the action items

Elements of a Strategic Plan


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Hierarchy of Planning & Decision Making

Mission

Goals

Organizational strategy

Functional strategies

Finance Marketing Operations

Tactics Tactics Tactics

Financeoperations

Marketingoperations

Operationsoperations


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Situational Analysis (Where are you?)

An objective assessment of an organizations current and future situation

relative to. Competitionwhat they currently do or have plans to do

. Distinctive competencieswhat the organization does welland gives it a competitive advantage

. SWOTa comparison of your strengths, weaknesses,opportunities and threats versus your competitors . External and internal factors


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Internal

. human resources

. facilities and equipment

. financial resources

. customers

. products/services

. technology

. suppliers

External

. economic conditions

. political conditions

. legal environment

. technology

. competition

. markets

. other

External and Internal Factors


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Strategic Planning Model

Socio-economic, political and businessenvironment

Future directions -global strategy, products,

services, etc

Competitive priorities -Cost, quality, time,

flexibility, etc

Capabilities -current, needed,

plans, SWOT

Corporate Strategy - mission, goals,competencies

Market analysis -ssegmentation, needs assessment

Functional area strategiesFinance, Operations, Marketing


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Marketplace

Corporate Strategy

Operations Strategy

Operations Management

Marketing StrategyFinance Strategy

People Plants Parts Processes

Planning & Control

Production System (5 Ps of Operations Management)

Inputs Outputs

Operations Strategy


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Quality-based strategies Focus on quality at the source in all

phases of an organization

Operations Strategies

Time-based strategies Focus on reduction of time

needed to accomplish tasks

Production-based strategies

Focus on processes, flow,machinery, automation


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Focus on the time needed to accomplish tasks. Some critical areas are

. Planningtime- the time needed to react to a competitivethreat, to develop strategies and select tactics, to approveproposed changes to facilities, to adopt new technologies

. Product/Servicedesigntime- the time needed to developand market new or redesigned products or services

. Processingtime- the time needed to produce goods orprovide services

. Changeovertime- the time needed to change from one

type of product to another. Deliverytime- the time needed to fill orders. Responsetimeforcomplaints- either from

customers or employees

Time Based Strategies


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A top-down management system that organizations can use to clarify their

vision and strategy and transform them into action Develop objectives

Develop metrics and targets for each objective

Develop initiatives to achieve objectives

Identify links among the various perspectives Finance

Customer

Internal business processes

Learning and growth Monitor results


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Read and understand all material in the chapter.

Discussion and Review Questions

Recreate and understand all classroom examples

Exercises on chapter web page

Homework

Documents

Productivity, Competitiveness, & Strategy