Chapter 2 –

Competitiveness and Productivity

Operations Management

by

R. Dan Reid & Nada R. Sanders

2 nd Edition © Wiley 2005 PowerPoint Presentation by R.B. Clough - UNH © 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?

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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 

Product & service consistency:

  Meets design specifications Close tolerances  Error free delivery © 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

Rapid development speed

 Using concurrent processes to shorten product development 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

P



Outputs Inputs

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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)

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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



Inputs

24

tables

16

hours

 1 .

5

tables

/

hour

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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

Outputs Inputs

 $2400 $1700   200  1.41

units

 200

units

$6.50 /

unit

 $12 /   40

unit hours

 $10 /

hour

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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 (P time (P 1 ) 2 ) to the same process’ productivity at an earlier

Growth Rate



P

2 

P

1

P

1 © 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

P

1  150 200

units hours

 0 .

75

units

/

hour P

2  180

units

250

hours Growth Rate

  0 .

72

units

/

hour P

2 

P

1

P

1  0 .

75

or a negative

4 %

growth rate

  0 .

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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.

Unit car sales Employees 2003 2002 2001

2,700,000 2,400,000 2,100,000

Labor Productivity

112,000 113,000 115,000 2003 2002 2001 Unit Car Sales/Employee 24.1 21.2 18.3

Year-to-year Improvement 13.7% 15.8%

$ Sales

(billions$)

Cost of Sales

(billions) $49,000 $39,000 $41,000 $33,000 $38,000 $32,000

Total Productivity

Total Cost Productivity 1.26 1.24 1.19

Year-to-year Improvement 1.6% 4.2%

Which is the best measurement?

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Homework

Ch. 2 Problems: 1, 5, 6, 8, 9.

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