Production and Operations Management

1. Production and Operations Management Competitiveness, Strategy, and Productivity

2. Learning Objectives • List and briefly discuss the primary ways that business organizations compete. • List five reasons for the poor competitiveness of some companies. • Define the term mission and strategy and explain why strategy is important for competitiveness.

3. Learning Objectives • Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two • Describe and give examples of time-based strategies • Define the term productivity and explain why it is important to organizations and to countries • Describe several factors that affect productivity

4. Introduction -- 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

5. 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?

6. Competitiveness -- Businesses Compete Using Marketing • Identifying consumer wants and needs • Pricing • Advertising and promotion

7. Competitiveness -- Businesses Compete Using Operations(1/2) • Product and service design • Cost • Location • Quality • Quick response

8. Competitiveness -- Businesses Compete Using Operations(2/2) • Flexibility • Inventory management • Supply chain management • Service and service quality • Managers and workers

9. Competitiveness -- Why Some Organizations Fail • Too much emphasis on short-term financial performance • Failing to take advantage of strengths and opportunities • Neglecting operations strategy • Failing to recognize competitive threats

10. Mission Strategy Tactics Strategy -- Mission/Strategy/Tactics How do mission, strategies and tactics relate to decision making and distinctive competencies?

11. Strategy • Mission • Explains the existence for an organization • Mission Statement • States the purpose of an organization • Goals • Provide detail and scope of mission • Strategies • Plans for achieving organizational goals • Tactics • The methods and actions taken to accomplish strategies

12. Mission Organizational Goals OrganizationalStrategies Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics OperatingProcedures OperatingProcedures OperatingProcedures Strategy -- Planning and Decision Making

13. Strategy -- Example Jun Hee 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

14. Strategy -- Examples of Strategies • Low cost • Scale-based strategies • Specialization • Flexible operations • High quality • Service

15. Strategy -- Strategy and Tactics • Distinctive Competencies The special attributes or abilities that give an organization a competitive edge. • Strategy Factors • Price • Quality • Time • Flexibility • Service • Location

16. Examples Price Low Cost National first-class postage, Carrefour, Jetstar Quality High-performance design and/or high quality Consistent quality Sony TV, Lexus, Disneyland Coca-Cola, PepsiCo, Kodak,McDonald’s restaurants, UPS Pizza Hut, FedEx Time Rapid deliveryOn-time delivery Flexibility Variety Volume Burger King McDonald’s Service Superior customer service Disneyland, Hewlett-Packard, IBM Location Convenience Supermarkets, dry cleaners

17. Strategy -- Strategy Formulation • Distinctive competencies • Environmental scanning • SWOT • Order qualifiers • Order winners

18. Strategy --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

19. Global Strategy • Strategic decisions must be made with respect to globalization • What works in one country may not work in another • Strategies must be changed to account for these differences • Other issues • Political, social, cultural, and economic differences

20. Key External Factors • Economic conditions • Political conditions • Legal environment • Technology • Competition • Markets

21. Key Internal Factors • Human Resources • Facilities and equipment • Financial resources • Customers • Products and services • Technology • Suppliers

22. Operations Strategy • Operations strategy: The approach consistent with organization strategy, that is used to guide the operations function.

23. Operations Strategy

24. Strategic OM Decisions

25. 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

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

27. 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

28. Output Productiv ity = Input Productivity • Partial measures • output/(single input) • Multi-factor measures • output/(multiple inputs) • Total measure • output/(total inputs)

29. Current Period Productivity – Previous Period Productivity Previous Period Productivity Productivity -- Productivity Growth Productivity Growth =

30. Productivity -- Measures of Productivity Partial Output Output Output Outputmeasures 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

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

32. Productivity -- Example 7040 Units Produced Cost of labor: $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.0 units per dollar of input

33. Productivity -- Example : Solution MFP = Output Labor + Materials + Overhead MFP = (7040 units) $1000 + $520 + $2000 MFP = 2.0 units per dollar of input

34. Productivity -- Process Yield • Process yield is the ratio of output of good product to input • Defective product is not included in the output • Service example: • Ratio of cars rented to cars available to rent

35. Capital Quality Technology Management Productivity -- Factors Affecting Productivity

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

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

38. Productivity -- Outsourcing • Higher productivity in another company is a key reason organizations outsource work • Improving productivity may reduce the need for outsourcing

39. 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 • Do not confuse productivity with efficiency