Operations Performance Analysis: Productivity, Competiveness & Strategy

Operations Performance Analysis
Productivity, Competiveness &

Strategy
Lec-2
Competitiveness:
How effectively an organization meets the wants

and needs of customers relative to others that
offer similar goods or services
Business Compete Using Operation
• Product and service design

• Cost
• Location
• Quality
• Quick response
• Flexibility
• Inventory management
• Supply chain management
• Service
• Managers & 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
Mission/Strategy/Tactics
Mission Strategy Tactics
How does mission, strategies and tactics relate to

decision making and distinctive competencies?
Hierarchy of Planning & Decision Making
Strategy
• Mission
– The reason for existence for an organization
• Mission Statement
– Answers the question “What business are we in?”
• Goals
– Provide detail and scope of mission
• Strategies
–Plans for achieving organizational goals
• Tactics
– The methods and actions taken to accomplish strategies
What is Strategy?
 Strategies can be hierarchical

 Strategies support higher level
management decisions
 A strategy is a plan for survival
 Time horizon: Long term
 Specify broad objectives to be reached
 Specify how objectives will be reached
 Specify milestones to monitor
performance
 A strategy is not a Wish List

Strategy and Tactics
• Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge.
– Price
– Quality
– Time
– Flexibility
– Service
– Location
Examples of Distinctive Competencies
Price Low Cost U.S. first-class postage,

Walmart
Quality High-performance design Sony TV

or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Apple
Time Rapid delivery DHL, Fedex, UPS

On-time delivery
Flexibility Variety Supermarkets

Volume
Service Superior customer Disneyland, Amazon

service
Location Convenience Banks, ATMs

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
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
Porter’s Five Forces Model
External Environment
Key Internal Factors
• Human Resources
• Facilities and equipment
• Financial resources
• Customers
• Products and services
• Technology
• Suppliers
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
Time-based Strategies
JAN FEB MAR APR MAY JUN
Planning
Designing
Processing
Changeover On time!
Delivery
Competitive Strategies
• Cost Leadership:
 Become the low-cost producer in the industry
 Standard, no-frills product
 Achieve economies of scale
 Must offer:
– Identical product offering to competitors
– Different combination that is equally preferred
Example
• Toyota are a good example of
cost leadership. They have a
wide range of models and
produce high quality cars at
minimum cost
• A difficult strategy to maintain.

Competitive Strategies (Cont.)
•Differentiation
Seeks to be unique in its industry

Selects one or more important attributes
–Perceived as important and unique
Positions itself to meet those needs

Can charge premium price
Differentiation can be based on:
–Product
–Delivery system
–Marketing approach
–Etc.
Competitive Strategies (Cont.)
• Focus
 Choice of narrow
competitive scope
within industry
 Optimize strategy for
target segment
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
Productivity
• Partial measures
– output/(single input)
• Multi-factor measures
– output/(multiple inputs)
• Total measure
– output/(total inputs)
Outputs
Productivity =
Inputs
Measures of Productivity
Partial Output Output Output Output

measures 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
Example
7040 Units Produced
Sold for $1.10/unit
Cost of labor of $1,000 What is the

multifactor
Cost of materials: $520 productivity?
Cost of overhead: $2000 Ans. 2.20

Example Solution
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)

$1000 + $520 + $2000
MFP = 2.20
Factors Affecting Productivity
Capital Quality
Technology Management
Other Factors Affecting Productivity
• Standardization
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers
Other Factors Affecting Productivity
• Safety
• Shortage of IT workers
• Layoffs
• Labor turnover
• Design of the workspace
• Incentive plans that reward 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
• Don’t confuse productivity with efficiency
Operations Performance
Performance at three levels:

• The broad, societal level –“triple bottom line”
• The strategic level –contribute to the organization's

overall strategy
• The operational level –five operations “performance

objectives ”.
Triple Bottom Line Performance
• Recyclability of materials, energy consumption and
waste material generation
• Reducing transport-related energy
• Noise pollution, fume and émission pollution
• Obsolescence and wastage
• Environmental impact of process failures
• Recovery to minimize impact of failures
• Customer safety from products and services
• Employment impact of an operation’s location
• Employment implications of outsourcing
• Repetitive or alienating work
• Staff safety and workplace stress
• Non-exploitation of developing country suppliers
Some Typical Stakeholder Groups for OM
• Cost of producing products and services
• Revenue from the effects of quality, speed,
dependability and flexibility
• Effectiveness of investment in operations resources
• Risk and resilience of supply
• Building capabilities for the future
The five operations performance objectives
The benefits of excelling at the five objectives
Two common meanings of ‘Quality’
Quality as the specification of a product or service.
Quality as the conformance to customers’ expectations.
External and internal benefits of conformance quality

• Externally–it enhances the product or service in the
market, or at least avoids customer complaints.
• Internally–it brings other benefits to the operation.
Benefits of Speed
Speed means the elapsed time between customer requesting

products or services and their receiving them
External and internal benefits of speed:
• Externally–It often enhances the value of the product or service to

customers.
• Internally–It brings other benefits to the operation.

It helps to overcome internal problems by maintaining dependability.
It reduces the need to manage transformed resources as they pass
through the operation, therefore saving cost.
Benefits of Dependability
Dependability means doing things in time for customers to receive

products or services exactly when they are needed or at least
when they were promised.
External and internal benefits of dependability
• Externally–it enhances the product or service in the market, or at

least avoids customer complaints.
• Internally–it brings other benefits to the operation.
It prevents late delivery slowing down throughput speed.
It prevents lateness causing disruption and wasted time and effort,
therefore saving cost.
Flexibility– Meaning
Flexibility has several distinct meanings but is always

associated with an operation’s ability it change
• The products and services introduced to the market –

product/service flexibility
• The mix of products and services it produces at any one time –
mix flexibility
• The volume of products and services it produces –volume
flexibility
• The delivery time of its products and services –delivery
flexibility
Cost
Cost is always an important objective for operations
management even if the organization does not direct
compete on price.
Performance Objectives Trade-off
Polar diagrams are used to indicate the relative importance of each performance
objective to an operation or process.
Priority Trade-offs
• Generally very difficult to excel at all five

performance dimensions.
• Some common conflicts:
–Low cost versus high quality
–Low cost versus flexibility
–Delivery reliability versus flexibility
–Conformance quality versus product flexibility

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Operations Performance Analysis

Productivity, Competiveness &

How effectively an organization meets the wants

• Product and service design

• Too much emphasis on short-term financial performance

Mission Strategy Tactics

How does mission, strategies and tactics relate to

 Strategies can be hierarchical

 A strategy is not a Wish List

Price Low Cost U.S. first-class postage,

Quality High-performance design Sony TV

Time Rapid delivery DHL, Fedex, UPS

Flexibility Variety Supermarkets

Service Superior customer Disneyland, Amazon

Location Convenience Banks, ATMs

• Strategic decisions must be made with respect to

• What works in one country may not work in another

• Strategies must be changed to account for these

JAN FEB MAR APR MAY JUN

• A difficult strategy to maintain.

Seeks to be unique in its industry

Positions itself to meet those needs

• Productivity ratios are used for

Partial Output Output Output Output

Multifactor Output Output

Total Goods or Services Produced

7040 Units Produced

Sold for $1.10/unit

Cost of labor of $1,000 What is the

Cost of overhead: $2000 Ans. 2.20

MFP = (7040 units)*($1.10)

• Develop productivity measures

Performance at three levels:

• The strategic level –contribute to the organization's

• The operational level –five operations “performance

Quality as the specification of a product or service.

Quality as the conformance to customers’ expectations.

External and internal benefits of conformance quality

Speed means the elapsed time between customer requesting

External and internal benefits of speed:

• Externally–It often enhances the value of the product or service to

• Internally–It brings other benefits to the operation.

Dependability means doing things in time for customers to receive

External and internal benefits of dependability

• Externally–it enhances the product or service in the market, or at

Flexibility has several distinct meanings but is always

• The products and services introduced to the market –

• Generally very difficult to excel at all five

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