Operations Management Seventh Edition PDF

Operations Management Seventh Edition R. Dan Reid & Nada R. Sanders Chapter 2 Operations Strategy and Competitiveness ©2020 John Wiley & Sons, Inc. All rights reserved. Learning Objectives 1. Explain the role of operations strategy in the organization. 2. Ex...

Operations Management Seventh Edition R. Dan Reid & Nada R. Sanders Chapter 2 Operations Strategy and Competitiveness ©2020 John Wiley & Sons, Inc. All rights reserved. Learning Objectives 1. Explain the role of operations strategy in the organization. 2. Explain how a business strategy is developed. 3. Describe how an operations strategy is developed. 4. Explain the strategic role of technology. 5. Define productivity and identify productivity measures. © 2020 John Wiley & Sons, Inc. All rights reserved. 2  Learning Objective 1 Explain the role of operations strategy in the organization. LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 3  The Role of Operations Strategy A long-range plan for the operations function that specifies the design and use of resources to support the business strategy. Supports business strategy—an organization’s long-range plan (see chart on next slide). LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 4  Business/Functional Strategy FIGURE 2.1 Relationship between the business strategy and the functional strategies LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 5  Importance of Operations Strategy Essential differences between operational efficiency and strategy: o Operational efficiency is performing operations tasks well, even better than competitors. o Strategy, on the other hand, is a plan for competing in the marketplace. LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 6  Learning Objective 2 Explain how a business strategy is developed. LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 7  Developing a Business Strategy Consider these three critical factors in developing a business strategy: o What business is the company in? (mission) o Does the company understand the market? (environmental scanning) o What are the company’s strengths? (core competencies) LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 8  Mission A statement that answers three key questions: o What business will the company be in? o Who will the customers be, and what are the expected customer attributes? o How will the company’s basic beliefs define the business? LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 9  Environmental Scanning The process of monitoring the external environment for changes and trends to determine business opportunities and threats. Trends in the environment: o marketplace trends o economic trends o political trends o social trends LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 10  Core Competencies The unique strengths of a business TABLE 2.1 Organizational Core Competencies 1. Workforce Highly trained Responsive in meeting customer needs Flexible in performing a variety of tasks Strong technical capability Creative in product design 2. Facilities Flexible in producing a variety of products Technologically advanced An efficient distribution system 3. Market Skilled in understanding customer wants and predicting market Understanding trends 4. Financial Know- Skilled in attracting and raising capital how 5. Technology Use of latest production technology Use of information technology Quality control techniques LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 11  Creating the Business Strategy FIGURE 2.2 Three inputs in developing a business strategy LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 12  Learning Objective 3 Describe how an operations strategy is developed. LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 13  Developing an Operations Strategy Operations strategy: Is a plan for the design and management of operations functions? Is developed after the business strategy? Focuses on specific capabilities which give it a competitive edge—competitive priorities. LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 14  Designing the Operations Function FIGURE 2.3 Operations strategy and the design of the operations function LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 15  Competitive Priorities: The Edge Four key operations priorities are: 1. Cost 2. Quality 3. Time 4. Flexibility LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 16 1. Competing on Cost Offer product at lower price than competition. o Often limit product range with little customization. o May invest in automation to increase productivity. o Might offer extra training to employees. o Focus on cutting costs and eliminating waste. o Low cost does not mean low quality. o Operations process that is designed to be as LO 3 efficient©as possible. 2020 John Wiley & Sons, Inc. All rights reserved. 17  2. Competing on Quality Quality is often subjective and is defined differently depending on who is defining it. Two major quality dimensions include: 1. High-performance design: superior features, high durability, and excellent customer service 2. Product and service consistency: meets design specifications close tolerances error-free delivery Quality must address o Product design quality — product/service meets requirements o Process quality — error-free products LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 18  3. Competing on Time Time/speed a top competitive priority. First to deliver often wins the race. Time-related issues involve: o Rapid and/or on-time delivery Focused on shorter time between order placement and delivering product exactly when needed every time. LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 19  4. Competing on Flexibility Business environments can change rapidly; companies must accommodate change by being flexible. o Product flexibility: Offer a wide variety of goods/services, easily customized to meet specific requirements of customer. Easily drop or add products to meet customer demand. o Volume flexibility: Ability to rapidly increase or decrease LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. production to match market demands. 20  The Need for Trade-offs Decisions: o must emphasize priorities that support business strategy o often require trade-offs between different priorities o must focus on order qualifiers and order winners LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 21  Order Qualifiers and Winners Which priorities are “order qualifiers”? Hint: Must meet market’s competitive priorities since market expects it Which priorities are “order winners”? Hint: Dell competes on all four priorities. o Southwest Airlines competes on cost. o McDonald’s competes on consistency. o FedEx competes on speed. o Pizzerias compete on homemade taste. LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 22  Translating Competitive Priorities into Production Requirements Structure decisions Infrastructure related to the decisions related to production process: planning and control o characteristics of systems of facilities used operations: o selection of o organization of appropriate operations function technology o skill/pay of workers o flow of goods and o quality control services approaches LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 23  Learning Objective 4 Explain the strategic role of technology. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 24  Strategic Role of Technology Technology must support competitive priorities. Three types of technology applications: 1. Product technology (new technology) Examples: Teflon, GORE-TEX, Apple watch 2. Process technology (improves process) Examples: 3D printing, CAD, CAM 3. Information technology (enables communication, processing, and storage of information) Examples: Internet and e-commerce, ERP LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 25  Technology as a Tool for Competitive Advantage Positive potential Negative potential Benefits Risks o Improve processes o Costly o Maintain up-to-date o Can overstate standards benefits o Gain competitive o Obsolescence advantage Technology: Supports competitive priorities Can require change to strategic plans Can require change to operations LO 4 strategy © 2020 John Wiley & Sons, Inc. All rights reserved. 26  Learning Objective 5 Define productivity and identify productivity measures. LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 27  Measuring Productivity Productivity is a measure of how efficiently inputs are converted to outputs Productivity = Output/Input Total Productivity Measure Total Productivity = Output produced/All inputs used Partial Productivity Measure Partial Productivity = Output/Labor or Output/Capital Multifactor Productivity Measure LO 5 Multi-factor© 2020 Productivity =All rights John Wiley & Sons, Inc. Output/Labor reserved. + 28  Measuring Productivity: Table 2.2 TABLE 2.2 Productivity Measure Output produced Total Productivity Measure All inputs used Output Output or or Labor Machines Partial Productivity Measure Output Output or Materials Capital Output Multifactor Productivity Measure or Labor +machines Output or Labor +materials Output Labor +capital +energy LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 29  Example 2.1: Computing Productivity Long Beach Bank employs three loan officers, each working eight hours per day. Each officer processes an average of five loans per day. The bank’s payroll cost for the officers is $820 per day, and there is a daily overhead expense of $500. The bank has just purchased new computer software that should enable each officer to process eight loans per day, although the overhead expense will increase to $550. Evaluate the change in labor and multifactor productivity before and after implementation of the new computer software. Before You Begin When solving productivity problems, make sure that the value of outputs and inputs is computed over the same time period, such as day, week, month, or year. Also, when evaluating a change in productivity, compute the productivity before and after the expected change and calculate the percentage difference. LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 30  Computing Productivity Examples Solution 3 officers  5 loans day 15 loans day Labor-productivityold   24 labor-hours 24 labor-hours = 0.625 loans per labor- hour 3 officers  8 loans day 24 loans day Labor productivitynew   24 labor-hours 24 labor-hours = 1.00 loans per labor- hour 15 loans day Multifactor productivityold  0.0113 loans dollar $820 day  $500 day 24loans day Multifactor productivitynew  0.0175loans dollar $820 day  $550 day The change in labor productivity is from 0.625 to 1.00 loans per labor-hour. This results in an increase of 1.00/0.625 = 1.6 , or an increase of 60 percent. The change in multifactor productivity is from 0.0113 to 0.0175 loans per dollar. This results in an increase of 0.0175/0.0113 = 1.55 , or an increase of 55 percent. LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 31  Interpreting Productivity Measures Productivity measures must be compared to something, e.g., another year, a different company. Raw productivity calculations do not tell the complete story unless there are no major structure differences. Productivity measures provide information on how the firm is doing relative to what is critical to the firm. LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 32  Productivity and Competitiveness Productivity is a scorecard on efficient resource use. o A nation’s productivity is directly related to the standard of living. o Productivity in the United States had been increasing for over 100 years, until the 1970s. o In the 1970s and 1980s productivity dropped, even lagging behind that of other industrial nations. o Fortunately, productivity rebounded in the mid- and late 1990s. LO 5 o Today, companies understand © 2020 John Wiley & the importance of Sons, Inc. All rights reserved. 33  Changes in U.S. Productivity FIGURE 2.4 Percentage change in U.S. business sector productivity (output per hour) Source: Bureau of Labor Statistics LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 34  Productivity and the Service Sector Measuring service sector productivity is a unique challenge. o Traditional measures focus on tangible outcomes. o Service industries primarily produce intangible outcomes. o Measuring intangibles is challenging. LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 35  Operations Strategy within OM Strategic decisions of firm drive tactical decisions. Business strategy defines long-term planning. Operations strategy supports the business strategy. Marketing strategy needs to fully understand operations capability. Financial plans in effect support operations activities. LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 36 Chapter 2 Highlights (LO 1−2) The role of operations strategy is to provide a long- range plan for the use of the company’s resources in producing the company’s primary goods and services. o Business strategy is a long-range plan and vision. Each individual business function needs to support the business strategy. An organization develops its business strategy by doing environmental scanning and considering its mission and its core competencies. o The role of business strategy is to serve as an overall guide for the development of the organization’s operations © 2020 John strategy. Wiley & Sons, Inc. All rights reserved. 37 Chapter 2 Highlights (LO 3−5) The operations strategy focuses on developing specific capabilities called competitive priorities. o There are four categories of competitive priorities: cost, quality, time, and flexibility. Technology can be used by companies to gain a competitive advantage and should be acquired to support the company’s chosen competitive priorities. Productivity is a measure that indicates how efficiently an organization is using its resources. o Productivity is computed as the ratio of organizational outputs divided by inputs. © 2020 John Wiley & Sons, Inc. All rights reserved. 38 Copyright ©2020 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://wiley.com/go/permissions. © 2020 John Wiley & Sons, Inc. All rights reserved. 39