Recap

hat is Operations?
 Operations is the set of activities that convert inputs into 

goods or services.

 Match the supply to demand.
hat is the primary goal of Operations management?
 Recap

 The Scope of Operations Management (Details will be 
covered later in this semester).
 Continuous improvement
 Capacity
 Goal of capacity planning
 Goal of inventory management
 ERP
CHAPTER 2

Competitiveness, Strategy, and 
Productivity 
 The Cold Hard Facts ­­ Competition

    The name of the game is competition.
    The playing field is global.
    Those who understand how to play the game will succeed;
     those who don’t are doomed to failure!

4
A Cold Hard Fact

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

                                 The bar is getting higher!

5
Chapter Focus

Competitiveness
Strategy
Productivity

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Competitiveness

7
Competitiveness

    How effectively an organization meets the wants and 
needs of customers relative to others that offer similar 
goods or services.

8
Businesses Compete Using Marketing

Identifying consumer wants and needs
Achieve a perfect match between consumer needs and the 
organization’s goods or services.
Pricing
Key factor in consumer buying decision.
Trade­off with other aspects.

Advertising and promotion
Ways to inform and attract customers.

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Advertising and promotion
Example: Coach creates a new market for itself by changing 
women’s view of handbags by promoting “different handbags 
for different occasions” such as party bags, totes, and purses.  

10
Businesses Compete Using Operations

Product and service design
Achieve a match between financial resources, operations 
capabilities, and consumer needs.

Cost
A company may outsource a portion of its operation to 
achieve lower costs or better quality.

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Businesses Compete Using Operations

Location
Location near inputs can result in lower input costs.
Location near markets can result in lower transportation 
costs and quicker delivery times.

Quality
Customers are generally willing to pay if they perceive 
the product or service has a higher quality than that of a 
competitor.

12
Businesses Compete Using Operations

Quick response
Quickly bringing new products or services to the market.
Quickly delivering existing products or services to a 
customer.
Quickly handling customer complaints.

Flexibility
The ability to respond to changes.

13
Businesses Compete Using Operations

Inventory management
Effectively matching supplies with demand.

Service
After­sale activities such as warranty work and technical 
support.
Business rated highly for service quality tend to be more 
profitable and grow faster.

14
Keys to Successfully Competing

What do the customers want?
What is the best way to satisfy these wants?

15
Case Study: Dell

Outsourcing components instead of making them
Reduce cost

Selling directly to PC buyers, instead of selling to dealers.

Eliminating some intermediaries, which allows lower 
cost and faster delivery.
Direct contact with customers, which gains insight into 
their needs and expectations.

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Case Study: Dell

Having little inventory
Lower inventory cost
Offer newer models much sooner than competitors.

Take advantage of lower prices.

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S trate g y

18
Mission/Strategy/Tactics

Mission Strategy Tactics

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Mission

Mission
The reason for the existence of an organization

's mission is to organize the world's information and 
make it universally accessible and useful.

's mission is dedication to the highest quality of 
customer service delivered with a sense of warmth, 
friendliness, individual pride, and company spirit.

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Strategies

Strategy
A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational 
destinations

Tactics
The methods and actions taken to accomplish strategies
Example

Rita 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.
• Strategy:   Obtain a college education.
• Tactics:      Select a college and a major; decide how
                        to finance college.

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Examples of Strategies

Low cost – outsourcing
Specialization – narrow product lines
Newness – innovation
Flexible operations ­ quick response
Examples of High Quality Strategy

Nordstrom

The Personal Book, a client software, helps salespeople track their customers’ 
personal preferences, giving them a more comprehensive service relationship 
with their customers.
Sample Strategies

Examples of Companies or
Organizational Strategy Operations Strategy Services
Low Price Low Cost Wal-Mart
Southwest Airlines

High Quality High performance design Sony TV

and/or high quality Lexus
processing

Consistent Quality Coca-Cola; PepsiCo

Short Time Quick Response McDonald’s Restaurants; One-hour

photo
On-time delivery Domino’s Pizza; FedEx

Variety Flexibility Burger King (“Have it your way”)

Service Superior customer service Disneyland

Nordstrom

Location Convenience Supermarkets

Mall Stores, ATMs
Time­Based Strategies

Time­based strategies
Strategies that focus on the reduction of time needed to 
accomplish tasks
It is believed that by reducing time, costs are lower, productivity 
is higher, and customer service is improved

26
Time­Based Strategies

Areas where organizations have achieved time 
reductions:
Product/service design time
Processing time
Changeover time
The time needed to change from producing one type of product 
or service to another.
Delivery time
Response time for complaints

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Examples in Reduction of Processing Time

Burger King:
Restructure the menu, combine items into meal packages 
such as a burger, fries, and soft drink.
Enable the counter staff to enter orders with a single 
keystroke instead of multiple keystrokes, reducing the 
time needed to take an order.
Enable them to take orders more quickly, increase 
productivity, reduce labor requirements, and produce 
higher profits.

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Pro duc tivity

29
Productivity

Productivity
A measure of the effective use of resources
Output
Productivity =
Input
Input: labor, material, energy, and others.
Input:
Output: goods and services
Output:

Why Productivity Matters
A higher productivity gives a competitive advantage in 
the market.
Productivity Measures

Labor productivity

Units of output
Labor hours

Dollar value of output

Labor hours
Example 1

Four workers installed 720 square yards of carpeting in eight 
hours, what is the labor productivity (in terms of units of 
output per labor hour)?
Yards of carpet installed
Productivity=
Labor hours
720 square yards
                      = 4 workers * 8 hours/worker

                      = 720 square yards

32 hours
                      =  22.5 square yards/labor hour
                      

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Example 2

Four workers installed 720 square yards of carpeting in eight 
hours, $8 is earned by installing 1 square yard of carpeting. 
what is the labor productivity (in terms of dollar value of 
output per labor hour)?
Dollar value of installed carpet
Productivity=
Labor hours
720 square yards * $8/square yard
                      =
4 workers * $8/worker
$5760
                      =
32 hours
                      =  $180/labor hour
                      

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Productivity Measures

*Labor productivity
Units of output
Labor hours

Dollar value of output

Labor hours
Productivity Measures

Multifactor productivity

Units of output
Labor cost Materials cost Overhead

Dollar value of output

Labor cost Materials cost Overhead
U.S. Multifactor Productivity

U.S. Multifactor Productivity

(1975 - 2007)

115
MFP (Index, 2000 = 100)

110
105
100
95
90
85
80

Year
Example 3

Output: 7,040 units             Labor cost: $1,000
      Materials cost: $520             Overhead: $2,000
       Units of output
Productivity= Labor cost Materials cost Overhead
7,040 units
                      = $1,000 $520 $2,000

                      =  2 units/dollar input

37
Example 4

Output: 7,040 units             Labor cost: $1,000
      Material cost: $520             Overhead: $2,000
      Selling price: $2/unit
Dollar value of output
Productivity=
Labor cost Material cost Overhead
7,040 units * $2/unit
                      =
$1,000 $520 $2,000
                      =  $4/dollar input

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 Productivity Growth

Current productivity - Previous productivity

Productivity Growth = 100%
Previous productivity

Example:  Labor productivity on the ABC assembly line was 25 units per hour 
in 2006.  In 2007, labor productivity was 23 units per hour.  What was the 
productivity growth from 2006 to 2007?

23 - 25
Productivity Growth = 100%  8%
25


Recap

Mission: The reason for the existence of an organization.
Live a good life.

Strategy: Plans for achieving organizational goals.
Obtain a college education.

Tactics: The methods and actions taken to accomplish 
strategies.
Select a college and a major; how to finance college.

40
Recap

*Labor productivity
Units of output
Labor hours

Dollar value of output

Labor hours
Recap

*Multifactor productivity
Units of output
Labor cost Materials cost Overhead

Dollar value of output

Labor cost Materials cost Overhead

*Productivity Growth
Current productivity - Previous productivity
100%
Previous productivity