Lesson 02

Productivity, Competitiveness & Strategy

Three separate but related topics

extremely important to business
success

03 - 1
 Productivity
✔ Productivity can be defined as an economic measure of
output per unit of input. Inputs generally include labor and
capital, while output is typically measured in revenues.
✔ Productivity is the measure of how well the resources are
brought together in an organization & utilized for
accomplishing a set of objectives.
✔ Productivity is the multitier effect of efficiency &
effectiveness.
Productivity can be expressed as:
Productivity = (Output/Input)

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Efficiency & Effectiveness

• Efficiency is a measurable concept, quantitatively

determined by the ratio of output to input.
• "Effectiveness", is a relatively vague,
non-quantitative concept, mainly concerned with
achieving objectives.
• Effectiveness also implies to wisely using the
resources. In contrast to efficiency, effectiveness
is determined without reference to costs.
Efficiency means "doing the things right", while
effectiveness means "doing the right things".

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Productivity
A measure of the effective use of resources, usually expressed as the
ratio of output to input.

Productivity measures can be computed for a single operation, a

department, an organization, or even an entire country.

Productivity measures are useful for tracking performance over time

(they tell whether performance is improving or not)
03 - 4
 Single Factor (Partial)Productivity Measures

Labor Productivity Units of output per labor hour, units of output

per shift, value-added per labor hour, dollar value of output
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

03 - 5
 Dynamics of Productivity change:

Improvement in Productivity

Increase in
Wages

More output In
Increase in demand Better Machine
For Goods and services

Reduction
Lower of Greater
In product cost
Prices Employment

More Profit Higher

More Saving Investment

Dr.Md.Ahashan Habib, Associate Professor, Dept. of TEM, BUTex.

Dynamics of Productivity change

• Productivity improvements results in lower cost

per unit by effective utilization of all the resources
& reducing wastage. Lower cost per unit
contributes to increased profit levels so that
company can reinvest the surplus in new
technology, equipments & machines. This will
result in further productivity increase & also there
is a greater employment generation due to new
investments. The Productivity increase results in
higher wages to the employee as profit potential of
the company increase thereby increasing
purchasing power of the worker.
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Productivity improvement technique:

Process Based Technology Based Material Based

Productivity improvement technique

Product Based Management Based Employee Based

Dr.Md.Ahashan Habib, Associate Professor, Dept. of TEM,

BUTex.
Technology Based:
1.CAD,CAM,CIMS
2.Robatics
3.Laser technology
4.Modern maintenance technology
5.Energy technology
6.Flexible manufacturing technology

Employee Based:
1.Financial & Non-financial incentives at individual/group levels.
2.Emploee promotion
3.Job design, job enlargement, job enrichment
4.Worker participation in decision making
5. Quality circles
6.Personal development
7. Training, Education

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
Material Based:
1.Material planning & control
2.Purchasing,logistics(transport)
3.Material storage
4.Source selection & procurement of quality material.
5.Waste elimination
6.Material recycling & reuse

Process Based:
1.Methods Engineering & Work simplification
2.Job design, job evaluation, Job safety
3.Human factors engineering
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
Product Based:
1.Value analysis & value engineering
2.Product diversification
3.Standardisation & simplification
4.Product Mix & promotion

Management Based:
1.Management style
2.Communication in organization
3.Work culture
4.Motivation
5.Promoting group activity
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Productivity measures:

• Productivity can be calculated in several forms:

• Partial productivity
• Total-factor productivity (also called Multi-factor
productivity)
• Total productivity

Partial Productivity measures (PPM),

Partial Productivity = (Total Output/Individual Input)
✔ Labour Productivity = (Total Output/Lobour Input)
✔ Capital Productivity = (Total Output/Capital Input)
✔ Material Productivity = (Total Output/Material Input)
✔ Energy Productivity = (Total Output/Energy Input)

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
• Total-factor or Multi-Factor productivity:
It is the ratio of net output to the sum of associated labor and capital inputs.

Net output
Total-factor Productivity = ––––––––––––––––––
(Labor + Capital) input

Output- Material & Service purchased

= –––––––––––––––––––––––--------------------
(Labor + Capital) input

Though, the total factor productivity and multifactor productivity are same, in many
cases the multifactor productivity is expressed as follows:

Output at standard price

• Multi-factor Productivity = ----------------------------------------------------
Labor cost + Material Cost + Overhead

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Total Productivity Measure (TPM) :

Total Productivity = (Total tangible

output/Total tangible input)

Total tangible output = Value of finished goods

produced + value of partial units produced +
interest + other income
Total tangible input = value of (human +
material + capital + energy + other inputs)

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
• Example. A company manufactures 10,000 digital watches by employing 50
people at 8 hours/day for 25 days. Then, we get:
Production= 10000
Output
Productivity (in terms of labor) = Units/labor-hours
Labor input

10000
= Units/labor-hours
25X50X8
= 1units/labor-hours

• Now, suppose the company has increased its production to 12000 watches by employing
10 additional workers at 8 hours/day for 25 days. In that case, we find:
• Production= 12000
• Productivity (in terms of labor) = = 1 unit/labor-hour
It is clear that the production of watches has gone up to 20% but the labor productivity has
not gone up at all. This certainly proves that the increase in production doesn’t necessarily
mean increased productivity.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
A company produces 160kg of plastic moulded parts of
acceptable quality by consuming 200kg of raw materials
for a particular period. For, the next period, the output is
doubled 320kg by consuming 420kg of raw materials &
for the third period, the output is increased to 400kg by
consuming 400kg of raw material. Find out the
Productivity at different period & comments it?
Ans:
For the first period, Productivity = (Output/Input) x100 =
(160/200) x 100 = 80%
For the second period, Productivity = (320/420) x100 =
76%
For the third period, Productivity = (400/400) x100 = 100%

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
EXAMPLE 1.1
Calculate the productivity for the following operations:

a. Three employees process 600 insurance policies in a week.

They work 8 hours per day, 5 days per week.

SOLUTION
Policies processed
a. Labor productivity = Employee hours

600 policies
=
(3 employees)(40 hours/employee) =5
policies/hour

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:

b. A team of workers makes 400 units of a product, which is

sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.

SOLUTION
Value of output
a. Multifactor productivity =
Labor cost + Materials cost
+ Overhead cost

(400 units)($10/unit) $4,000

= = =
$400 + $1,000 + $300 $1,700
2.35
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Solved Problem 1
Student tuition at Boehring University is $150 per semester
credit hour. The state supplements school revenue by $100 per
semester credit hour. Average class size for a typical 3-credit
course is 50 students. Labor costs are $4,000 per class,
material costs are $20 per student per class, and overhead
costs are $25,000 per class.
a. What is the multifactor productivity ratio for this course
process?
b. If instructors work an average of 14 hours per week for 16
weeks for each 3-credit class of 50 students, what is the
labor productivity ratio?

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Solved Problem 1
SOLUTION

a. Multifactor productivity is the ratio of the value of output to

the value of input resources.
$150 tuition +
50 student 3 credit hours $100 state support
Value of output =
class student credit hour

= $37,500/class

Value of inputs = Labor + Materials + Overhead

= $4,000 + ($20/student × 50 students/class) + $25,000
= $30,000/class

Output $37,500/class
Multifactor productivity = = = 1.25
Input $30,000/class
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Solved Problem 1
SOLUTION

b. Labor productivity is the ratio of the value of output to

labor hours. The value of output is the same as in part (a),
or $375,00, so

14 hours 16 weeks
Labor hours of input
week class
=

= 224 hours/class

Output $37500/class
Labor productivity = =
Input 224 hours/class

=
$167.41/hou
r
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Solved Problem 2
Natalie Attire makes fashionable garments. During a particular
week employees worked 360 hours to produce a batch of 132
garments, of which 52 were “seconds” (meaning that they were
flawed). Seconds are sold for $90 each at Attire’s Factory Outlet
Store. The remaining 80 garments are sold to retail distribution
at $200 each. What is the labor productivity ratio of this
manufacturing process?

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Solved Problem 2
SOLUTION

Value of output = (52 defective × 90/defective)

+ (80 garments × 200/garment)

= $20,680

Labor hours of input = 360 hours

Output $20,680
Labor productivity = =
Input 360 hours

= $57.44 in sales per hour

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Multi-factor Productivity Measures

Labor Capital

Technology Energy

03 - 24
 Multi-factor Productivity Measures
Example 3: Develop a productivity measure for the combined input of
labor and machine time using the following data: Output: 7,040
units Inputs: Labor - $1,000, Materials - $520,
Overhead - $2,000

03 - 25
 Multi-factor Productivity Measures
Example 5: Develop a productivity measures for a product that utilizes
labor machine time, raw materials and purchased materials. Assume
10,000 units are produced in 500 hours and are sold for $10/unit. The
labor rate is $9/hour, the cost of the raw materials is $5,000 and the cost
of purchased materials is $25,000.

03 - 26
 Why Have Productivity Measures?
Productivity measures are very important and useful to the operations
manager because they
. Are critical to the planning process
. Are performance scorecards for departments/organizations
. Track performance over time
. Indicate where improvements must be made
. Show how much improvement is achieved

Caution must be used when interpreting productivity measures: the

situation and conditions under which a productivity measure is created
may not be relative to another set of conditions or situation.

03 - 27
 Strategic Planning

Mission Strategy Tactics

addresses the following questions

Why do you exist?
Where are you?
Where do you want to go?
How will you get there?
The development of a strategic plan begins with setting priorities.

03 - 28
 Elements of a Strategic Plan

. Mission - why the organization exists - guides the

formulation of the strategic plan
. Mission Statement - a clear statement of purpose
. Situation Analysis - current and future analysis of external and
internal factors that can affect your future
. Goals/Objectives - what the organization wants to accomplish
typically with a time frame in mind
. Strategy - a plan for achieving the goals/objectives
. Tactics - the actions to accomplish strategy
. Operations - executing the action items

03 - 29
Hierarchy of Planning & Decision Making

Mission

Goals

Organizational strategy

Functional strategies
Finance Marketing Operations

Tactics Tactics Tactics

Finance Marketing Operations

operations operations operations
03 - 30
 Business strategy

• The long-range plan of a business,

designed to provide and sustain
shareholder value, is called the business
strategy. For a company to succeed, the
business strategy must be supported by
each of the individual business functions,
such as operations, finance,and marketing.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Operations strategy

Operations strategy is a long-range plan

for the operations function that specifies
the design and use of resources to support
the business strategy. Just as the players
on a football team support the team’s
strategy, the role of everyone in the
company is to do his or her job in a way
that supports the business strategy.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 THE ROLE OF OPERATIONS
STRATEGY
The role of operations strategy is to
provide a plan for the operations function
so that it can make the best use of its
resources.
Operations strategy specifies the policies
and plans for using the organization’s
resources to support its long-term
competitive strategy.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
Figure: Relationship between the business strategy and the functional strategies
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
• Tactics: Tactics The methods and actions
taken to accomplish strategies.

They are more specific than strategies, and

they provide guidance and direction for
carrying out actual operations, which need
the most specific and detailed plans and
decision making in an organization.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
• 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. A possible scenario for
achieving her goals might look something like this:
– Mission: Live a good life.
– Goal: Successful career, good income.
– Strategy: Obtain a college education.
– Tactics: Select a college and a major; decide how to finance college.
– Operations: Register, buy books, take courses, study.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Some examples of different strategies an organization
might choose from:

• Low cost. Outsource operations to third-world countries that have low

labor costs.
• Scale-based strategies. Use capital-intensive methods to achieve high
output volume and low unit costs.
• Specialization. Focus on narrow product lines or limited service to
achieve higher quality.
• Newness. Focus on innovation to create new products or services.
• Flexible operations. Focus on quick response and/or customization.
• High quality. Focus on achieving higher quality than competitors.
• Service. Focus on various aspects of service (e.g., helpful, courteous,
reliable, etc.).
• Sustainability. Focus on environmental-friendly and energy-efficient
operations.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Connection between corporate strategy and
Operations Management process.
Corporate Strategy
• Environmental scanning Market Analysis
• Core competencies • Market segmentation
• Core processes • Needs assessment
• Global strategies
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility

New Service/
Product Development
• Design
• Analysis No
• Development
• Full launch
Performance
Yes Gap?
Operations Strategy

Competitive Capabilities
Decisions
• Current
• Managing processes
• Needed
• Managing supply chains
• Planned
Figure 1.5 Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Corporate Strategy

• Environmental scanning
• Developing core competencies
1. Workforce
2. Facilities
3. Market and financial know-how
4. Systems and technologies
• Developing core processes
• Global strategies
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
Core Competencies

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Market Analysis
• Market segmentation
• Needs assessment
– Service or product needs
– Delivery system needs
– Volume needs
– Other needs

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Competitiveness
Competitiveness is a measure of how well an organization performs
relative to others who offer similar goods/services.
Measures of Competitiveness . Market Share
. Profitability .
Growth

03 - 42
 Competitiveness
Businesses compete on many fronts . Price
. Quality . Product
differentiation . Flexibility
Pric & service
e

Fle
. Delivery speed . Delivery reliability

xib
. Ability to cope with changes in demand

ility
. New product introduction

Qu
Differentiation alit
y

e
Tim
03 - 43
 Competitive Priorities- The Edge

• Capabilities that the operations function

can develop in order to give a company a
competitive advantage in its market.
• Four Important Operations Questions: Will
you compete on –
Cost?
Quality?
Time?
Flexibility?
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES
COST Definition Process Considerations Example
1. Low-cost Delivering a service or a Processes must be designed and Costco
operations product at the lowest operated to make them efficient
possible cost
QUALITY

2. Top quality Delivering an outstanding May require a high level of Ferrari

service or product customer contact and may require
superior product features
3. Consistent Producing services or Processes designed and McDonald’s
quality products that meet design monitored to reduce errors and
specifications on a prevent defects
consistent basis
TIME

4. Delivery speed Quickly filling a Design processes to reduce lead Dell

customer’s order time
5. On-time Meeting delivery-time Planning processes to increase United Parcel
delivery promises percent of customer orders Service (UPS)
shipped when promised
6. Development Quickly introducing a new Cross-functional integration and Li & Fung
speed science or a product involvement of critical external
suppliers
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Competitive Priorities
TABLE 1.2 | DEFINITIONS, PROCESS CONSIDERATIONS, AND EXAMPLES OF COMPETITIVE
PRIORITIES
FLEXIBILITY Definition Process Considerations Example
7. Customization Satisfying the unique Low volume, close customer Ritz Carlton
needs of each customer contact, and easily reconfigured
by changing service or
products designs
8. Variety Handling a wide Capable of larger volumes than Amazon.com
assortment of services or processes supporting
products efficiently customization
9. Volume Accelerating or Processes must be designed for The United States
flexibility decelerating the rate of excess capacity Postal Service
production of service or (USPS)
products quickly to
handle large fluctuations
in demand

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
 Order winners & qualifiers

Order qualifiers:
• – The basic criteria that permit a company’s products to be
considered as candidates for purchase by customers .

Order winners:
• –The criteria that differentiate the products and services of
one company from another.
• Order winners are factors that directly and significantly
helps products to win orders in the marketplace. Customers
regards such factors as key reasons for buying that product
or service. If a firm raises its performance on those factors,
it will increase its chances of getting more business. Thus a
product that competes mainly on price would benefit in the
marketplace if improvements enabled further price
reduction.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Analysis of Order Winner and Order Qualifier Show by two product below:
Classic shirts Fashion Blouses
Product range Narrow: few colours, Wide: Many colours, choice
standard sizes of styles, designer labels

Design Changes Occasional Frequent (at least every

season)
Price Everyday low price Premium price
Quality Consistency, conformance High grades of material,
to specification high standards of
workmanship
Sales volume Consistent sales over time Sales peak for given
fashion season
Order winner Price Product range
Brand/label
Quality
Order qualifier Quality Price
Availability Availability
Logistics priorities Cost Speed
Dependability Flexibility
Quality Quality
Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
 Exciting new trends in operations
management:
• Global market place: The world economy is, “…not
trade among 160 countries; it is the world moving
from trade among countries to a single economy. One
economy, one marketplace.”
• Operation strategy: “..Involves fitting the operations
mission into the corporate strategy, a strategy that
should blend the environment and corporate
resources into a corporate position statement.”
• TQM—total quality management: A continuous
attention to manufacturing details rather than
attainment of a fixed quantitative quality standard.
• Flexibility: Capability of a manufacturing system to
adapt successfully environmental conditions and
process requirements. Dr.Md.Ahashan Habib, Associate
Professor, Dept. of TEM, BUTex.
• Time reduction: Increasing efficiency by reducing
time taken.
• Technology: The level of sophistication in plant,
equipment, and skills in the conversion process.
• Worker investment: Considering worker benefit
and improving human relationship with the top
management.
• Reengineering: Updating the complete conversion
process by reprocessing the entire set of
information and recreating the entire MRP
(materials requirement planning).
• Environmental issues: Profit maximization through
operational activities with the social and
environmental welfare in mind.

Dr.Md.Ahashan Habib, Associate

Professor, Dept. of TEM, BUTex.