Operations Management

Dr. TRAN QUYNH LE

Industrial Systems Engineering Department
Mechanical Engineering Faculty
Ho Chi Minh City University of Technology (HCMUT)–
VNUHCM
CHAPTER 2: Competitiveness,
Strategy, and Productivity

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 LEARNING OUTCOME

After completing this chapter, you should be able to:

• List several ways that business organizations compete.
• Define the terms mission and strategy and explain why they are
important.
• Discuss and compare organization strategy and operations strategy
• 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.

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2.1 COMPETITIVENESS

• Competitiveness: How effectively an organization meets the wants

and needs of customers relative to others that offer similar goods or
services
• Marketing influences competitiveness in several ways:
✓ Identifying consumer wants and needs: is basic input
organization’s decision making process and central to
competitiveness
✓ Pricing: is a key factor in consumer buying decision
✓ Advertising and promotion: is a key element that informs
potential consumer and attracts buyers
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 2.1 COMPETITIVENESS

• Operations has a major influence on competitiveness through:

✓ Product and service design, ✓ Flexibility,

✓ Cost,
✓ Inventory management,
✓ Location,
✓ Supply chain management,
✓ Quality,
✓ Service
✓ Response time,
✓ Managers and worker

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 2.1 COMPETITIVENESS
Why Some Organizations Fail

• Neglecting operations strategy.

• Failing to take advantage of strengths and opportunities, and/or failing to recognize

competitive threats.

• Too much emphasis on short-term financial performance

• Too much emphasis on product and service design and not enough on improvement.

• Neglecting investments in capital and human resources.

• Failing to establish good internal communications and cooperation

• Failing to consider customer wants and needs

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 2.2 MISSION AND STRATEGIES

• Mission: The reason for the existence of an organization.

• Mission statement: States the purpose of an organization.

• Goals: Provide detail and scope of the mission.

• Strategies: Plans for achieving organizational goals.

• Tactics: The methods and actions taken to accomplish strategies

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2.2 MISSION AND STRATEGIES

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 2.2 MISSION AND STRATEGIES

Example: Rita is a high school student in Southern California. 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; decide how to finance college.

• Operations: Register, buy books, take courses, study

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 2.2 MISSION AND STRATEGIES

Some examples of different strategies an organization:

• Low cost: outsource operations to the third world countries
that have low labor costs.
• Scale-based strategies: use the capital intensive methods
to achieve high output volume and low unit cost.
• Specialization: focus on narrow product lines or limited
services to achieve higher quality.
• Newness: Focus on innovation to create new products or
services
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 2.2 MISSION AND STRATEGIES

Some examples of different strategies an organization:

• Flexible operations: focus on quick response.
• 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.

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 2.2 MISSION AND STRATEGIES

Core competencies The special attributes or abilities that give an

organization a competitive edge.

Strategies factor:
• Price
• Quality
• Time
• Flexibility
• Service
• Location

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 2.2 MISSION AND STRATEGIES

Examples
of
operations
strategies

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 2.2 MISSION AND STRATEGIES

Global Strategy

• Many companies realized that strategic decisions must be made

with respect to globalization as it has increased.

• 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

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 2.2 MISSION AND STRATEGIES

Key External Factors of Global Strategy

• Economic conditions: the general health, direction of the economy,
inflation, deflation, interest rates, tax laws and tariffs.
• Political conditions: favorable or unfavoable attitudes toward business,
political stability or instability and wars.
• Legal environment: government regulations, trade restriction, minimum
wage law, labor law and patent.
• Technology: product innovations and new design.
• Competition: price, quality, special features and the ease of market
entry.
• Markets: size, location, brand loyalties, potential for growth, long-term
stability, and demographics.
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 2.2 MISSION AND STRATEGIES

Key External Factors of Global Strategy

• Human Resources: the skills and abilities of managers and workers,
special talent, loyalty, dedication and experience.
• Facilities and equipment: capacities, location, age, cost and replace.
• Financial resources: funding, debt burden, cost of capital and cash
flow.
• Customers: loyalty and understanding of wants and needs.
• Products and services: quality, design and potential for new products
and services.
• Technology: the ability to integrate new technology.
• Suppliers: quality, flexibility, reliable and trustworthy in service.

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 STRATEGY FORMULATION

• To formulate an effective strategy, senior managers must take into

account the followings:
✓ Distinctive competencies
➢ The special attributes or abilities that give an organization a
competitive edge.
✓ Environmental scanning
➢ The considering of events and trends that present threats or
opportunities for a company
✓ SWOT-link between organizational and operations strategies
➢ The is an approach shows strengths and weaknesses have an
internal focus and evaluated by operation people. The
threats and opportunities have external focus and evaluated
by marketing people.

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 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

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 2.3 OPERATIONS STRATEGY

• Operations strategy
✓ The approach, consistent with organization strategy, that is used to
guide the operations function.
• Quality-based strategies
✓ Focuses on maintaining or improving the quality of an
organization’s products or services
• Time-based strategies
✓ Focuses on reduction of time needed to accomplish tasks

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Strategic operations management decisions

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2.4 PRODUCTIVITY
Productivity A measure of the effective use of resources, usually expressed as the
ratio of output to input

Output
Productivity =
Input

A coffee shop makes 150 coffees per hour. How productivity is the operation as
labor input produces 200 coffees per hour?

Productivity (%) = (Output/Input)*100%= (150/200)*100% = 75%

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2.4 PRODUCTIVITY

Current productivity − Previous productivity

Productivity growth = x 100
Previous productivity

For example, if productivity increased from 80 to 84, the growth rate would be

84 −80
x 100 = 5%
80

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Computing Productivity

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AIC

Determine the productivity for

these cases:
a. Four workers installed 720
square yards of carpeting in eight
hours.
b. A machine produced 70 pieces
in two hours. However, two
pieces were unusable.

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 AIC
Determine the multifactor productivity for the combined input of labor and
machine time
using the following data:
Output: 7,040 units
Input
Labor: $1,000
Materials: $520
Overhead: $2,000

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 Factors that Affect Productivity

Numerous factors affect productivity:

• Methods,
• Capital,
• Quality,
• Technology,
• Management.

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 Factors that Affect Productivity
Numerous factors affect productivity. Generally, they are methods, capital, quality, technology,
and management.
Other Factors Affecting Productivity:
• Standardization
• Quality
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers
• Safety
• Shortage of IT workers
• Layoffs
• Labor turnover
• Design of the workspace
• Incentive plans that reward productivity

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 Factors that Affect Productivity
Numerous factors affect productivity. Generally, they are methods, capital, quality, technology,
and management.
Other Factors Affecting Productivity:
• Standardization
• Quality
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers
• Safety
• Shortage of IT workers
• Layoffs
• Labor turnover
• Design of the workspace
• Incentive plans that reward productivity

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 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
✓ Productivity is based on how much is produced in a certain amount of time at the
lowest possible cost. Or/
✓ Productivity refers to the quantity of accomplishment within a given timeframe.
✓ Efficiency is based on time spent in production. Or/
✓ Efficiency refers to how many resources such as time, money, and energy are
exerted for one unit of productivity.

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 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

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