PRODUCTIONS/OPERATIONS MANAGEMENT

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Ch2 Productivity, Competitiveness, and Strategy
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Productivity

• Single-factor measures
• Output / (Single Input)
• All-factors measure
• Output / (Total Inputs)

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Measures of Productivity
Single-factor Output Output Output
Outputmeasures Labor Machine
Capital Energy All-factors
Output measure All inputs
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Single Factor
Single-factor Output Output Output
Outputmeasures Labor Machine
Capital Energy If we produce only one
product, the numerator can be either the total
units of the product or the total value of the
product. If we produce several products, the
numerator is the total value of all
products. The denominator can be the units of
input or the total value of input.
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Example Single Factor Productivity
10,000 Units Produced Sold for 10/unit 500
labor hours Labor rate 9/hr
What is the labor productivity?
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Example Labor Productivity

• 10,000 units / 500hrs 20 units/hr
• (10,000 units 10/unit) / 500hrs 200/hr
• 10,000 units / (500hrs 9/hr) 2.2 unit/
• (10,000 units 10/unit) / (500hrs 9/hr)
  22.22
• The last one is unit-less

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Some Single Factor Measurements

• Labor Productivity
• Quantity (or value) of output / labor hrs
• Quantity (or value) of output / shift
• Machine Productivity
• Quantity (or value) of output / machine hrs
• Energy Productivity
• Quantity (or value of output) / kwh
• Capital Productivity
• Quantity (or value) of output / value of input

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All Factors
All-factors Goods or Services
produced measure All inputs used to
produce them If we produce only one product,
the numerator can be either the total units of
product or total value of the product. If we
produce several products, the numerator is the
total value of all products. Usually, the
numerator is the total value of all
outputs. The denominator is total value of all
inputs.
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Example
10,000 Units Produced Sold for 10/unit 500
labor hours Labor rate 9/hr Cost of raw
material 30,000 Overhead 15,500
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Example All-Factor Productivity
Output Labor Materials
Overhead
AFP
(10,000 units)
(10) (500)(9) (30,000) (15,500)
AFP
AFP 2.0
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Factors Affecting Productivity
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Competitiveness
Price
Flexibility
Quality
Time
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Four Dimensions of Competitiveness

• Price
• Low Labor
• Low Material
• Low Overhead
• Quality
• Characteristics that satisfy customer
  expectations above what competitors offer
• Consistent quality over time (Reliability)

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Four Dimensions of Competitiveness

• Time
• Lead Time
• Reliability in Lead Time (on time)
• Flexibility
• Variety
• Volume

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Formulation of Operational Strategy (SWOT)

• Competing edges of the system (Strengths and
  Weaknesses)
• The special attributes or capabilities that give
  an organization a competitive edge.
• Environmental Scanning (Opportunities and
  Threats)
• The considering of events and trends that present
  threats or opportunities fora company.

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Competitive Edges

• Human Resources
• Technology, Facilities and Equipment
• Financial Resources
• Customers
• Product and Services
• Suppliers

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Threats and Opportunities

• Main Threats and Opportunities
• Competitors activities
• Changes in consumer needs and preferences
• Technological changes
• Economic trends (GNP, unemployment, inflation,
  interests, taxes, tariffs)
• Legal, political, and environmental issues

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Traditional and Recent Strategies

• Traditional Strategies
• Cost Reduction
• Reduce cost in all activities
• Product Differentiation Differentiate all parts
  and products
• New Strategies
• Quality-based
• Time-based

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Quality Based Strategy

• Focuses on quality in all aspects of an
  organization.
• High quality not only in product but also in
  design, production, service and organization.
• Quality at the source, zero defect, any defect
  stops the whole production system.
• Order qualifiers Characteristics that customers
  perceive as minimum standards of acceptance in
  the product.
• Order winners Characteristics that cause the
  product to be perceived better than that of
  competitors.

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Time based strategies

• Focuses on reduction of time needed to accomplish
  tasks.
• Cycle time reduction results in Higher
  Productivity, and therefore Lower Costs (both
  direct cost and overhead).
• The less time a product stays in a factory the
  less time it has to absorb overhead costs.

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Japanese Strategies Over Time

• Low Price / Cheap Labor
• Economy of Scale Strategy
• Inject capital to increase labor productivity
• Focused Factory Strategy
• Quality, avoid diseconomy of scale
• Flexible Factories Strategy
• Cope with changes in consumer preferences
• Continuous Improvement Strategy
• Zero Defect, Perfect Reliability (Car Industry)

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Questions

• What are the factors that affect productivity?
• List the four key ways that organizations
  compete.
• What is Reliability?
• What two key aspects are studied to formulate the
  Operations Strategy?
• List the five main groups of aspects studied
  under threats and opportunities.
• What are two classes of traditional strategies.
• What are two classes of new strategies.
• Briefly define order qualifiers and order
  winners.
• Why time based strategy results in a lower cost.
• What were the main concepts in each of the 5
  development strategies of Japanese Industries.

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Assignment 1.1.. Due at the beginning of the
next class

• A company that makes shopping carts for
  supermarkets recently purchased new equipment,
  which reduced the labor content needed to produce
  the carts. Information concerning the old system
  (before adding the new equipment) and the new
  system (after adding the new machines) includes
• Old System
  New System
• Output/hr 80 84
• Workers 5 4
• Wage /hr 10 10
• Machine /hr 40 50
• Compute labor productivity for both the Old
  System and the New System.
• Compute AFP productivity for both the Old System
  and the New System.
• Suppose production with old equipment was 30
  units of cart A at a price of 100 per cart, and
  50 units of cart B at a price of 120. Also
  suppose that production with new equipment is 50
  units of cart A, at a price of 100 per cart, and
  30 units of cart B at a price of 120. Compare
  all-factor productivity for the old and the new
  systems.

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Assignment 1.2.. Due at the beginning of the
next class

• A company has introduced a process improvement
  that reduces the processing time for each unit
  and increases output by 25 with less material
  but one additional worker.
• Under the old process, five workers could
  produce 60 units per hour. Labor costs are
  12/hour, and material input was 16/unit.
• For the new process, material input is now
  10/unit and overhead is charged at 1.6 times
  direct labor cost. Finished units sell for 31
  each.
• Compute single factor productivity of labor in
  the old system. (Compute it in four possible
  ways.)
• Compute all factor productivity for both old and
  new systems.
• Factor Old System New System
• Output 60 60(1.25) 75
• of workers 5 6
• Worker cost 12/hr 12/hr
• Material 16/unit 10/unit
• Overhead 1.6(labor cost) 1.6(labor cost)
• Price 31 31

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Assignment 1.3 For your own practice

• A milk factory seeks advice from an external
  consulting company concerning its business and
  production processes. The final consulting report
  describes several steps to increase productivity
  including implementation of cutting-edge
  processing techniques through more powerful
  filtering systems.
• Calculate the labor productivity for the existing
  as well as the proposed system.
• Find the All-Factor Productivity for both
  systems.
• Assume that current processing includes 700
  gallons of Grade-A milk sold at 2.40/gallon and
  300 gallons of Grade-B milk at 1.90/gallon.
  Furthermore, assume that under the proposed
  system, processing will include 600 gallons of
  Grade-A milk at 2.40/gallon and 400 gallons of
  Grade-B milk at 1.90/gallon. Compare all-factor
  productivity for both the existing and the new
  system.