Lecture 1 - Productivity

Lecture 1 Productivity, Competitiveness and Strategies Engineering Mgt. or Operations Management defined as the management of the direct resources required for producing goods and services provided by an organisation at minimum cost. (Competitive in terms of cost, quality, delivery, reliability) Key Decisions •

What are the goals of the firm?

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What products will be offered?

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What is the form and quality of the product?

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How should the product be made?

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How do you determine demand for the product?

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What capacity do you need?

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Where should the capacity be located?

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What physical arrangement is best to use?

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What job should each worker perform?

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How will the job be performed and measured?

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How will workers be compensated?

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How do you get the system into operation?

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How long will it take to reach the desired rate of output?

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How do you manage day to day activities?

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How can you improve the system?

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How do you revise the system in light of corporate strategies?

Decision Areas and Components of POM Strategy 1. Design of Goods and Services 2. Managing Quality 3. Process Strategy 4. Location and Layout Strategy 5. Human Resource Strategy 6. Supply Chain Management 7. Inventory Management, MRP and Just in Time 8. Scheduling and Maintenance Planning

Prepared by : Dr D.K. Hurreeram August 04

Lecture 1 Productivity, Competitiveness and Strategies Historical Perspective* Wren, Daniel A. (1987), The Evolution of Management Thought, New York, Wiley Productivity, Competitiveness and Strategy Productivity: An index that measures output (goods and services) relative to input (labour, material, energy and other resources) used to produce them. Productivity expressed as output/input ratio (producing more will less and less input) •

Partial Productivity (labour, capital, materials, energy)*

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Multi factor productivity (labour and capital and materials)*

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Total Measure productivity (output/input)*

Labour Productivity (output per labour hour, output per shift, value added per labour hour etc…) Machine Productivity (output per machine hour, value of output per machine hour …) Capital Productivity (output per $ input, $ output per $ input) Energy Productivity (output per kWh, $ output per kWh) Examples*

Factors Affecting Productivity Methods, Capital, Quality, Technology, Management etc… Improving Productivity v/s efficiency 1. Develop the productivity measures 2. Identify critical operations 3. Develop methods for improvement 4. Establish reasonable goals for improvement 5. Get management commitment 6. Measure improvements and publicise

Prepared by : Dr D.K. Hurreeram August 04

Lecture 1 Productivity, Competitiveness and Strategies Competitiveness Competitiveness for a nation is the degree to which it can, under free and fair market conditions, produce goods and services that meet the test of international market while simultaneously maintaining and expanding the real incomes of its citizens. (Council of Industrial Competitiveness, 1985) Competitive Strategies 1. Price (amount customer must pay for the product or service): lower profit margin, lowering cost of production) 2. Quality (buyer's perception of how well the product will serve its purpose): moving up market, manufacture of basic products 3. Product differentiation (special features that cause a product to be perceive as more suitable than a competitor's product): design, cost, quality, ease of use etc…) 4. Flexibility (ability to respond to changes): Quick response vis a vis design, volume, market access 5. Time (how quickly the product is delivered): Quick response, production rate For improved competitiveness 1. Place less emphasis on short tern financial profits, more emphasis on R&D 2. Revise corporate strategy to include responses to foreign competition: recognise strength of the business and threats from competitors 3. Knock down communication barriers 4. Recognize the importance of the labour force as a resource 5. Get back to basics in managing production systems (quality, product and process innovation: operations strategy) Determine what customers want and direct efforts towards meeting them or exceed customer expectations: Note:

Value = (Quality + Speed + Flexibility)/Cost

Use weights to indicate the relative importance of each of the above factors

Prepared by : Dr D.K. Hurreeram August 04

Lecture 1 Productivity, Competitiveness and Strategies Competitive priorities •

Quality (high performance design, high quality, consistent quality)

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Time (rapid delivery, on time delivery)

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Flexibility (variety, volume)

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Price (low cost)

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Service (superior customer service)

Strategy


Strategies affect the ability of an organisation to compete




Have a clear mission statement (What business we are in? and how we intend to stay in business?)




Provides general direction for an organisation and gives rise to goals




Strategies are plans to achieve the set goals




Corporate and functional strategies*




Tactics are methods and actions used to accomplish strategies*

Strategy

Mgt. Level Top Senior

Time Horizon Long Long

Functional Strategy

Middle

Tactics

Middle & Low

Mission Corporate Strategy

Scope Broad Broad

Level of detail Low Low

Moderate to long

Moderate

Moderate

Short

Narrow

High

Relates to Survival, Profitabililty Product Design, Choice of location, technology, new facilities Employment levels, output levels, equipment selection, facility layout Scheduling personnel, adjusting output rates, inventory management, purchasing

Key Issues The traditional approach for business strategy formulation (SWOT Analysis) 1. An in depth analysis of customer requirements (external factors) 2. An in depth analysis of the manufacturing policies with a view to meet the customer requirements better than the competitors (internal factors relative to external factors) Prepared by : Dr D.K. Hurreeram August 04

Lecture 1 Productivity, Competitiveness and Strategies Three major types of strategies: 1. Corporate strategy which identifies the set of businesses

which a company

should be in, 2. Business strategy which identifies how the company should compete while being in a specific business, 3. Functional strategy which identifies how the various functions, including, for instance, Manufacturing, Marketing, Human Resource Development (HRD), Research and Development (R&D) and Finance, within a company can contribute towards enhancing the competitive advantage of the business.

Corporate Strategy

Business B

Business A

R&D External Environment Business

Prepared by : Dr D.K. Hurreeram August 04

Marketing

Finance

HRD

Manufacturi

Lecture 1 Productivity, Competitiveness and Strategies Strategy Corporate Strategy

Business Strategy

Formulation Techniques Boston Consultancy Group Matrix (Rue & Holland 1989) Ansoff Matrix

Key Considerations

Strategic Options

Market Growth Rate v/s Relative Competitive Position (Market Share)

GE Matrix (Hill & Jones 1989)

Long term industry attractiveness v/s Business Strength

Growth ♦ Concentration ♦ Vertical Integration ♦ Diversification Stability Defensive ♦ Harvest ♦ Turnaround ♦ Liquidation ♦ Divestiture ♦ Bankruptcy

Shell Directional Policy Matrix

Business Strength v/s Prospects for Market Profitability Meeting Customer Requirements

Porter Generic Strategies (Porter 1980)

Prepared by : Dr D.K. Hurreeram August 04

Market Evolution v/s Product Development Strategy

Cost  Competitive Price Differentiation  Marketing  Product Quality and Reliability, Innovation  Delivery Reliability  Design and Volume Flexibility  Response Time Focus