ISAT 211 Module 2: Competitiveness and Operations Strategy

1. ISAT 211 Module 2:Competitiveness and Operations Strategy • The learning objectives of this module are • To explain the concept of competitiveness and how it relates to productivity • To recognize the role of competitiveness in shaping operations strategy • To explain the basic competitive priorities in which companies compete • To identify steps for formulating an operations strategy • To explain how operations and manufacturing strategy support positioning (how the firm will compete)

2. Competitiveness: National and Company-Specific • Competitiveness of a nation is its comparative ability to sell its products in the global markets while raising or maintaining its standard of living. • Competitiveness of a company is its ability to compete and prosper in the marketplace. • Competitiveness can be thought of as a measure of productivity or the efficiency of converting natural and human resources into useful products and services.

3. Productivity:International Comparison 1992=100 Output per hour in manufacturing Year Source: U.S. Bureau of Labor Statistics, March 1998

4. output (gain) input (cost) Productivity = Competitiveness: A Measure of Productivity • Mathematically productivity is defined by • Output can represent: ________________________ • Input can be: _______________________________ • How does productivity increase or decrease? • become more efficient? ________________________ • reduce cost? _________. increased cost? __________ • contract or expand? ___________________________ • new techniques or technologies? _________________

5. output (gain) input (cost) Productivity = Competitiveness: A Measure of Productivity • Mathematically productivity is defined by • Partial measure: • Multifactor measure:

6. Productivity: Global Comparison of Changes in Input and Output

7. Labor Productivity: A Numerical Example It took 500 hrs of labor to produce 200 units of a product. The product sells for $160 each. Total labor cost is $14/hr on the average. Material cost is $30/unit. Compute labor productivity.

8. Labor Productivity: A Numerical Example It took 500 hrs of labor to produce 200 units of a product. The product sells for $160 each. Total labor cost is $14/hr on the average. Material cost is $30/unit. Compute labor productivity. Solution: Here are two from many ways to compute productivity: Total output = 200 units x $160/unit = $32,000 Total input = 500 hrs x $14/hr + 200 units x $30/unit =$13,000 Productivity = Output/Input = $32,000/$13,000 = 2.46 Output ($/hr) = 200 units x $160/unit / 500 hrs = $64/hr Input ($/hr) = $14/hr Productivity = Output/Input = ($64/hr) / ($14/hr) = 4.57 Can you think of any advantages or disadvantages of each approach?

9. Corporate Strategy:Role of Competitiveness • Strategy is a common vision which provides direction for action in an organization. • Corporate strategy expresses how a firm chooses to compete in the market place over the long-term: • mission statement • business goals • key distinctive (core) competencies • operational priorities

10. Operations Strategy: Driven by Corporate Strategy • A firm’s operations strategy defines how it will compete in its own best way. • Operations strategy consists ofpolicies and plans for how to use production resources to meet corporate strategic goals. • Operations strategy must be consistent with and supportive of the corporate strategy. • Strategic decisions in the operations functions (production, marketing and finance) involve competitive priorities.

11. Basic Competitive Priorities Operations strategy defines in which of the following priorities a firm should compete: • Cost • Low cost operation; suited for commodity-like products • Quality • High and consistent product and process quality; focus on customer requirements • Speed • Time-to-market (development) and order delivery • Flexibility • Quickness of response to changes in product mix, demand volume and technology (customization)

12. Market Analysis Future Directions (new products, global strategic decisions) Corporate strategy (Mission, goals, core competencies) Business and economic climate Competitive priorities (cost, quality, speed, flexibility) Capabilities Assessment (Current, needed planned) Operations strategy (Resources and capacity management) Competitive Priorities Link Corporate and Operations Strategies

13. Core (Distinctive) Competencies • Core competencies are the unique resources and strengths that sustain a firm’s competitive advantage: • Work-force:well trained and flexible • Facilities: well located, adaptive and can expand or change over quickly • Exceptional marketing and financial competence:critical for rapid changes in customer needs and capital markets • System and technology expertise: for product innovation and process integration and automation.

14. Exploiting Core Competencies • Enhancing value to the customer. Develop competencies relevant to what the customer values most. (Goodyear & Navistar) • Transferring an internal competence to a salable product.(American Airlines’ SABRE) • Applying competencies in a new business.Capitalize on internal competence and apply it in a new way to develop new businesses. (Circuit City & CarMax) • Creating new ways of working. Combine different businesses to provide integrated service. (John Deere providing insurance to dealers)

15. Strategy Formulation Steps • Define primary task. (mission statement). • What business are we in? • Who are our customers? • What are our key profitability or performance objectives? • Assess core competencies. (competitive advantage) • What do we do better than anyone else? • Can we capitalize on our strengths to develop new products, new markets or new businesses? • How can we maintain our competitive advantages?

16. Strategy Formulation Steps • Benchmarking (order winners and order qualifiers). • What does qualify an item for purchase? • What marketing approach does win orders? • Who are the order winners and what do they do? • How do we compare to the order winners? • Position the firm. (capitalize on strengths) • What do we do better than anyone else? • Can we capitalize on our strengths to develop new products, new markets or new businesses? • How can we maintain our competitive advantages?

17. Positioning Strategies • Positioning strategy determines the general nature of operations or processes required to accomplish the goals of the organization. • It does not identify specific processes to use or specific resources to organize. • A system organized around the product or service is called a product-focused strategy. (assembly line) • With a process-focused strategy, products share generic optimized processes and equipment are organized by function. (job shop)

18. Process-Focus Product-Focus • Customized products at low volumes • Standardized products at high volumes • Newer product • Mature product • Consistent process quality • High reliability products • Low cost • Flexibility • Short lead times • Long lead times Linking Positioning Strategy with Competitive Priorities Through Products

19. Manufacturing Operations Strategies Based on Positioning Strategies Key Competitive Priorities Manufacturing Strategy Description Examples Used in product-focus plants to speed up delivery of standard parts - Commodities, - Electronic components, - Chemicals - Low cost - Consistent quality Make-to-stock - High end PCs - Upscale furniture - Industrial AC systems Assemble-to- order Suited for products built with many options from few standard modules - Fast delivery - Customization (flexibility) Used in process-focused shops to produce few but varied items Make-to-order - Flexibility and customization - Major medical equipment - Aircraft

20. Competitiveness Drivers:Causes of Recent Increases in US Productivity • Product Development • Teams speed development and enhance manufacturability • Lean production and Waste Reduction (Big JIT) • WIP, space, tool costs, and human effort • Improved Customer-Supplier Relationships • Borrowed from Japanese Keiretsu • Improved Leadership • Strong, independent boards of directors • Maturation of computer and information technology • Increased efficiency, flexibility and responsiveness due to computer-based automation and integration

21. Questions?

22. Corporate Strategy:Role of Competitiveness • Strategy is a common visionwhich provides direction for action in an organization. • Corporate strategyexpresses how a firm chooses to competein the market place over the long-term: • mission statement • business goals • key distinctive(core) competencies • operationalpriorities