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									              ENG M 501
Production and Operations Management



             Chapter 2
   Operations and Supply Strategy

     Lecture 01c: 06 January 2009

                 John Doucette
        Dept. of Mechanical Engineering
              University of Alberta
      http://www.mece.ualberta.ca/~doucette/engm501/
                                          ENG M 501– Production and Operations Management




Operations Strategy
• Operations strategy describes how an organization
  intends to create and sustain value for its shareholders.

• Three main components:
   – operations effectiveness
   – customer management
   – product innovation




                                                                                 John Doucette
                                2                              Dept. of Mechanical Engineering
                                                       Lecture 01c, Chapter 2: 06 January 2009
                                                        ENG M 501– Production and Operations Management




Sources of Competitiveness
• Cost or Price
    – Make the Product or Deliver the Service Cheap
• Quality
    – Make a Great Product or Deliver a Great Service
• Delivery Speed
    – Make the Product or Deliver the Service Quickly

• Delivery Reliability
    – Deliver It When Promised
• Coping with Changes in Demand
    – Change Its Volume
• Flexibility and New Product Introduction Speed
    – Change It
• Product-Specific Criteria
    – Support It


                                                                                               John Doucette
                                      3                                      Dept. of Mechanical Engineering
                                                                     Lecture 01c, Chapter 2: 06 January 2009
                                                   ENG M 501– Production and Operations Management




Operational Trade-Offs
• An organization cannot excel simultaneously on all
  competitive dimensions.
   – Speed of delivery is not compatible with flexibility.
   – Flexibility is not compatible with low cost.
   – Low cost is not compatible with high quality.


• Straddling is when a firm tries to match the benefits of a
  successful position while maintaining its existing position.

• The plant-within-a-plant (PWP) concept allows
  organization to excel simultaneously on multiple
  competitive dimensions.


                                                                                          John Doucette
                                    4                                   Dept. of Mechanical Engineering
                                                                Lecture 01c, Chapter 2: 06 January 2009
                                               ENG M 501– Production and Operations Management




Order Qualifiers and Order Winners
• Order qualifiers are the basic criteria that permit the
  firms products to be considered as candidates for
  purchase by customers
• Order winners are the criteria that differentiates the
  products and services of one firm from another

• Basic product strategy steps:
   – Segment the market according to the product group
   – Identify product requirements, demand patterns, and profit
     margins of each group
   – Determine order qualifiers and order winners for each group
   – Convert order winners into specific performance requirements


                                                                                      John Doucette
                                 5                                  Dept. of Mechanical Engineering
                                                            Lecture 01c, Chapter 2: 06 January 2009
                                         ENG M 501– Production and Operations Management




Strategy Design Process
• Four key concepts in an overall corporate strategy


     Financial Perspective          Shareholder Value


    Customer Perspective             Customer Value


     Internal Perspective        Processes and Activities


      Learning and Growth          Motivated and Prepared
          Perspective                    Workforce



                                                                                John Doucette
                             6                                Dept. of Mechanical Engineering
                                                      Lecture 01c, Chapter 2: 06 January 2009
                                         ENG M 501– Production and Operations Management




Strategy Design Process (2)
• The financial perspective focuses on increasing
  shareholder value through growth and productivity.
   – Revenue growth strategy
       • Build the franchise
       • Increase customer value
   – Productivity strategy
       • Improve cost structure
       • Improve asset utilization


• The customer perspective defines how growth is
  achieved and is how a company differentiates itself
   – Product leadership
   – Customer Intimacy
   – Operational excellence


                                                                                John Doucette
                                     7                        Dept. of Mechanical Engineering
                                                      Lecture 01c, Chapter 2: 06 January 2009
                                                 ENG M 501– Production and Operations Management




Strategy Design Process (3)
• The internal perspective defines business practices and
  specifies activities needed to meet customer perspective
   –   Product leadership
   –   Customer intimacy
   –   Operational excellence
   –   Regulatory and environmental excellence


• The learning and growth perspective defines intangible
  assets
   – Strategic competencies
   – Strategic technologies
   – Climate for action



                                                                                        John Doucette
                                  8                                   Dept. of Mechanical Engineering
                                                              Lecture 01c, Chapter 2: 06 January 2009
                                                ENG M 501– Production and Operations Management




Service Strategy Capabilities
• Process-based
   – Capabilities that transforms material or information
   – Provide advantages on dimensions of cost and quality


• Systems-based
   – Capabilities that are broad-based
   – Provide advantages of short lead times and customize on demand


• Organization-based
   – Capabilities that are difficult to replicate
   – Provide abilities to master new technologies




                                                                                       John Doucette
                                  9                                  Dept. of Mechanical Engineering
                                                             Lecture 01c, Chapter 2: 06 January 2009
                                              ENG M 501– Production and Operations Management




Productivity
• Productivity is a common measure on how well
  resources are being used.
   – The relationship between the output produced by a given system
     during a given period of time and the quantity of resources
     consumed to create the output.

                        Outputs Goods/Services Produced
         Productivity          
                         Inputs     Resources Used

• To increase a firm’s productivity:
   –   increase output
   –   decrease input
   –   increase output faster than input
   –   decreased input faster than output.

                                                                                     John Doucette
                                    10                             Dept. of Mechanical Engineering
                                                           Lecture 01c, Chapter 2: 06 January 2009
                                            ENG M 501– Production and Operations Management




Productivity (2)
• Partial factor productivity is the ratio of output to one type
  of input:
   –   Labour productivity
   –   Capital productivity
   –   Energy productivity
   –   Materials productivity
• Multifactor productivity uses more than a single input:
   – labour + capital
   – capital + materials
   – Etc.
• Total factor productivity uses all the inputs:
   – labour + capital + material + energy


                                                                                   John Doucette
                                  11                             Dept. of Mechanical Engineering
                                                         Lecture 01c, Chapter 2: 06 January 2009
                                                ENG M 501– Production and Operations Management




Productivity (3)
• Usually desirable to use measures that represent
  productivity as it relates to some output of interest.

• Example: This week your employees used a total of 2400
  hours of labour to process 560 insurance forms. Last
  week the same crew used only 2000 hours of labour to
  process 480 forms.
   – Last week’s productivity = 480/2000 = 0.24.
   – This week’s productivity is = 560/2400 = 0.23.
   – So, productivity is decreasing slightly.




                                                                                       John Doucette
                                  12                                 Dept. of Mechanical Engineering
                                                             Lecture 01c, Chapter 2: 06 January 2009
                                                           ENG M 501– Production and Operations Management




Productivity Example #1
• Consider the following input and output data which were
  collected from a production system.
• Compute labour, material, energy, capital, and total
  productivity.
             Output      Labour      Material   Energy       Capital                Total
    Period   Value        Cost        Cost       Cost         Cost                  Cost
      1      $ 865 994   $ 100 811   $ 88 970   $ 88 093    $ 382 667           $ 660 541
      2      $ 585 054   $ 95 689    $ 56 084   $ 65 433    $ 394 677           $ 611 883
      3      $ 371 664   $ 91 246    $ 54 230   $ 45 740    $ 391 710           $ 582 926
      4      $ 169 938   $ 91 542    $ 35 562   $ 15 088    $ 391 358           $ 533 550
      5      $ 92 718    $ 60 918    $ 30 630   $ 14 460    $ 391 459           $ 497 467
             Output      Labour      Material   Energy       Capital                Total
    Period   Value        Cost        Cost       Cost         Cost                  Cost
      1      $ 865 994     8.59       9.73       9.83          2.26                 1.31
      2      $ 585 054     6.11       10.43      8.94          1.48                 0.96
      3      $ 371 664     4.07       6.85       8.13          0.95                 0.64
      4      $ 169 938     1.86       4.78       11.26         0.43                 0.32
      5      $ 92 718      1.52       3.03       6.41          0.24                 0.19

                                                                                                  John Doucette
                                          13                                    Dept. of Mechanical Engineering
                                                                        Lecture 01c, Chapter 2: 06 January 2009
                                                ENG M 501– Production and Operations Management




Productivity Example #2
1. Determine productivity for the following cases:
   a) Four workers installed 720 square metres of carpeting in 8 hours
   b) A machine produces 68 pieces of your product in 2 hours


2. Determine multi-factor productivity for labour and
   machine use if:
   – Labour costs were $1000, material costs were $500, and
     overhead costs were $2000
   – You produced 7000 units worth $2 per unit




                                                                                       John Doucette
                                  14                                 Dept. of Mechanical Engineering
                                                             Lecture 01c, Chapter 2: 06 January 2009
                                       ENG M 501– Production and Operations Management




Improving Productivity
•   Develop productivity measures
•   Look carefully at systems as a whole
•   Establish reasonable goals
•   Develop methods and goals to achieve improvements
•   Management support
•   Measure and publicize
•   Use technology and capital as appropriate




                                                                              John Doucette
                            15                              Dept. of Mechanical Engineering
                                                    Lecture 01c, Chapter 2: 06 January 2009

								
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