WEEK 1 MODULE 2:  Location 

can be important in terms of cost and

Competitiveness, Strategy, and Productivity convenience for customers. Location near
inputs can result in lower input costs. Location near
Companies must be competitive to sell their goods and markets can result in lower transportation costs and
services in the marketplace. quicker delivery times. Convenient location is
Competitiveness is an important factor in determining particularly important in the retail sector.
whether a company prospers, barely gets by, or fails.  Quality refers to materials, workmanship, design,
Business organizations compete through some and service. Consumers judge quality in terms of
combination of their marketing and operations how well they think a product or service will satisfy
functions. Marketing influences competitiveness in its intended purpose. Customers are generally
several ways, including identifying consumer wants willing to pay more for a product or service if they
and needs, pricing, and advertising and promotion. perceive the product or service has a higher quality
than that of a competitor.
1. Identifying consumer wants and/or needs is a  Quick response can be a competitive advantage.
basic input in an organization’s decision making One way is quickly bringing new or improved
process, and central to competitiveness. The idea is products or services to the market. Another is being
to achieve a perfect match between those wants and able to quickly deliver existing products and
needs and the organization’s goods and/or services. services to a customer after they are ordered, and
2. Price and quality are key factors in consumer still another is quickly handling customer
buying decisions. It is important to understand the complaints.
trade-off decision consumers make between price  Flexibility is the ability to respond to changes.
and quality. Changes might relate to alterations in design
3. Advertising and promotion are ways organizations features of a product or service, or to the volume
can inform potential customers about features of demanded by customers, or the mix of products or
their products or services, and attract buyers. services offered by an organization. High flexibility
can be a competitive
Operations has a major influence on competitiveness advantage in a changeable environment.
through product and service design, cost, location,  Inventory management can be a competitive
quality, response time, flexibility, inventory and supply advantage by effectively matching supplies of
chain management, and service. Many of these are goods with demand.
interrelated.  Supply chain management involves coordinating
internal and external operations (buyers and
 Product and service design should reflect joint suppliers) to achieve timely and cost-effective
efforts of many areas of the firm to achieve a match delivery of goods throughout the system.
between financial resources, operations capabilities,  Service might involve after-sale activities
supply chain capabilities, and consumer wants and customers perceive as value-added, such as
needs. Special characteristics or features of a delivery, setup, warranty work, and technical
product or service can be a key factor in consumer support. Or it might involve extra attention while
buying decisions. Other key factors work is in progress, such as courtesy, keeping the
include innovation and the time-to-market for customer informed, and attention to details. Service
new products and services. quality can be a key differentiator; and it is one that
 Cost of an organization’s output is a key variable is often sustainable. Moreover, businesses rated
that affects pricing decisions and profits. highly by their customers for service quality tend to
Cost-reduction efforts are generally ongoing in be more profitable, and grow faster, than businesses
business organizations. Productivity (discussed that are not rated highly.
later in the chapter) is an important determinant of  Managers and workers are the people at the heart
cost. Organizations with higher productivity rates and soul of an organization, and if they are
than their competitors have a competitive cost competent and motivated, they can provide a
advantage. A company may outsource a portion of distinct competitive edge by their skills and the
its operation to achieve lower costs, higher ideas they create. One often overlooked skill is
productivity, or better quality. answering the telephone. How complaint calls or
requests for information are handled can be a
 positive or a negative. If a person answering is rude Operations strategy is narrower in scope, dealing
or not helpful, that can produce a negative image. primarily with the operations aspect of the
Conversely, if calls are handled promptly and organization. Operations strategy relates to products,
cheerfully, that can produce a positive image and, processes, methods, operating resources, quality, costs,
potentially, a competitive advantage. lead times, and scheduling. Table below provides a
comparison of an organization’s mission, its overall
Mission and Strategies strategy, and its operations strategy, tactics, and
operations.
An organization’s mission is the reason for its
existence. It is expressed in its mission statement. For Strategic Operations Management Decision Areas
a business organization, the mission statement should
answer the question “What business are we in?” Operations management people play a strategic role in
Missions vary from organization to organization, many strategic decisions in a business organization.
depending on the nature of their business. In the picture Table below highlights some key decision areas. Notice
below provides several examples of mission that most of the decision areas have cost implications.
statements. Two factors that tend to have universal strategic
operations importance relate to quality and time. The
A mission statement serves as the basis for following section discusses quality and time strategies.
organizational goals, which provide more detail and
describe the scope of the mission. The mission and Quality and Time Strategies
goals often relate to how an organization wants to be Traditional strategies of business organizations have
perceived by the general public, and by its employees, tended to emphasize cost minimization or product
suppliers, and customers. Goals serve as a foundation differentiation. While not abandoning those strategies,
for the development of organizational strategies. These, many organizations have embraced strategies based on
in turn, provide the basis for strategies and tactics of quality and/or time.
the functional units of the organization. Organizational
strategy is important because it guides the organization  Quality-based strategies focus on maintaining or
by providing direction for, and alignment of, the goals improving the quality of an organization’s products
and strategies of the functional units. Moreover, or services. Quality is generally a factor in both
strategies can be the main reason for the success or attracting and retaining customers. Quality-based
failure of an organization. strategies may be motivated by a variety of factors.
They may reflect an effort to overcome an image of
There are three basic business strategies: poor quality, a desire to catch up with the
competition, a desire to maintain an existing image
 Low Cost of high quality, or some combination of these and
 Responsiveness. other factors. Interestingly enough, quality-based
 Differentiation from competitors strategies can be part of another strategy such as
cost reduction, increased productivity, or time, all of
Tactics are the methods and actions used to accomplish which benefit from higher quality.
strategies. They are more specific than strategies, and  Time-based strategies focus on reducing the time
they provide guidance and direction for carrying out required to accomplish various activities (e.g.,
actual operations, which need the most specific and develop new products or services and market them,
detailed plans and decision making in an organization. respond to a change in customer demand, or deliver
You might think of tactics as the “how to” part of the a product or perform a service). By doing so,
process (e.g., how to reach the destination, following organizations seek to improve service to the
the strategy roadmap) and operations as the actual customer and to gain a competitive advantage over
“doing” part of the process. Much of this book deals rivals who take more time to accomplish the same
with tactical operations. tasks.
Operations Strategy
Organizations have achieved time reduction in some of
The organization strategy provides the overall direction the following:
for the organization. It is broad in scope, covering the
entire organization.
 Planning time: The time needed to react to a One of the primary responsibilities of a manager is to
competitive threat, to develop strategies and select achieve productive use of an organization’s resources.
tactics, to approve proposed changes to facilities, to The term productivity is used to describe this.
adopt new technologies, and so on.
Productivity is an index that measures output (goods
 Product/service design time: The time needed to
and services) relative to the input (labor, materials,
develop and market new or redesigned products or
energy, and other resources) used to produce it. It is
services.
usually expressed as the ratio of output to input:
 Processing time: The time needed to produce
goods or provide services. This can involve P r o d u c t i v i t y = O u t p u t /I n p u t
scheduling, repairing equipment, methods used,
inventories, quality, training, and the like. Productivity has important implications for business
 Changeover time: The time needed to change from organizations and for entire nations. For nonprofit
producing one type of product or service to another. organizations, higher productivity means lower costs;
This may involve new equipment settings and for profit-based organizations, productivity is an
attachments, different methods, equipment, important factor in determining how competitive a
schedules, or materials. company is. For a nation, the rate of productivity
 Delivery time: The time needed to fill orders. growth is of great importance. Productivity growth is
 Response time for complaints: These might be the increase in productivity from one period to the next
customer complaints about quality, timing of relative to the productivity in the preceding period.
deliveries, and incorrect shipments. These might Thus,
also be complaints from employees about working P r o d u c t i v i t y g r o w t h = C u r r e n t P r o d u c t i v i t y  −
conditions (e.g., safety, lighting, heat or cold), P r e v i o u s P r o d u c t i v i t y /P r e v i o u s P r o d u c t i v i t 
equipment problems, or quality problems. y  x  100

For example, if productivity increased from 80 to 84,

Transforming Strategy Into Action: The Balance the growth rate would be
Scorecard
The Balanced Scorecard (BSC) is a top-down 84 − 80 80 x 100 = 5 %
management system that organizations can use to Productivity growth is a key factor in a country’s rate
clarify their vision and strategy and transform them of inflation and the standard of living of its people.
into action. It was introduced in the early 1990s by Productivity increases add value to the economy while
Robert Kaplan and David Norton, 2 and it has been keeping inflation in check.
revised and improved since then.
Computing Productivity
The idea was to move away from a purely financial
perspective of the organization and integrate other Productivity measures can be based on a single input
perspectives such as customers, internal business (partial productivity), on more than one input (multi
processes, and learning and growth. Using this factor productivity), or on all inputs (total
approach, managers develop objectives, metrics, and productivity). The table below lists some examples of
targets for each objective and initiatives to achieve productivity measures. The choice of productivity
objectives, and they identify links among the various measure depends primarily on the purpose of the
perspectives. Results are monitored and used to measurement. If the purpose is to track improvements
improve strategic performance results. in labor productivity, then labor becomes the obvious
The figure below illustrates the conceptual framework input measure.
of this approach. Many organizations employ this or a Partial measures are often of greatest use in operations
similar approach. As seen in the figure below, the four management. The table below provides some examples
perspectives are intended to balance not only financial of partial productivity measures.
and non-financial performance, but also internal and
external performance as well as past and future Example
performance.
Determine the productivity for these cases:
Productivity
 Four workers installed 720 square yards of
carpeting in eight hours.
 A machine produced 70 pieces in two hours.
However, two pieces were unusable.