Operations Management IV

PRODUCT PLANNING AND COMPETITIVE PRIORITIES

Learning Outcomes

• At the end of this section you must be able to: • Identify how organizations compete. • Develop a strategy • Compare Japanese & South African operations

strategies. • Calculate & evaluate four types of production

plans.

Competitiveness

• Why must companies be competitive?

• Definition-How effectively an organization meets the needs of customers relatively to others that offer similar goods or service.

• Sell their goods or service • Establish and maintain market share • Stay in business • Make a reasonable profit

HOW DO ORGANISATION COMPETE?

• Price- Amount a customer is willing to pay for a

product or service. The lower the price the lower the profit margin.

• Quality- Buyers perception on how well the product/service will serve its purpose.

• Product Differentiation- Special features • Flexibility- Ability to respond to changes • Time- How quickly a product or service is

delivered to the customer

GIVE AN EXAMPLE UNDER EACH OF THE ABOVE CATEGORIES.

Organization Explain How

Price

Quality

Differentiation

Flexibility

Time

WHY DO ORGANISATIONS LOSE ITS

COMPETITIVE EDGE?

• Too much emphasis on short term Financial Performance at the expenses of research and development.

• Fail to take advantage of strengths and opportunities or fail to recognize competitive threats and weaknesses

• Neglect investment in human or technological resources • Fail to establish good internal communication and co-

operation amongst different functional areas. • Emphasize product design and not process design • Neglect Operation strategy • Unable to recognize customer wants and needs.

Strategy/Mission/ Tactics • WHAT IS A STRATEGY

– Long term impact of an Organization’s plan for achieving its goals.

• MISSION

– The reason for existence of an organization • MISSION STATEMENT

– A clear statement of purpose that services as a guide for decision making. • TACTICS

– Methods and action taken to accomplish strategies • DISTINCTIVE COMPETENCIES

– Special attributes or abilities that give an Organization a Competitive edge.

Case Study Question 1: If you the manager of Pick ‘n Pay, formulate a strategy, Mission statement, Tactics and Distinctive competencies you would use to regain market share.

Strategy

Mission

Tactics

Distinctive Competencies

FACTORS THAT AFFECT OUR ABILITY TO COMPETE:

• External Factors include: • Economic conditions- Direction of the economy, inflation, interest

rate, tax loans and tariffs. • Political Factor- Government, attitudes towards business, political

stability, conflicts, crime • Legal environment- govt. regulations, trade restrictions, labour laws • Technology-Product innovation, process/ design technology • Competition-Number and strength of competitors, ease of market

entry • Markets- Size, location, brand loyalties, potential for growth,

demographics.

Think Point • Explain what impact the call for the nationalization of mines & banks will

have on the South African economy?

Positives Negatives

Internal Factors include: • Human Resources- Skills and abilities of staff, expertise,

experience, loyalty. • Facilities and Equipment- Capacities, location, age etc • Financial Resources-Cash flow, access to funding, debt,

cost of capital. • Customers- Loyalty, existing relationship • Product and service-Flexibility • Technology-ability to integrate new technology • Suppliers-relationships, dependability, quality • Other- labour relations, company or product image,

distribution channels, access to resources/markets.

Activity • As a manager of an SMME, explain how you would plan & control internal

factors of competitiveness:

QUALITY AND TIME STRATEGIES:

– Quality- based strategies focus on satisfying the

customer by introducing quality into all areas of the company, e.g. design, production and after sale service.

– Time-based strategies focus on reducing the time

required to complete various jobs, e.g. (develop new products, marketing them; respond to changes in customer demand, delivery of a product/service. If you can reduce the time, then the costs will decrease and productivity will increase.

Times can be reduced in the following ways:-

– Planning time – Time needed to react to a competitive threat, to

develop new strategies and select tactics, to approve proposed changes to facilities, introduce new technologies, e.t.c.

– Product/service design time- time needed to develop and market new or redesigned products/services.

– Processing time – time needed to produce goods/services, e.g.: scheduling, repairing equipment, wasted efforts (scrap), stock. Quality, training, etc.

– Change over time- time needed to change from producing one type of product to another-includes new equipment.

– Delivery time- the time needed to full orders – Response time for complaints- Customers complaints about quality,

timing of deliveries, incorrect quantities.

Japanese Manufacturing Strategies

• Low labour cost strategy- immediately after the war; they

exploited the (then) inexpensive labour pool. • Scale based strategy- used capital intensive methods to

achieve higher labour productivity and lower unit costs. • Focused factory Strategy- used smaller factories that

focused on a few product lines- led to specialization and higher quality.

• Flexible Factories Strategy- reduced the time to bring out new products/services. Used flexible equipment that allowed volume and design changes- led to product variety. Reduced set up/start up times.

What lessons can we learn from the Japanese?

Environmental Scanning

• To consider the events and trends • That presents threats or opportunities • For a company e.g. • competitors activities • changing consumer needs • legal, economic and environmental issues • potential for new markets • could be global, national, regional or local • technological changes

Benchmarking • This is an approach that some companies use to compare

their operations with those of other companies (preferably the best in the world). It is partly concerned with being able to judge how well an operation is doing. Benchmarking involves selecting a demonstrated standard of products, services, costs or practices that represent the very best performance for processes or activities very similar to your own. The steps for developing benchmarks are:

• Determine what to benchmark. • Form a benchmark team. • Identify benchmarking partners. • Collect and analyze benchmarking information. • Take action to match or exceed the benchmark

TYPES OF BENCHMARKING

• Internal benchmarking is a comparison between operations or parts of operations which are within the same organization.

• External benchmarking is a comparison between an operation and other operations which are part of a different organization.

• Non-competitive benchmarking is benchmarking against external organizations which do not compete directly in the same markets.

• Competitive benchmarking is a comparison directly between competitors in the same or similar markets.

• Performance benchmarking is a comparison between the levels of achieved performance in different operations.

• Practice benchmarking is a comparison between an organization’s operations practices, or ways of doing things, and those adopted by another operation.

Activity: Case Study Question 2: What would you benchmark for Pick n Pay

Activity: Case Study Question 3: Give an example of how you would use the types of

benchmarking for Pick n Pay

Type of Benchmark Example

Internal

External

Non-Competitive

Competitive

Performance

Practice