MBA607_Operations Management (1)

Rethinking how your company should be run is no easy task. However, for the CEO and other senior executives, learning how to get and stay ahead of the competition should be a formalized, on-going transformational effort. Some of the issues that need to be addressed include:  Developing a thorough understanding of what is and what should be changing.  Making sure that the organization does not get stuck in the rut of just providing what customers want rather delighting your customers with products, features and services they had not thought of.  Establishing stretch goals and objectives and then executing action plans better and faster than your competition.  Creating core competencies that will give you a “faster, better, cheaper” advantage over your competition. Trying to navigate a course as complex as operations strategy without a well-defined road map will most probably cost you a great deal in money and time. To avoid this problem, always utilize and improve on the following formula: Innovative Strategy + Knowledge and Expertise + Objectives and Action Plans + Management Courage and Commitment + Execution = RESULTS 3.6 OPERATIONS STRATEGY AND ACTION PLAN CHECKLIST Use the following checklist to help you make sure your operations strategy and action plans are correctly established, well-coordinated, and well understood throughout the organization (see also Figure 4). 1. An operations strategy is clearly defined and has been communicated to everyone in the organization. ___YES ___ NO 2. Everyone in the organization understands why a particular operations strategy has been adopted. ___YES ___ NO 3. Methods for communicating up, down, and across the organization are easy, timely and effective. ___YES ___ NO 4. The operating strategy, objectives for improvement, and action plans are tied directly to the overall business strategy. ___YES ___ NO 5. Action plans are developed to achieve objectives which will strengthen the company’s 50 CU IDOL SELF LEARNING MATERIAL (SLM)

competitive position and/or financial performance. ___YES ___ NO 6. The company’s use and application of technology are consistent with the operations strategy. ___YES ___ NO 7. Action plans for operations complement the action plans of all business functions. ___YES ___ NO 8. An operations strategy review is periodically conducted to evaluate strategic alignment across the business. ___YES ___ NO 9. Performance measures encourage and contribute to the organization’s efforts to achieve the action plan objectives. ___YES ___ NO 10. The company’s reward system does not encourage individuals and/or functions to deviate from the operations strategy. ___YES ___ NO Figure 3.4 Developing action plan 3.7 ELEMENTS OF OPERATION STRATEGY Operations strategy comprises six components: 1. Positioning the production system,- It involves selecting the product design, the production system and the inventory policy for the finished goods for each product line 2. Product Focused- Generally employed in mass production organizations, where there are groups of machine, tools and workers arranged according to their respective tasks in order to put together a product. 3. .Process Focused-It is designed to support production departments that perform a single task like painting or packing. These systems are highly flexible and can easily be modified to support other product design. 51 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Technology selection and process development, - Thorough analysis and planning of the production processes and facilities. Every step in the process of production is planned in detail. The technology to be used in the production process is selected from range of options 5. Allocation of resources to strategic alternatives- Production companies have to continuously deal with the problem of scarce resources like capital, machine and materials and so on. As these resource inputs are vital to production activities, their shortages can influence production performance significantly. Hence the operation manger have to plan the optimal use of resources, both in terms of minimizing wastage, and in terms of their allocation to the best strategic use 6. Facility planning- The location of the production facilities is one of the key decisions an operation manager has to make since it is critical to the competitiveness of the organization. Setting up production facilities with adequate capacity involves massive initial investment. Strategically right options should be carefully weighted against all available alternatives. These decisions also influence the future decisions on probable capacity expansions plans. Operation managers also make decisions, i.e. decision on internal arrangement of workers and department within the facility 3.8 SUMMARY  A plan specifying how an organization will allocate resources in order to support infrastructure and production.  An operations strategy is typically driven by the overall business strategy of the organization, and is designed to maximize the effectiveness of production and support elements while minimizing costs.  The most common missing ingredient to success in companies I have seen over the years is a well-planned and defined action plan for improvement that is being consistently and constantly well-executed. The symptoms can vary but, in essence, what is missing are: well-defined and agreed-upon business goals, operational objectives, action plans and performance measures.  As a result, some functions within the company are often diametrically opposed to one another and operate in a way that makes meaningful business performance improvement nearly to outright impossible. 52 CU IDOL SELF LEARNING MATERIAL (SLM)

 Operational strategies refers to the methods companies use to reach their objectives. By developing operational strategies, a company can examine and implement effective and efficient systems for using resources, personnel and the work process.  Service-oriented companies also use basic operational strategies to link long- and short-term corporate decisions and create an effective management team.  Corporate strategies involve seeing a company as a system of interconnected parts. Just as the muscles of the heart depend on brain functions in a human body, each department in a company depends on the others to stay healthy and achieve desired outcomes.  The additional core strategies that a company uses should support the corporate strategy and use cross-functional interactions.  Operational strategies should include customer-driven approaches to meet the needs and desires of a target market. To do so, a company must develop strategies that evaluate and adapt to changing environments, continuously enhance core competencies and develop new strengths on an ongoing basis.  When evaluating environments, a company should monitor market trends to take advantage of new opportunities and avoid possible threats. 3.9 KEYWORDS  Inventory control or stock control can be broadly defined as \"the activity of checking a shop’s stock.\"  Production planning is the planning of production and manufacturing modules in a company or industry. It utilizes the resource allocation of activities of employees, materials and production capacity, in order to serve different customers.  Process selection—The process of identifying the unique features of the production process that will give the product its unique characteristics. Process selection typically goes hand in hand with product design, as we need to create a process that gives rise to the particular product design desired. An excellent product design is worthless if a process for its creation cannot be developed.  Productivity—A measure of how efficiently an organization converts inputs into outputs. It is usually measured by a ratio of output divided by input. Productivity is essentially a scorecard of how efficiently resources are used and a measure of competitiveness. Productivity is measured on many organizational levels—from 53 CU IDOL SELF LEARNING MATERIAL (SLM)

measuring labor and machine productivity to measuring the productivity of an entire organization or even a nation. As a result it is of interest to a wide range of people.  Quality management—The process used to ensure the quality of a product, including measuring quality and identifying quality problems. 3.10 LEARNING ACTIVITY 1. Discuss operational strategies used in today’s scenario. ___________________________________________________________________________ __________________________________________________________ 2. Draw a detailed plan for operational strategy along with documentation. ___________________________________________________________________________ __________________________________________________________ 3.11 UNIT END QUESTIONS A. Short Descriptive Type Questions 1. Define business. 2. Define business operational strategy. 3. What are the elements of operational strategy? 4. Operations strategy and overall business strategy are inextricably linked, Explain 5. Draw an action plan for operational strategy. B. Long Descriptive Type Questions 6 Discuss operation strategy influence other strategies of given organization. Explain its role and importance Operations strategy. 7 Discuss the importance of operations management in achieving strategic objectives. What are the critical decision areas that the operation manager should take care about 8 Discuss which operation strategy has been adopted by the firm and how well is it serving the organizational objectives. 9 Recommend an operation strategy for the given organization which is appropriate to a 54 CU IDOL SELF LEARNING MATERIAL (SLM)

given situation. B. Multiple Choice Questions 1. It involves selecting the product design, the production system and the inventory policy for the finished goods for each product line a. Positioning the production system b. Product focused c. Process focused d. None of these 2. Effective strategic business planning requires a………, methodical process that keeps the organization focused on the right issues and actions. a. Dynamic b. Systamatic c. Operational d. Discrete 3. The ––––––––– is the defect level for which lots are regarded as bad lots. a. Acceptable quality level b. Consumer’s risk c. Producer’s risk d. Lot Tolerance Percentage Defective 4. What are the advantages of templates over diagrams? 55 a. Can be conveniently moved on the graph paper b. Less laborious CU IDOL SELF LEARNING MATERIAL (SLM)

c. Saves time d. All of the above 5. Attack strategies are a. Frontal attack b. Flank attack c. Encirclement attack d. All of the above 6. Decisions which are primarily focused on design activities are called: a. Infrastructural decisions b. Design decisions c. Strategic decisions d. Structural decisions 7. A possible move to commodity standardization will occur at which stage of the product–service life cycle? a. Decline b. Introduction c. Growth d. Maturity 8. During the decline stage of the product–service life cycle, the number of competitors will: 56 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Increase b. Decline c. Be stable d. Be few 9. Market needs are largely met by which stage of the product–service life cycle? a. Introduction b. Growth c. Maturity d. Decline 10. For corporate banking, which of the following are likely to be key internal performance objectives? a. Flexibility, cost, speed b. Dependability, speed, cost c. Flexibility, quality, dependability d. Speed, cost, quality Answers 1. a 2. a 3. d 4. d 5. d 6. d 7. a 8. b 9. d 10. c 3.12 REFERENCES  Stevenson W.J. (2018). Operations Management. New Delhi: Tata McGraw Hills.  Chase, Jacobs, Aquilano & Aggarwal. (2005). Operations Management. New Delhi: Tata McGraw Hills.  John O. McClain and L. Joseph Thomas. (1986). Operations Management. New Delhi: Prentice Hall of India. 57 CU IDOL SELF LEARNING MATERIAL (SLM)

 W. Hopp, M. Spearman, Factory Physics, 3rd ed. Waveland Press, 2011 online (Part 1 contains both description and critical evaluation of the historical development of the field).  R. B. Chase, F. R. Jacobs, N. J.Aquilano, Operations Management for Competitive Advantage, 11th edition, McGraw-Hill, 2007. 58 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 4: BUSINESS AND OPERATIONS STRATEGY-II Structure 4.0 Learning Objectives 4.1 Introduction 4.2 Five Competitive Priorities 4.3 Operations Strategy and Competitiveness 4.4 Competitive Priorities 4.5 Core Competency (Core Capabilities) 4.6 Strategy 4.7 Manufacturing Strategies 4.8 Service Strategy 4.9 Global Business Strategies 4.10 Role of Operations Strategy 4.11 Summary 4.12 Keywords 4.13 Learning activity 4.14 Unit end question 4.15 References 4.0 LEARNING OBJECTIVES After studying this unit, you will be able: 59  State Competency and competitive priorities, their similarities and differences  Explain Strategies in operation management like Manufacturing Strategies, CU IDOL SELF LEARNING MATERIAL (SLM)

 Explain About Service Strategy,  State About Global Business Strategies 4.1 INTRODUCTION In operations management, competitive priorities are a crucial decision variable for operations managers. Competitive priorities signify a strategic focus on building specific manufacturing capabilities that can improve a plant’s position in the market. Such focus may guide decisions with regards to the capacity, technology, production process, planning, control, etc. In fact the strength of an operations strategy is dependent on the level of consistency between emphasized competitive priorities and matching decisions concerning operational structure and infrastructure. Fitting a plant’s practices to the competitive priorities is important to developing operations as a competitive advantage. According to Porter, there are two primary routes for competitiveness: cost leadership or differentiation. In contrast, according to Leong, within manufacturing there are actually 5 dimensions of competitive priorities: cost, flexibility, quality, delivery performance and innovativeness. We have to make trade-offs within competitive priorities. In a competitive market, no business can normally be on top in all aspects. The purpose of the priorities is to assist in the mission of positioning an organization with an advantage vs its rivals. 4.2 FIVE COMPETITIVE PRIORITIES Competitive Manufacturing Implications Priority Cost Monitoring costs, and distributes it effectively on the different products. Quality Making sure that the product and its process perform and comply with specification. 60 CU IDOL SELF LEARNING MATERIAL (SLM)

Flexibility Capability to manage volume and product mix changes, equipment and workforce-related Delivery Reliable and quick delivery of goods, stock availability. performance Innovativeness Time-to-market, how quickly new products or processes can be implemented. On a “high level” the competitive priorities can represent a manufacturing strategy. To develop a manageable strategy, the priorities must be split up into decision categories. As a way to prioritize among the list of competitive priorities, the idea of order winners and order qualifiers may be utilized. Order-winners for a product are the qualities which make an organization receive a new order. Order-qualifiers, in contrast, are required to be able to compete in a marketplace. The main objective of analyzing a company’s order-winners and order-qualifiers is to establish a basis for the manufacturing strategy. Identifying order- winners and order-qualifiers is not a one time activity, but needs to be done regularly, because market demands change as time passes and along with that the order-winners and order-qualifiers. 4.3 OPERATIONS STRATEGY AND COMPETITIVENESS We have all competed in various types of activities, perhaps in sports, or school. There may have been prizes or rewards for ranking high in these competitions. Business is no different. We define competitiveness, “as the ability and performance of a firm to sell and supply goods and services in a given market, in relation to the ability and performance of other firms.” In other words, how will one firm win over customers in order to become the product or service of choice. 4.4 COMPETITIVE PRIORITIES The competitive priorities are the ways in which the Operations Management function focuses on the characteristics of cost, quality, flexibility and speed. The firm’s customers will determine which of the competitive priorities are emphasized. Cost – Firms whose customers prioritize price will be very interested in having processes that 61 CU IDOL SELF LEARNING MATERIAL (SLM)

enable them to keep their costs low. These companies are typically paying close attention to identifying and eliminating waste within their operations. By reducing defects, they will reduce costs. These firms will closely monitor and seek to improve their productivity. Factors such as resource utilization and efficiency will be important. Quality – Firms whose customers prioritize quality focus on creating both excellent product and process design. Marketing and Engineering collaborate to design products that meet customers’ requirements. Manufacturing must ensure that the process is able to produce the products defect-free. It is only by having excellent design quality and excellent process quality that the organization can ensure that customers will have their expectations satisfied. Flexibility – Firms whose customers prioritize variety must prioritize the ability to change rapidly. Firms who value flexibility usually do so by carefully choosing equipment that is general-purpose and able to perform multiple functions. They will often strive to keep a small amount of spare capacity in case it is needed. Multi-skilled employees who are able to work in various areas of the firm or operate multiple types of technology are valued. These firms want to ensure that they can get new products to market quickly and transition from making one product to another quickly. Keeping machine set-ups fast is a critical way to do this. They also strive to be able to abruptly modify the volume of their output in case the need or opportunity arises. Delivery (reliability and speed) – Firms whose customers prioritize speed of product/service delivery must be very efficient and quick at providing their products and services. McDonald’s and Amazon are examples of this. Below is a table summarizing the relationship between a customer’s priority and a firm’s strategy. Customer’s Firm’s strategy priority Cost Minimizing product costs and waste, maximizing productivity Quality Designing superior, durable products, minimizing defects Flexibility Adaptability in product design and output, utilizing general- purpose machinery and multi-skilled workers 62 CU IDOL SELF LEARNING MATERIAL (SLM)

Delivery Maintaining reliable and speedy delivery services It is a long-held understanding that each major decision that needs to be made within the operations of an organization will include a trade-off because it is impossible for anyone organization to excel on all the competitive priorities at once! An example is a manufacturer who competes on the basis of cost. In order to reduce defects, they may choose to change one of their input components for one with a better quality. This however will increase their costs. Cost and quality are common trade-offs. Flexibility and speed are also considered trade-offs. When organizations increase their number of options and varieties, it adds operational complexity. This will slow down their operations. 4.5 CORE COMPETENCY (CORE CAPABILITIES) Core competency is a management theory that originated in a 1990 Harvard Business Review article, “The Core Competence of the Corporation.” Core competencies are the resources and capabilities that comprise the strategic advantages of a business. A modern management theory argues that a business must define, cultivate, and exploit its core competencies in order to succeed against the competition.  Core competencies are the defining characteristics that make a business or an individual stand out from the competition.  Identifying and exploiting core competencies are as important for a new business making its mark as for an established company trying to stay competitive.  A company’s people, physical assets, patents, brand equity, and capital all can make a contribution to a company’s core competencies. A successful business has identified what it can do better than anyone else, and why. Its core competencies are the “why.” Defining Core Competencies In the article, C.K. Prahalad, and Gary Hamel review three conditions a business activity must meet in order to be a core competency:  The activity must provide superior value or benefits to the consumer.  It should be difficult for a competitor to replicate or imitate it. 63 CU IDOL SELF LEARNING MATERIAL (SLM)

 It should be rare. Some examples of core competencies:  McDonald’s has standardization. It serves nine million pounds of French fries every day, and every one of them has precisely the same taste and texture.  Apple has style. The beauty of its devices and their interfaces gives them an edge over its many competitors.  Walmart has buying power. The sheer size of its buying operation gives it the ability to buy cheap and undersell retail competitors. 4.6 STRATEGY The Strategy Hierarchy In most corporations, there are several levels of management. Strategic management is the highest of these levels in the sense that it is the broadest and applies to all parts of the firm while also incorporating the longest time horizon. It gives direction to corporate values, corporate culture, corporate goals, and corporate missions. Under this broad corporate strategy there are typically business-level competitive strategies and functional unit strategies. Figure 4.1 The Strategy Hierarchy Corporate strategy refers to the overarching strategy of the diversified firm. Such a corporate strategy answers the questions of “in which businesses should we compete?” and “how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?” 64 CU IDOL SELF LEARNING MATERIAL (SLM)

Business strategy refers to the aggregated strategies of a single business firm or a strategic business unit (SBU) in a diversified corporation. According to Michael Porter, a firm must formulate a business strategy that incorporates either cost leadership, differentiation or focus in order to achieve a sustainable competitive advantage and long-term success in its chosen arenas or industries. Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short- and medium-term plans and is limited to the domain of each department’s functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies. Table 4.1 Difference in 3 strategies Many companies feel that a functional organizational structure is not an efficient way to organize activities, so they are reengineered according to processes or SBUs. A strategic business unit is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. An additional level of strategy called operational strategy was encouraged by Peter Drucker in his theory of Management by Objectives (MBO). It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies. Operations strategy categories can be broken down into many types of areas that must be addressed. The decisions made in these areas will determine whether the business strategy is executed. Below is a list of 10 critical decisions in operations management: 65 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Design of Goods and Services – The actual design of the product or service will have the largest impact on the cost to produce and the quality to achieve. 2. Quality – The way in which the organization will ensure that the product specifications are met. This may include the use of statistical process control, total quality management or Six Sigma. 3. Process and Capacity Design – The type of product along with its volume and variety will have the major impact on which type of process to be chosen. 4. Location – Important decisions such as how many locations and where to locate them are critical to organization success. This will be a major factor in terms of how quickly the transformation process can take place, and how quickly goods can be shipped to customers. 5. Layout Design and Strategy – Consider the placement of work centres, movement of goods, people and information how materials are delivered and used. 6. Human Resources and Job Design – Decisions regarding training for employees, how to motivate employees to achieve operational success. 7. Supply Chain Decisions – Decisions in terms of where suppliers are located and the level of supplier collaboration are major considerations that impact cost and delivery speed. 8. Inventory – How will inventories be used and controlled in the business and the supply chain 9. Scheduling – includes both how to schedule production, resources and employees in order to be effective, efficient and meet commitments to customers. 10. Maintenance– This involves maintaining equipment and machinery as well as keeping quality high and processes stable. Common Operations Strategies There are many types of Operations strategies; two of the most common are quality-based strategies and time-based strategies. Quality-based strategies are commonly used when companies wish to elevate their reputation in the marketplace. Improving on their product design and the reduction of errors are the backbone of these initiatives. Firms will often use programs such as ISO9001, Six Sigma, and Total Quality Management in their efforts. 66 CU IDOL SELF LEARNING MATERIAL (SLM)

Time-based strategies are used to reduce lead time, which is the amount of time elapsed from the receipt of the customer’s order until the products are shipped. Firms that can produce faster will often have lower costs. These companies may use lean production methods to improve the velocity of their processes. 4.7 MANUFACTURING STRATEGIES As stated previously, all manufacturing systems have specific business objectives to be achieved, which are driven by the organizational mission statement. These business objectives are then used to generate the business strategy. The business strategy should be developed to allow the organization to meet its business objectives but be flexible enough to accommodate change. The business strategy in turn is used to formulate both the marketing strategy and the manufacturing strategy. Finally, the implementation of these strategies will require people and processes as illustrated in Fig. 1.4. Figure 4.2 Manufacturing strategies The manufacturing strategy can be defined as a long range plan to use the resources of the manufacturing system to support the business strategy and in turn meet the business objectives (Cimorelli and Chandler, 1996). This in turn requires a number of decisions to be made to allow the formulation of the manufacturing strategy. Six basic decision categories have been identified and these are (Hayes and Wheelright, 1984): Capacity decisions – these deal with how customer demand is met in terms of the resources 67 CU IDOL SELF LEARNING MATERIAL (SLM)

available and those required. In effect the questions being asked are, what has to be made, what will be used to make it and when and how will this be achieved? Process decisions – this is basically about deciding which type of system should be employed. This is complicated by the fact that most companies employ hybrid systems. Facility decisions – the main focus of this decision is the layout of plant at a factory level, and the assigning of specific products to specific plants at an organizational level. Make or buy decisions – the essence of this decision is identifying what is to be made in house and what is to be sub-contracted. This is particularly important as it will influence the capacity, facilities and process decisions. Infrastructure decisions – this decision considers the policies and organization required to meet the business objectives. Specifically it will consider the production planning and control system, the quality assurance system and the organizational structure. Human resource decision – obviously other decision categories can have a huge influence on this decision. The two main decisions are identifying the functions and organizational structure required and the reward system, that is, pay, bonuses, etc. 4.8 SERVICE STRATEGY At the service strategy level, the service firm must define its service concept, operating system and service delivery system. The service strategy links the firm's strategic position with tactical execution. The firm begins by determining its competitive priorities, and its order winners and order qualifiers. Competitive priorities are the characteristics of the firm or things that it does better than other service firms (e.g., low cost, quality, service, or flexibility). The firm's competitive priority(s) must be both an order qualifier and an order winner. The order qualifier is a characteristic that the service must possess in order to compete in the market. If the firm lacks this then the consumer will not even consider purchasing the firm's service. The order winner is the characteristic that will cause the consumer to purchase the firm's service over its competitors. The service concept then is the set of competitive priorities that the target market values. The operating strategy describes how the firm's different functions (marketing, finance, and operations) will support the service concept. If the firm's order winning competitive priority is quality, what will operations do to ensure quality of the service and how will marketing promote this characteristic? The service delivery system defines the components of the system necessary to execute the 68 CU IDOL SELF LEARNING MATERIAL (SLM)

service concept. Examples of the needed variables are capacity requirements, quality management systems, and management policies. Each of these should support the firm's competitive priorities so that the firm is clearly distinct from its competitors. 4.9 GLOBAL BUSINESS STRATEGIES A major concern for managers deciding on a global business strategy is the trade-off between global integration and local responsiveness. Global integration is the degree to which the company is able to use the same products and methods in other countries. Local responsiveness is the degree to which the company must customize their products and methods to meet conditions in other countries. The two dimensions result in four basic global business strategies: export, standardization, multidomestic, and transnational. These are shown in the figure below. Figure 4.3 Four global business strategies Export Strategy An export strategy is used when a company is primarily focused on its domestic operations. It does not intend to expand globally but does export some products to take advantage of international opportunities. It does not attempt to customize its products for international 69 CU IDOL SELF LEARNING MATERIAL (SLM)

markets. It is not interested in either responding to unique conditions in other countries or in creating an integrated global strategy. Standardization Strategy A standardization strategy is used when a company treats the whole world as one market with little meaningful variation. The assumption is that one product can meet the needs of people everywhere. Many business-to-business companies can use a standardization strategy. Machines tools and equipment or information technologies are universal and need little customization for local conditions. CEMEX, the Mexico-based cement and building materials company, was able to expand globally using a standardization strategy. Apple uses a standardization strategy because its products do not have to be customized for local users. An iPod will look the same wherever you buy it. Domino’s Pizza also uses a standardization strategy. Although toppings may vary to meet local tastes, the basic recipes are the same and the store model of carryout or delivered pizza is the same everywhere. A standardization strategy produces efficiencies by centralizing many common activities, such as product design, gaining scale economies in manufacturing, simplifying the supply chain, and reducing marketing costs. Multidomestic Strategy A multidomestic strategy customizes products or processes to the specific conditions in each country. In the opening example, Lincoln Electric should have used a multidomestic strategy to customize its manufacturing methods to the conditions in each country where it built factories. Retailers often use multidomestic strategies because they must meet local customer tastes. 7-Eleven is an example of a company using a multidomestic strategy. It tailors the product selection, payment methods, and marketing to the values and regulations in each country where it operates. For example, in Japan, 7-Eleven allows customers to pay their utility bills at the store. In a company with a multidomestic strategy, overall management is centralized in the home country but country managers are given latitude to make adaptations. Companies sacrifice scale efficiencies for responsiveness to local conditions. Companies benefit from a multidomestic strategy because country managers understand local laws, customs, and tastes and can decide how to best meet them. Transnational Strategy A transnational strategy combines a standardization strategy and a multidomestic strategy. It is used when a company faces significant cost pressure from international competitors but must also offer products that meet local customer needs. A transnational strategy is very difficult to maintain because the company needs to achieve economies of scale through standardization but also be flexible to respond to local conditions. Ford Motor Company is 70 CU IDOL SELF LEARNING MATERIAL (SLM)

adopting a transnational strategy. Ford is producing a “world car” that has many common platform elements that accommodate a range of add-ons. That way Ford benefits from the standardization of costly elements that the consumer does not see but can add custom elements to meet country laws, can customize marketing to local standards, and can provide unique products to meet local tastes. International business strategies must balance local responsiveness and global integration. 4.10 ROLE OF OPERATIONS STRATEGY The nature of how the management of the strategic objectives is organised depends largely on the type of organisation, such as a government authority, a manufacturing or wholesale business, a retail company or an agency (Pycraft et al. 2007). According to Brown et al. (2013) and Mahadevan (2010), the importance of effective operations management in achieving organisational objectives can be divided into three broad categories: strategic decisions, tactical decisions and operational decisions. Strategic Decisions: OM assists senior level management in making strategic level decisions. Such decisions consider the existing constraints as well as the current conditions to formulate efficient systems and companywide processes to achieve a competitive advantage. Examples of these long-term, strategic decisions include mergers and acquisitions or major technological changes that directly affect the organisation’s core businesses. Tactical Decisions: OM enables management to efficiently schedule the available resources and manage the staff under the legal regulations and the constraints defined by the organisation’s strategic plan (Radford 1998). Examples of these intermediate tactical decisions include operational shift planning and the scheduling of the delivery of raw materials. Operational Decisions: Following Mahedevan (2010) and Johnson et. al. (2005) OM assists management in planning, controlling and monitoring operational decisions under the constraints defined by the tactical decisions. These decisions are narrowly focused on individual departmental targets. Examples of these short-term operational decisions include typical day-to-day business decisions made by team leaders, such as planning individual daily tasks and goals. 4.11 SUMMARY 71 CU IDOL SELF LEARNING MATERIAL (SLM)

 “Operations strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy,” they write. Technology and business models are rapidly changing, so businesses must keep pace and look to the future.  In most corporations, there are several levels of management. Strategic management is the highest of these levels in the sense that it is the broadest and applies to all parts of the firm while also incorporating the longest time horizon.  At the service strategy level, the service firm must define its service concept, operating system and service delivery system. The service strategy links the firm's strategic position with tactical execution. The firm begins by determining its competitive priorities, and its order winners and order qualifiers.  In today’s economy almost all companies must consider the opportunities presented by globalization, but global operations also present significant risks. Companies must research and plan thoroughly before engaging in international operations. And they must choose a strategy that matches their capabilities and objectives. The economies of standardization and the responsiveness of customization are competing pressures companies must resolve. The appropriate strategic choice is essential for a company to make the right choices.  As globalisation touches economies around the world, more companies now are connecting with the global market. Expansion into the foreign financial market has become easier, thanks to improved communication, enhanced capital mobility and slashed tariffs. However, international business expansion involves many factors like dealing with foreign stakeholders, facing stiff competition, foreign employees and labour laws as well as government jurisdiction. Thus, successful business managers embrace a well-planned business strategy that caters to their needs as well as abilities. 4.12 KEYWORDS  Feudalism- was a combination of legal, economic, military and cultural customs that flourished in Medieval Europe between the 9th and 15th centuries.  Reengineering—The process of redesigning a company’s processes to increase efficiency, improve quality, and reduce costs. In many companies things are done in a certain way that has been passed down over the years. Operations management is a key player in a company’s reengineering efforts.  Scheduling—The process of deciding on the timing and use of resources within an 72 CU IDOL SELF LEARNING MATERIAL (SLM)

operation; it addresses questions such as who will work on what work schedule and in what sequence jobs will be processed.  Total quality management (TQM)—A philosophy that seeks to improve quality by eliminating causes of product defects and by making quality the responsibility of everyone in the organization. With TQM everyone in the company is responsible for quality.  Value added—A term used to describe the net increase created during the transformation of inputs into outputs. The OM function seeks to create value added in the transformation process. 4.13 LEARNING ACTIVITY 1. Discuss about the core competencies of any healthcare organization. ___________________________________________________________________________ __________________________________________________________ 2 Compare and contrast the manufacturing strategies of two organizations. ___________________________________________________________________________ __________________________________________________________ 4.14 UNIT END QUESTION A. Short Descriptive Type Questions 1. Discuss competitive priorities? 2. Explain competency. 3. Explain service strategies. 4. Explain the concept of global business strategies? 5. Discuss the role of operations strategy 6. Analyze the difference of Core competencies and competitive priorities? B. Long Descriptive Type Questions 1. Does your operations strategy complement or conflict with the business strategy? 73 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Have you adequately quantitatively assessed risk in your operations strategy and developed plans to reduce risks? 3. Have you established specific, measureable goals for the operational team as well as key individuals and tied them to business outcomes? 4. Does the operations strategy accommodate necessary business timelines? 5. Does your operations strategy maintain flexibility while increasing accountability? C. Multiple Choice Questions 1. Firms whose customers prioritize price will be very interested in having processes that enable them to keep their ………………….. a. Cost Low b. Cost high c. Space level d. System update 2. At the …………….. level, the service firm must define its service concept, operating system and service delivery system. a. service strategy b. marketing strategy c. business strategy d. none of these 3. Capacity decisions have a direct influence on performance of production system in respect of ––––––––– a. Delivery performance b. Quality control 74 CU IDOL SELF LEARNING MATERIAL (SLM)

c. Plant size d. Manpower 4. Business is rated on which dimensions a. Market attractiveness b. Business strength c. both (A) and (B) d. none of the above 5. Which of the following policies is advisable in case of low product variety and large volumes? a. Skilled labour, special purpose machine b. Low skilled labour, general purpose machine c. Low Skilled Labour, Special Purpose Machines d. Any of the above 6. Things which directly and significantly contribute to gaining business are termed: a. Competitive factors b. Order winning factors c. Critical factors d. Qualifying factors 7. The key virtues required for shaping strategy from the bottom up are: 75 a. Learning from experience CU IDOL SELF LEARNING MATERIAL (SLM)

b. Philosophy of incremental improvement c. Employee involvement d. All of the above 8. Another term for the bottom up perspective is the concept of: a. Emergent strategies b. Hierarchical strategies c. Experiential strategies d. Group strategies 9. The operations, marketing, product–service development departments will all need to consider how best they should organize themselves. This is called: a. Business strategy b. Functional strategy c. Operations strategy d. Corporate strategy 10. Decisions about what types of business the group wants to be in, what parts of the world it wants to operate in, and how to allocate its cash between its various businesses, all relate to: a. Operations strategy b. Functional strategy c. Business strategy d. Corporate strategy Answers 76 1. a 2. a 3. a 4. c 5. c 6. b 7. d 8. a 9. b 10. d CU IDOL SELF LEARNING MATERIAL (SLM)

4.15 REFERENCES  Stevenson W.J. (2018). Operations Management. New Delhi: Tata McGraw Hills.  Chase, Jacobs, Aquilano & Aggarwal. (2005). Operations Management. New Delhi: Tata McGraw Hills.  John O. McClain and L. Joseph Thomas. (1986). Operations Management. New Delhi: Prentice Hall of India.  W. Hopp, M. Spearman, Factory Physics, 3rd ed. Waveland Press, 2011 online (Part 1 contains both description and critical evaluation of the historical development of the field).  R. B. Chase, F. R. Jacobs, N. J.Aquilano, Operations Management for Competitive Advantage, 11th edition, McGraw-Hill, 2007.  Askin, R. G., C.R. Standridge, Modeling & Analysis of Manufacturing Systems, John Wiley and Sons, New York 1993.  Johnston, Robert; Clark, Graham; Shulver, Michael (2012). Service Operations: Management: Improving Service Delivery (Fourth ed.). London, England: Pearson. ISBN 978-0-273-74048-3.  Burnetas A.N. and M. N. Katehakis (1993). \"On Sequencing Two Types of Tasks on a Single Processor under Incomplete Information\", Probability in the Engineering and Informational Sciences, 7 (1), 85-0119. 77 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 5: PRODUCTION MANAGEMENT 78 Structure 5.0 Learning objectives 5.1 Introduction 5.2 Integrated product development 5.3 Productivity 5.3.1 Productivity – Meaning 5.3.2 Productivity – Concept (With Formula) 5.3.3 Productivity – Factors Affecting Productivity 5.4 Types of Productivity 5.5 Productivity – Importance 5.51 Combining the Resources for Production: 5.5.2 Selecting a Site: 5.5.3 Selecting the Design and Layout: 5.5.4 Production Control: 5.6 Productivity Index 5.7 Productivity Improvement Models 5.8 Functions of Production Management 5.9 Importance of Production Management 5.10 Summary 5.11 Keywords 5.12 Learning activity CU IDOL SELF LEARNING MATERIAL (SLM)

5.13 Unit end questions 5.14 References 5.0 LEARNING OBJECTIVES After studying this unit, you will be able:  Explain Productivity and its importance  State Production management and functions and importance of the same  Explain Types of productivity and productivity index 5.1 INTRODUCTION Production management involves the planning, organisation, direction and execution of production activities. The ultimate goal of any production management solution is to convert a collection of raw materials into a finished product. Some people refer to production management as the bringing together of the 6 'Ms':  Men  Money  Machines  Materials  Methods  Markets These constituents come together to provide consumers and businesses with products that they need or want. The production management principles are often referred to as operation management principles, and they are designed to facilitate the production of goods that are of the required quality and quantity. Production Production is a scientific process which involves transformation of raw material (input) into desired product or service (output) by adding economic value. Production can broadly 79 CU IDOL SELF LEARNING MATERIAL (SLM)

categorize into following based on technique: Production through separation: It involves desired output is achieved through separation or extraction from raw materials. A classic example of separation or extraction is Oil into various fuel products. Production by modification or improvement: It involves change in chemical and mechanical parameters of the raw material without altering physical attributes of the raw material. Annealing process (heating at high temperatures and then cooling), is example of production by modification or improvement. Production by assembly: Car production and computer are example of production by assembly. Figure 5.1 Production by assembly Importance of Production Function and Production Management Successful organizations have well defined and efficient line function and support function. Production comes under the category of line function which directly affects customer experience and there by future of organization itself. Aim of production function is to add value to product or service which will create a strong and long lasting customer relationship or association. And this can be achieved by healthy and productive association between Marketing and Production people. Marketing function people are frontline representative of the company and provide insights to real product needs of customers. An effective planning and control on production parameters to achieve or create value for customers is called production management. Operations Management 80 CU IDOL SELF LEARNING MATERIAL (SLM)

As to deliver value for customers in products and services, it is essential for the company to do the following: 1. Identify the customer needs and convert that into a specific product or service (numbers of products required for specific period of time) 2. Based on product requirement do back-ward working to identify raw material requirements 3. Engage internal and external vendors to create supply chain for raw material and finished goods between vendor → production facility → customers. Operations management captures above identified 3 points. Production Management v/s Operations Management A high level comparison which distinct production and operations management can be done on following characteristics:  Output: Production management deals with manufacturing of products like (computer, car, etc.) while operations management cover both products and services.  Usage of Output: Products like computer/car are utilized over a period of time whereas services need to be consumed immediately  Classification of work: To produce products like computer/car more of capital equipment and less labour are required while services require more labour and lesser capital equipment.  Customer Contact: There is no participation of customer during production whereas for services a constant contact with customer is required. Production management and operations management both are very essential in meeting objective of an organization. 5.2 INTEGRATED PRODUCT DEVELOPMENT Integrated product and process development combines the product design processes along with the process design process to create a new standard for producing competitive and high- quality products. Integration of new technologies and methods provide a complete new dimension to product design process. This process starts with defining of the requirements of products based on the 81 CU IDOL SELF LEARNING MATERIAL (SLM)

customer feedback while considering the design layout and other constraints. Once the finer details are finalized, they are fed into CAD models where extensive testing and modeling are done to get the best product. With integration of production method and technology with product design, it is natural for integration of product design and process design. Therefore, integrated product and process development can be defined as a process starting from product idea to development of final product through modern technology and process management practices while minimizing cost and maximizing efficiency. Advantages of Integrated Product and Process Development (IPPD) Organization stands to benefit greatly from the implementation of IPPD. Some of the advantages are as follows:  Using modern technologies and implement logical steps in production design, the actual production is likely to come down, thereby reducing product delivery time.  Through optimum usage of resources and using efficient process, organizations are able to minimize cost of production thus improving profitability of the organization.  Since extensive uses of CAD model are employed chances are of product or design failure are greatly reduced thus reducing risk for organization.  As the focus is solely in delivering value to customer, quality is paramount importance and achieved through technology and methods. 5.3 PRODUCTIVITY Productivity refers to the physical relationship between the quantity produced (output) and the quantity of resources used in the course of production (input). “It is the ratio between the output of goods and services and the input of resources consumed in the process of production.” Productivity is the ratio between output of wealth and input of resources used in production processes. Output means the quantity of products produced and the inputs are the various resources used in the production. The resources used may be land, building, equipment, machinery, materials, labour etc. Productivity means an economic measure of output per unit of input. Output refers to the total 82 CU IDOL SELF LEARNING MATERIAL (SLM)

production in terms of units or in terms of revenues while input refers to all the factors of production used like capital, labour, equipment, etc. 5.3.1 Productivity – Meaning Productivity refers to the physical relationship between the quantity produced (output) and the quantity of resources used in the course of production (input). “It is the ratio between the output of goods and services and the input of resources consumed in the process of production.” Output implies total production while input means land, labour, capital, management, etc. Productivity measures the efficiency of the production system. The efficiency with which resources are utilized is called productive efficiency. Higher productivity means producing more from a given amount of inputs or producing a given amount with lesser inputs. At the level of a plant or an industry productivity is an output-input ratio. But at the macro level, productivity is a measure of performance of an economy or country. From a nation’s viewpoint productivity is the ratio of available goods and services to the potential resources of the country. Productivity means an economic measure of output per unit of input. Output refers to the total production in terms of units or in terms of revenues while input refers to all the factors of production used like capital, labour, equipment, etc. Productivity is a good indicator of the efficiency with which a factory is operating. If a firm has higher productivity, i.e. it produces more with a given amount of inputs, it means it is utilising the resources properly. Similarly, a lower productivity indicates wastage of resources and time. It is vital to have a high productivity rate because resources like capital and time are scarce and should be exploited in the best possible way. Productivity can be calculated as the ratio of the volume of output to the volume of inputs. Productivity = Output/Input Productivity can be increased by: i. Generating more outputs from same level of inputs. ii. Producing same level of outputs with reduced level of inputs. iii. A combination of both. For the long term growth of the firm and the economy as a whole, it is impertinent that a high level of productivity is maintained. A high productivity means that the resources are utilised 83 CU IDOL SELF LEARNING MATERIAL (SLM)

to the optimum, while minimizing wastage. This leads to reduction in cost of production, and subsequently availability of quality products to customers at lower price. Profitability of the firm is also related to its productivity. More profits mean that more retained earnings which would ultimately increase shareholders’ wealth. 5.3.2 Productivity – Concept (With Formula) The concept of productivity can be applicable to any economy, small, medium and large business, government and individuals. Productivity aims at the maximum utilization of resources for yielding as many goods and services as possible, desired by consumers at lowest possible cost. Productivity is the ratio of output in a period of time to the input in the same period time. Productivity can measured with the help of following formula: In simple terms Productivity is the ratio of output to some or all of the resources used to produce the output. Productivity can thus be measured as: “Productivity is the quantitative relation between; what a firm produces and what a firm uses as a resource to produce output, i.e. arithmetic ratio of amount produced (output) to the amount of resources (input)”. “Productivity is an aggregate measure of the efficiency of production; it is the ratio of output to inputs i.e. capital, labor, land, energy and materials”. “Productivity refers to the efficiency of the production system and an indicator to; how well the factors of production (land, capital, labor and energy) are utilized”. Productivity is the ratio between output of wealth and input of resources used in production processes. Output means the quantity of products produced and the inputs are the various resources used in the production. The resources used may be land, building, equipment, machinery, materials, labour etc. Productivity can be increased by the following ways: 1. Increasing the output using the same input. 2. Reducing the input by maintaining the output as constant. 3. Increasing the output to a maximum extent with a smaller increase in input. 84 CU IDOL SELF LEARNING MATERIAL (SLM)

5.3.3 Productivity – Factors Affecting Productivity Productivity is the outcome of several factors. These factors are so interrelated that it is difficult to identify the effect of any one factor on productivity. These factors may broadly be divided as follows: 1. Human: Human nature and human behaviour are the most significant determinants of productivity. Human factors may further be classified into two categories as given below: (a) Ability to work – Productivity of an organization depends upon the competence and calibre of its people—both workers and managers. Ability to work is governed by education, training, experience, aptitude, etc. of the employees. (b) Willingness to work – Motivation and morale of people is the second important group of human factors that determine productivity. Wage incentive schemes, labour participation in management, communication system, informal group relations, promotion policy, union management relations, quality of leadership, etc., are the main factors governing employees’ willingness to work. Working conditions like working hours, sanitation, ventilation, schools, clubs, libraries, subsidized canteen, company transport, etc., also influence the motivation and morale of employees. 2. Technological: Technological factors exercise significant influence on the level of productivity. The main technological factors are as follows: (a) Size and capacity of plant (b) Product design and standardization (c) Timely supply of materials and fuel (d) Rationalization and automation measures (e) Repairs and maintenance (f) Production planning and control (g) Plant layout and location 85 CU IDOL SELF LEARNING MATERIAL (SLM)

(h) Materials handling system (i) Inspection and quality control (j) Machinery and equipment used (k) Research and development (l) Inventory control (m) Reduction and utilization of waste and scrap, etc. 3. Managerial: The competence and attitudes of managers have an important bearing on productivity. In many organizations, productivity is low despite latest technology and trained manpower. This is due to inefficient and indifferent management. Competent and dedicated managers can obtain extraordinary results from ordinary people. Job performance of employees depends on their ability and willingness to work. Management is the catalyst to create both. Advanced technology requires knowledge workers who in turn work productively under professionally qualified managers. No ideology can win a greater output with less effort. It is only through sound management that optimum utilization of human and technical resources can be secured. 4. Natural: Natural factors such as physical, geological, geographical and climatic conditions exert considerable influence on productivity, particularly in extractive industries. For example, productivity of labour in extreme climates (too cold or too hot) tends to be comparatively low. Natural resources like water, fuel and minerals influence productivity. 5. Sociological: Social customs, traditions and institutions influence attitudes towards work and job. For instance, bias on the basis of caste, religion, etc., inhibited the growth of modern industry in some countries. The joint family system affected incentive to work hard in India. Close ties with land and native place hampered stability and discipline among industrial labour. 6. Political: Law and order, stability of Government, harmony between States, etc. are essential for high productivity in industries. Taxation policies of the Government influence willingness to work, 86 CU IDOL SELF LEARNING MATERIAL (SLM)

capital formation, modernization and expansion of plants, etc. Industrial policy affects the size, and capacity of plants. Tariff policies influence competition. Elimination of sick and inefficient units helps to improve productivity. 7. Economic: Size of the market, banking and credit facilities, transport and communication systems, etc. are important factors influencing productivity. Productivity is an economics term which refers to the ratio of product to what is required to produce the product. Productivity is outcome of several interrelated factors. All the factors which are related to input and output components of a production process are likely to affect productivity. So, there are many factors which can influence productivity; such as internal and external. Knowing the internal and external factors that affect productivity of an Industrial organization; give industrial engineers; the intelligence, they needs to sort out the low performance of resources and make strategic plans for the future. The best thing about internal factors is that you can control many of them. External factors are all those things that are beyond your control. To deal with all these factors we need different people and variety of techniques and methods. Some of the Other Factors The factors influencing productivity can be classified broadly into two categories: (A) Controllable Factors. (B) Uncontrollable Factor. (A) Controllable Factors: Controllable Factors are considered as internal factors. These are the factors which are in control of industrial organization. Controllable factors are: 1. Material and Power: Improved quality of raw materials and increased use of power have a favorable effect on productivity. An effort to reduce materials and energy consumption brings about considerable improvement in productivity. 87 CU IDOL SELF LEARNING MATERIAL (SLM)

It consists: i. Selection of quality material and right material. ii. Control of wastage and scrap. iii. Effective stock control. iv. Development of sources of supply. v. Optimum energy utilization and energy savings. 2. Machinery and Plant Layout: The size of the plant and the capacity utilization has direct bearing on productivity. Production below or above the optimum level will be uneconomical and will tend towards lower level of productivity. The arrangement of machines and position in the plant and the setup of the wore-bench of an individual worked will determine how economically and efficiently production will be ferried out. 3. Human Factors: Human nature and human behavior are the most significant determinants of productivity. Human factors include both their ability as well as their willingness. i. Ability to Work: Ability to work is governed by education, training, experience and aptitude of the employees. Productivity of an organization depends upon the competence and caliber of its people (both workers and managers). ii. Willingness to Work: Motivation and morale of people are very important factors that determine productivity. These are affected by wage incentive schemes, labour participation in management, communication systems, informal group relations, promotion policy, union Management relations, quality of leadership, working hours, sanitation, ventilation, subsidized canteen and company transport etc. 4. Organization and Managerial Factors: Organization factor include various steps taken by the organization towards maintaining better industrial relations such as delegation and decentralization of authority. These factors also influence motivation likewise the existence of group, with higher productivity as their 88 CU IDOL SELF LEARNING MATERIAL (SLM)

goal is likely to contribute to the organization objectives. The competence and attitudes of managers have an important bearing on productivity. Competent and dedicated managers can obtain extraordinary results from ordinary people. Job performance of employees depends on their ability and willingness to work. 5. Technological Factors: Technological factors exert significant influence on the level of productivity. These include the following: i. Size and capacity of plant ii. Product design and standardization iii. Production planning and control iv. Plant layout and location v. Materials handling system vi. Inspection and quality control vii. Machinery and equipment used viii. Research and development (B) Uncontrollable Factors: Uncontrollable factors are known as external factors and these factors are beyond the control of the individual industrial organization. Uncontrollable factors are: 1. Economic Political and Social Changes: There are economic, social and political factor that affects the productivity. i. Economic Factors like Size of the market, banking and credit facilities, transport and communication systems, etc. is important factors influencing productivity. ii. Political Factors like Law and order, stability of government, harmony between states etc. are essential for high productivity in industries Taxation policies of the government influence willingness to work, capital formation, modernization and expansion of plants etc. Industrial 89 CU IDOL SELF LEARNING MATERIAL (SLM)

policy affects the size, and capacity of plants. Elimination of sick and inefficient units also helps to improve productivity. iii. Social Factors like Social customs, traditions and institutions influence attitudes towards work and job. For instance, bias on the basis of caste, religion, etc., inhibited the growth of modern industry in some countries. The joint family system affected incentive to work hard in India. Close ties with land and native place hampered stability and discipline among industrial labour. 2. Natural Resources: Natural factors such as physical, geographical and climate conditions exert considerable influence on productivity, particularly in extreme climates (too cold or too hot) tends to be comparatively low. Natural resources like water, fuel and minerals influence productivity. 3. Government Factor: Government policies and programs are significant to productivity practices of government agencies, transport and communication power, and fiscal policies (interest rates, taxes) influence productivity to the greater extent. 5.4 TYPES OF PRODUCTIVITY Productivity is a classic economic metric that measures the process of creating goods and services. Productivity is the ratio of the amount of output from a team or organization per unit of input. Conceptually productivity is a simple metric. In order to calculate the metric, you would simply sum up the number of units of item produced and divide it by the amount “stuff” needed to make those units. For example, if a drain cleaning organization of three people cleans 50 drains per month, their labor productivity per month would be 50/3 = 16.6 drains per person. The metric is a sign of how efficiently a team or organization has organized and managed the piece of work being measured. There are four types of productivity. Each type of productivity focuses on a different part of the supply chain needed to deliver a product or a service. The four types are: Labor productivity is the ratio output per person. Labor productivity measures the efficiency of the labor in the transformation of something into a product of higher value. In software development terms, labor productivity is a measure of the efficient use of the effort needed to write and implement the code. Capital productivity is the ratio of output (goods or services) to the input of physical capital. Improving physical capital (known as capital deepening) typically yields an increase in 90 CU IDOL SELF LEARNING MATERIAL (SLM)

output. In software development, physical capital includes the equipment, buildings or other items like computers needed to develop and implement the code. Material productivity is the ratio of output to the input of materials (also known as natural resources). In software development, there are very little material or natural resources that are used. Material productivity plays a larger role when considering the manufacture of hardware/software packages, such as an ATM. Total Factor productivity (TFP) is not a simple ratio of output to input, but rather it is a measure that captures everything that is not captured as labor, capital or material productivity. Factors included in total factor productivity include attributes like changes in general knowledge, the use of particular organizational structures, management techniques, or returns on the scale. The components in TFP are often the sources of productivity changes in software development. Three of the four types of productivity are typically important in a software development or IT departments. Generally, raw material productivity is less of a factor in developing software development (most of the raw material is human knowledge and observable in labor productivity or TFP), but it becomes more of a factor when the software product includes hardware manufacturing. Most software organizations, IF they measure productivity at all, tend to focus solely on labor productivity. Labor productivity is often the easiest of the four productivity types to measure and understand. In many cases, organizations use changes in labor productivity as a proxy for measuring the impact of factors that would be more accurately reflected either as capital productivity or total factor productivity. The use of a proxy makes it more difficult to trace an input to a change in the amount of output. For example, if all employees get new computers (capital) while the organization adopts a new team approach to software development (TFP) and productivity increases it will be difficult to determine the impact of each change if we only measure the proxy of labor productivity. This is not an esoteric discussion if productivity improvement was used to justify either of the changes. Each type of productivity is important in their own right. Each asks and seeks to answer a different set of questions. Labor productivity focuses on the impact of people on a number of products or services delivered. Labor productivity is useful for answering whether changing the mix of coders and testers on a team has an impact on the amount of completed software a team can deliver. Capital productivity would be useful in answering whether a new building, computer or network helps or hurts the amount of goods and services delivered. Productivity is important because it defines the efficiency of an organization in converting inputs into output. In the 20th century, we got used to productivity being a relatively simple 91 CU IDOL SELF LEARNING MATERIAL (SLM)

concept. Steel makers take raw materials, people, and machines and create steel. If we calculating the productivity of a steel maker, we would measure the amount of steel created and then divide it by the amount of raw material, cost of machines or the amount of effort needed. Calculating software productivity is not substantially different. 5.5 PRODUCTIVITY – IMPORTANCE Productivity has become almost synonymous for progress. The resources of a country are generally limited. Therefore, higher productivity is essential for improving living standards and for the prosperity of a nation. Higher productivity requires elimination of waste in all forms. Higher productivity leads to economic growth and social progress. It is only by improving productivity that employees can get better wages and working conditions and more employment opportunities. Higher productivity brings lower prices for consumers and higher dividend for shareholders. It improves the exports and foreign exchange reserves of a country. Thus, productivity is the key to prosperity. Higher productivity is of special significance in an underdeveloped country like India. Mass poverty and unemployment cannot be eliminated without increasing productivity in agriculture, industry and all other areas of human activity. According to John W. Kendrick, “the chief means where by human kind can raise itself out of poverty to a condition of relative material influence is by increasing productivity”. In brief, higher productivity provides the following importance: (i) It helps to reduce the cost of production per unit through more economical or efficient use of resources. (ii) Reduction in costs helps to improve the profits of a business. The enterprise can more successfully compete in the market. (iii) The gains of higher productivity can be passed on to consumers in the form of lower prices and/or better quality of products. (iv) Similarly, gains of higher productivity can be shared with workers in the form of higher wages or salaries and better working conditions. (v) Availability of quality goods at reasonably low prices helps to improve the standard of living in the country. (vi) Due to higher productivity, a firm can survive and grow better. This helps to generate more employment opportunities. 92 CU IDOL SELF LEARNING MATERIAL (SLM)

(vii) A more productive enterprise can better export goods and earn valuable foreign exchange for the country. (viii) Higher productivity means better utilization of the country’s resources, which helps to control inflation in the country. Productivity – 4 Ways to Improve Productivity and Quality of Products It is vital to develop a high rate of productivity because it is the foundation of the business’s future growth. There are many ways by which productivity can be increased: i. Adoption of up to date technology in machines and equipment. ii. Implementing a proper system of managerial planning and control. iii. Effective time management. iv. Maintenance of work facilities in factories. v. Standardisation and automation for mass production. vi. Empower employees by providing training and an environment conducive for personal is well as organisational growth. vii. Let workers participate in management. viii. Provide a flexible work schedule instead of rigid working hours. ix. Clear communication should be there between management and workers. The following are the ways for improving productivity and quality of products: 5.5.1 Combining the Resources for Production: Managers attempt to utilize the resources just described in a manner that achieves production at a low cost. They combine the various resources with the use of work stations and assembly lines. A work station is an area in which one or more employees are assigned a specific task. A work station may require machinery and equipment as well as employees. An assembly line consists of a sequence of work stations in which each work station is designed to cover specific phases of the production process. The production of a single product may require several work stations, with each station using employees, machinery, 93 CU IDOL SELF LEARNING MATERIAL (SLM)

and materials. Since the cost of all these resources along with the building can be substantial, efficient management of the production process can reduce expenses, which can convert into higher profits. Employees use buildings, machinery, and equipment to convert materials into a product or service. For example, employees of printing firms use machines for typesetting, printing, and binding to produce books. Employees of General Nutrition Centers (GNC) use its manufacturing plant (which is the size of four football fields) to produce more than 150,000 bottles of vitamins per day. 5.5.2 Selecting a Site: A critical decision in production management is the selection of a site (location) for the factory or office. Location can significantly affect the cost of production and therefore the firm’s ability to compete against other firms. This is especially true for industrial firms such as Bethlehem Steel and DaimlerChrysler, which require a large investment in plant and equipment. Factors Affecting the Site Decision: Several factors must be considered when determining the optimal site. The most relevant factors are identified below: i. Cost of Workplace Space: The cost of purchasing or renting workplace space (such as buildings or offices) can vary significantly among locations. Costs are likely to be high near the center of any business district where land costs are high. Costs also tend to be higher in certain regions. For example, office rental rates are generally higher in the northeastern states than in other areas. This is one major reason why companies located in northern cities have relocated to the South during the last 10 years. ii. Cost of Labor: The cost of hiring employees varies significantly among locations. Salaries within a city tend to be higher than salaries outside the city for a given occupation. Salaries are also generally higher in the North than the South for a given occupation. This is another reason why many companies have relocated to the South. 94 CU IDOL SELF LEARNING MATERIAL (SLM)

iii. Tax Incentives: Some local governments may be willing to grant tax credits to attract companies to their area. The governments offer this incentive to increase the employment level and improve economic conditions in the area. iv. Source of Demand: If a firm plans to sell its product in a specific location, it may establish its plant there. The costs of transporting and servicing the product can be minimized by producing at a site near the source of demand. v. Access to Transportation: When companies sell products across the nation, they may choose a site near their main source of transportation. They also need to be accessible so that materials can be delivered to them. Some factories and offices are established near interstate highways, rivers, or airports for this reason. vi. Supply of Labor: Firms that plan to hire specialized workers must be able to attract the labor needed. They may choose a location where a large supply of workers with that particular specialization exists. For instance, high-tech companies tend to locate near universities where there is an abundance of educated labor. 5.5.3 Selecting the Design and Layout: Once a site for a manufacturing plant or office is chosen, the design and layout must be determined. The design indicates the size and structure of the plant or office. The layout is the arrangement of the machinery and equipment within the factory or office. The design and layout decisions directly affect operating expenses because they determine the costs of rent, machinery, and equipment. They may even affect the firm’s interest expenses because they influence the amount of money that must be borrowed to purchase property or machinery. 5.5.4 Production Control: Once the plant and design have been selected, the firm can engage in production control, which involves the following: (i) Purchasing materials 95 CU IDOL SELF LEARNING MATERIAL (SLM)

(ii) Inventory control (iii) Routing (iv) Scheduling (i) Purchasing Materials: Managers perform the following tasks when purchasing supplies. First, they must select a supplier. Second, they attempt to obtain volume discounts. Third, they determine whether to delegate some production tasks to suppliers. (ii) Inventory Control: Inventory control is the process of managing inventory at a level that minimizes costs. It requires the management of materials inventories, work-in-process inventories, and finished goods inventories. (iii) Routing: Routing is the sequence (or route) of tasks necessary to complete the production of a product. Raw materials are commonly sent to various work stations so that they can be used as specified in the production process. A specific part of the production process is completed at each work station. For example, the production of a bicycle may require (1) using materials to produce a bike frame at one work station, (2) assembling wheels at a second work station, and (3) packaging the frames and wheels that have been assembled at a third work station. The routing process is periodically evaluated to determine whether it can be improved to allow a faster or less expensive production process. General Motors, DaimlerChrysler, and United Parcel Service have streamlined their routing process to improve production efficiency. (iv) Scheduling: Scheduling is the act of setting time periods for each task in the production process. A production schedule is a plan for the timing and volume of production tasks. For example, the production schedule for a bicycle may set a time of two hours for each frame to be assembled and one hour for each wheel to be assembled. Scheduling is useful because it establishes the expected amount of production that should be achieved at each work station over a given day or week. Therefore, each employee 96 CU IDOL SELF LEARNING MATERIAL (SLM)

understands what is expected. Furthermore, scheduling allows managers to forecast how much will be produced by the end of the day, week, or month. If a firm does not meet its production schedule, it will not be able to accommodate customer orders in a timely fashion and will lose some of its customers. (v) Quality Control: Quality can be defined as the degree to which a product or service satisfies a customer’s requirements or expectations Quality relates to customer satisfaction, which can have an effect on future sales and therefore on the future performance of the firm. Customers are more likely to purchase additional products from the same firm if they are satisfied with the quality. Firms now realize that it is easier to retain existing customers than it is to attract new customers who are unfamiliar with their products or services. Thus, firms are increasingly recognizing the impact that the quality of their products or services can have on their overall performance. Quality control is a process of determining whether the quality of a product or a service meets the desired quality level and identifying improvements (if any) that need to be made in the production process. Quality can be measured by assessing the various characteristics (such as how long the product lasts) that enhance customer satisfaction. The quality of a computer may be defined by how well it works and how long it lasts. Quality may also be measured by how easy the computer is to use or by how quickly the manufacturer repairs a computer that experiences problems. All of these characteristics can affect customer satisfaction and therefore should be considered as indicators of quality. The quality of services sold to customers must also be assessed. For example, Amazon(dot)com produces a service of fulfilling orders of books, CDs, and other products ordered over the Internet by customers. Its customers assess the quality of the service in terms of the ease with which they can send an order over the Internet whether they receive the proper order, and how quickly the products are delivered. The act of monitoring and improving the quality of products and services produced is commonly referred to as total quality management (TQM), which was developed by W. Edwards Deming. Among TQM’s key guidelines for improving quality are the following- (1) provide managers and other employees with the education and training they need to excel in their jobs, (2) encourage employees to take responsibility and to provide leadership, and (3) encourage all 97 CU IDOL SELF LEARNING MATERIAL (SLM)

employees to search for ways to improve the production process. Production quotas are discouraged so that employees can allocate more of their time to leadership and the improvement of the production process. Many firms use teams of employees to assess quality and offer suggestions for continuous improvement. To ensure that quality is maintained, firms periodically evaluate the methods used to measure product or service quality. 5.6 PRODUCTIVITY INDEX In order to have a value for comparison purposes, organizations compute their productivity index. By tracking productivity indexes over time, managers can evaluate the success, or lack thereof, of projects and decisions. “A productivity index is the ratio of productivity measured in some time period Current Period) to the productivity measured in a base period” Some More Formulas: Productivity may be measured either on aggregate bases or on individual basis, which are called total and single factor productivity respectively. Various productivity indexes are given below: This index measures the efficiency in the use of all the resources. Partial productivity Indices depends upon factors used; it measures the efficacy of individual factor of production. Following are productivity indices for individual inputs. Productivity – Techniques for Improving Productivity In appraising an organization’s potential for improving productivity, its current operations and management practices should be examined to decide how they should function in the future. A large number of techniques have been developed for improving productivity. Some of these techniques are described below: Technique # 1. Work Study: Scientific analysis and improvement of work in all its aspects is a very useful technique of increasing productivity. Work study results in improvements in plant layout, material handling system, process design and standardization, working conditions, etc. These in turn help to minimize defective works and waste. Technique # 2. Research and Development: 98 CU IDOL SELF LEARNING MATERIAL (SLM)

Continuing research and development (R & D) leads to the discovery of better techniques of production and improvements in existing machinery, equipment, etc. The rate of technological progress is a direct determinant of productivity. That is why companies and countries spend huge sums of money on research and development activities. Technique # 3. Incentive Schemes: Wage incentive schemes seek to motivate employees by paying extra remuneration. Profit sharing or bonus, labour welfare measures and good working conditions also help in this objective. All these schemes foster sense of belonging and closer human relationships. As a result, there is reduction in idle time caused by absenteeism, labour turnover, accidents and disputes. Technique # 4. Production Planning and Control: Scientific task planning ensures timely supply of inputs, proper maintenance of plant, efficient work scheduling and regulation of day-to-day ‘activities in the plant. It facilitates full utilization of plant capacity and achievement of production targets. Technique # 5. Workers’ Participation in Management: Labour participation in management is considered an effective tool for improving productivity. It helps in developing mutual understanding and cooperation between management and labour. Joint consultation, suggestion schemes, two-way communication, grievance procedure are the main forms of workers’ participation in management. Technique # 6. Automation: Mechanization, automation and rationalization are major breakthroughs for increasing productivity. These schemes are effective provided the productivity gains are equitably shared with workers. Such measures increase the speed and accuracy of work. Technique # 7. Management by Objectives (MBO): MBO is a process whereby the superior and subordinates jointly identify the specific measurable goals, define results expected of each individual and jointly assess the contribution of every individual. It is an approach for integrating the individuals with the organization. The focus of MBO is on participative goal setting, joint evaluation of performance and results to be achieved. It is also known as Management by Results. A link is created between the organizational goals and individual’s targets so that an employee can see how his work contributes to the 99 CU IDOL SELF LEARNING MATERIAL (SLM)