Competitiveness, strategy, productivity

18 March 2020 Dr. Abdulfatah Salem 2
•How effectively an organization meets
the needs of customers relative to
others that offer similar goods or
services.
•Competitiveness is an important factor
in determining whether a company
prospers, barely gets by, or fails.
Ability of an organization or a nation to offer products and
services that meet the quality standards of the local and world
markets at prices .
What is Competitiveness

Minimize Cost
within quality limits
Maximize Quality (e.g. customer satisfaction)
within cost limits
Maximize Flexibility (e.g. mass customization)
within cost and quality limits
Maximize Speed of Delivery
within cost and quality limits
How Do We Compete?

Understanding the competitive issues help managers to develop
a successful plan for achieving organizational strategy
Why we study Competitiveness ?
What is strategy ?
strategy is defined as a method or a plan chosen to bring about a desired
future, such as achievement of a goal or solution to problem

What is strategy ?

Outsource operation to third world countriesLow Cost
Use capital intensive methods to achieve high o/p with low costScale-based
Focus on narrow product lines to achieve higher qualitySpecialization
Focus on innovation to create new productsNewness
Focus on quick response to customer or customizationFlexibility
Focus on achieving higher quality than competitorsHigh quality
Focus on various aspects of serviceService
Focus on environmental-friendly and energy-efficient operationsSustainability

One of the most important responsibilities of an operations
manager is to achieve productive use of organization’s resources
VS
Production is concerned with the activity of producing goods and
services.
Productivity is concerned with the efficiency and effectiveness with
which these goods and services are produced.

Is A measure of the efficiency of a person, machine, factory,
system, etc., in converting inputs into useful outputs.
Simply is the relationship between the outputs generated from a system and
the inputs that are used to create those outputs.
Mathematically = Output / Input
The most common inputs are labor, hours, capital and materials
Whereas sales or the amount of goods produced are common output units.

Used for
measure of process improvement
 tracking an operating unit’s performance over time
 judging the performance of an entire industry or country
represents output relative to input
only through productivity increases can our standard of living improve
planning workforce requirements
scheduling equipment
financial analysis
Improved by
capital intensive approach better management approach

O
I
O
I
O
I
O
I
O
I
There are two major ways to increase productivity:
increase the numerator (output)
decrease the denominator (input).

Advantages Disadvantages
Easy to understand Misleading if used alone
Easy to obtain data Cannot explain overall cost increase
Diagnostic tool to pinpoint areas of
improvement
Profit control is not precise

Advantages Disadvantages
All quantifiable inputs are considered. Data is difficult to compute.
Sensitivity analysis can be done.
Does not consider intangible factors of
input and output.
Provides both firm level and operational
unit level productivity.

Ex
Sol.
Andy works 40 hours per week and made sales worth $4000 in his
first week.
John works 25 hours a week and makes $3000 worth of sales.
Though Andy has a higher sales figure, John appears
to have a better productivity level.
Andy: $4000/40hrs = $100/hour
John: $3000/25hrs =$120/hour

Ahmed grows tomatoes in his 100 by 100 meters garden. He then
sells the crop at the local farmer’s market. Two summers ago, he was able to produce
and sell 1200 kgs of tomatoes. Last summer, he tried a new fertilizer that promised a
20% increase in yield. He harvested 1350 kgs.
Did the fertilizer live up to its promise?
Productivity = (1200 kgs)/ (100m x 100m) = 0.12 kg/m2
Productivity = (1350 kgs) /(10 000m2) = 0.135 kg/m2
Change = 0.135 kg/m2 – 0.12 kg/m2 = 0.015 kg/m2
Percent change = (0.015 kg/m2)/(0.12 kg/m2) x 100 = 12.5%
So, the fertilizer didn’t live up to its promise. The increase in productivity was 12.5% not
20%. The fertilizer was not good as advertised.
Ex
Sol.

Ex
Sol.
7040 Units Produced, Sold for $1.10/unit, cost of labor is $1,000,
Cost of materials is $520, Cost of overhead is $2000
Which productivity measures can be calculated?
What is the multifactor productivity?
Output = 7040 * 1.1
Input = Labor + Materials + Overhead
= 1000 + 520 + 2000
MFP = 2.2

Ex
Sol.
5,500 Units Produced, Sold for $35/unit, 500 labor hours are
used, Cost of labor: $25/hr, Cost of raw material: $5,000, Cost of
overtime : 2 x labor cost
What is the labor productivity?
What is the multifactor productivity?
 Labor Prod. =(5,500 *35)/(500 * 25) =15.4
 Labor Cost = 500 * 25 = 12500 $
 Overtime cost = 12500 * 2 = 25000 $
 MFP = Output /(Labor cost + Raw Mat. Cost + Overtime cost)
MFP = 5,500*35) / (12500 + 5000 + 25000) = 4.52

Ex
Sol.
A specialty laboratory performs lab tests for the area hospitals. During its first
two years of operation the following measurements were gathered:
Measurement Year 1 Year 2
Price per test ($) 50 50
Annual tests 10,000 10,700
Total labor costs($) 150,000 158,000
Material costs ($) 8,000 8,400
Overhead ($) 12,000 12,200
Determine and compare the multifactor productivity for historical benchmarking.
9.2
000,12000,8000,150
50*000,10
Pr 1 

YearoductivityrMultifacto
0.3
200,12400,8000,158
50*700,10
Pr 2 

YearoductivityrMultifacto

Ex
A company has asked you to evaluate the firm’s
productivity by comparing this year’s performance with last
year’s.
The following data are available:
____________ _ Last Year This Year
OUTPUT 10 500 units 12 100 units
Labor Hours 12 000 13 200
Utilities 7 600 $ 8 250 $
Capital 83 000 $ 88 000 $

Sol. Labor Productivity.
Last Year = 10500 units/12000 hrs = 0.88 units/hr
This Year = 12100 units/13200hrs = 0.92 units/hr
Change =0.92 – 0.88== 0.04 units/hr
Percent Change=0.04 units/hr/0.88units/hr= 0.048 = 4.8 %
Utilities Productivity.
Last Year = 10500units/7600 $ = 1.38 units/$
This Year = 12100units/8250 $ = 1.47 units/$
Change =1.47-1.38 = 0.09 units/$
Percent Change=0.09units/$/ 1.38units/$ =0.062 = 6.2 %
Capital Productivity.
Last Year = 10500units/83000 $ = 0.01 units/$
This Year = 12100units/88000 $ = 0.14 units/$
Change =0.14 – 0.01 = 0.13units/$
Percent Change= 0.13 / 0.01 = 13 %
Productivity improved in all categories but capital showed the greatest and labors the least.

Ex.
Sol.
Annual statistical data for two nursing units in Memorial Hospital are as follows:
Measurements Unit A Unit B
Annual Patient Days 14,000 10,000
Annual Hours Worked 210,000 180,000
Calculate and compare hours per patient day for two units of this hospital.
15
000,14
000,210
AUnitDayPatientperHours
18
000,10
000,180
BUnitDayPatientperHours
The hours per patient day for Unit B is more than for Unit of this hospital

A group of four workers installed 720 square
yards of carpeting in 8 hours.
What is the labour productivity ratio?
Ex.
Sol.
labour productivity ratio = 720 hrs / (4 workers*8 hrs)
= 22.5 yards per hour

•
A new worker joins the group. The next job (900
yards) is done in 9.5 hour.
• What is the new productivity ?
• and what is the productivity change?
In the last example.
Sol.
new productivity = 900 hrs / (5 workers*9,5 hrs)
= 18.9 yards per hour
productivity change = 18.9- 22.5 = -3.6 yards/hr

Productivity
• How much more can we
produce with a given level
of inputs?
• How much input
reduction is possible to
produce a given level of
observed output?
• How much more revenue
can be generated with a
given level of inputs?
Similarly how much
reduction in input costs be
achieved?
• We wish to measure the level of
output per unit of input and
compare it with other firms
• Partial productivity measures
– output per person employed;
output per hour worked;
output per hectare etc.
• Total factor productivity
measures – Productivity
measure which involves all the
factors of production
• More difficult to conceptualize
and measure

The terms productivity and efficiency relate to similar (but not
identical) things
•Productivity = output/input
•Efficiency generally relates to some form benchmark or target
A simple example – where for firm B productivity rises but efficiency falls
Note that the benchmark for year 1 was 4 but for year 2 changed to 6

Since productivity is a relative measure, for it to be meaningful or useful it
must be compared to something. For example, businesses can compare their
productivity values to that of similar firms, other departments within the same
firm, or against past productivity data for the same firm or department (or
even one machine)
This allows firms to measure productivity improvement over time, or measure
the impact of certain decisions such as the introduction on new processes,
equipment, and worker motivation techniques. In order to have a value for
comparison purposes, organizations compute their productivity index. A
productivity index is the ratio of productivity measured in some time period to
the productivity measured in a base period.

Types of
Productivity
Index
Labor
productivity
Direct labor
cost
productivity
Capital
productivity
Direct cost
productivity
Total cost
productivity
Foreign
exchange
productivity
Energy
productivity
Raw
material
productivity

Ex
If the base period's productivity is calculated to be 1.75 and the following
period's productivity is calculated to 1.93.
The resulting productivity index would be = 1.93/1.75 = 1.10.
This would indicate that the firm's productivity had increased 10 %.
If the following period's productivity measurement fell to 1.66 the productivity index of
1.66/1.75 = 0.95
This would indicate that the firm's productivity had decreased 5 %.
By tracking productivity indexes over time, managers can evaluate the
success, or lack thereof, of projects and decisions

 Performance index becomes
comparison of actual output with some
standard or expected output.
 Performance Index = Actual work
done ÷ Ideal or standard expected work.
 Productivity takes into account
output in relation to input.
 Productivity =Output ÷ Input
 Performance takes into account output
alone.
 We consider only the output and not
the input.
Case:
It takes 3 Meters of cloth to make a coat, In a day Ahmed is expected to
make 50 coats. He makes only 40 coats from 111 Meters of cloth.
Productivity = {40 ÷ 111} = 0.36 Coats/meters
Performance = 40 coats
Performance Index = {40 ÷ 50} x100= 80%

Competitiveness, strategy, productivity

Competitiveness, strategy, productivity

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