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1. Content Index OPERATIONS MANAGEMENT

2. Introduction
3. Productivity and Operations CONTENT
Management Introduction
4. Opreations Strategy for a
Competitive Advantage
Chapter 1: Productivity and Operations Management
Introduction
A. Productivity
B. Main Processes of a Company
C. Aspects of Productivity
Chapter 2: Operations Strategy for a Competitive Advantage
A. Competitive Strategies
B. Operations Strategy& Process
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1. Content Index
2. Introduction
3. Productivity and Operations OPERATIONS MANAGMENT
Management Introduction
Operations Management is the business function that plans, organizes, coordinates, and controls the
resources needed to produce a company’s goods and services. Operations management is a management
Competitive Advantage function. It involves managing people, equipment, technology, information, and many other resources.
Operations management is the central core function of every company. This is true whether the company is
large or small, provides a physical good or a service, is for profit or not for profit. Every company has an
operations management function. Actually, all the other organizational functions are there primarily to support
the operations function. Without operations, there would be no goods or services to sell. Consider a retailer such
as Gap that sells casual apparel. The marketing function provides promotions for the merchandise, and the
finance function provides the needed capital. It is the operations function, however, that plans and coordinates
all the resources needed to design, produce, and deliver the merchandise to the various retail locations. Without
operations, there would be no goods or services to sell to customers.
The role of operations management
The role of operations management is to transform a company’s inputs into the finished goods or
services. Inputs include human resources (such as workers and managers), facilities and processes (such as
| Introduction 2
buildings and equipment), as well as materials, technology, and information. Outputs are the goods and services
1. Content Index
a company produces. At a factory the transformation is the physical change of raw materials into products, such
2. Introduction as transforming leather and rubber into sneakers, denim into jeans, or plastic into toys. At an airline it is the
3. Productivity and Operations efficient movement of passengers and their luggage from one location to another. At a hospital it is organizing
resources such as doctors, medical procedures, and medications to transform sick people into healthy ones.
Management
4. Opreations Strategy for a Operations management is responsible for orchestrating all the resources needed to produce the final
Competitive Advantage product. This includes designing the product; deciding what resources are needed; arranging schedules,
equipment, and facilities; managing inventory; controlling quality; designing the jobs to make the product; and
designing work methods. Basically, operations management is responsible for all aspects of the process of
transforming inputs into outputs. Customer feedback and performance information are used to continually adjust
the inputs, the transformation process, and characteristics of the outputs. The transformation process should be
dynamic in order to adapt to changes in the environment. Proper management of the operations function has led
to success for many companies. For example, in 1994 Dell Inc. was a second-tier computer maker that
managed its operations similar to others in the industry. Then Dell implemented a new business model that
completely changed the role of its operations function. Dell developed new and innovative ways of managing the
operations function that have become one of today’s best practices. These changes enabled Dell to provide
rapid product delivery of customized products to customers at a lower cost, and thus become an industry leader.
Just as proper management of operations can lead to company success, improper management of operations
can lead to failure.
| Introduction 3
Operations management is the systematic direction and control of the processes that
1. Content Index
transform inputs into finished goods and services. The operations function comprises a
2. Introduction
significant percentage of the employees and physical assets in most organizations.
3. Productivity and Operations
Operations managers are concerned with each step in providing a service or product. They
Management
determine what equipment, labor, tools, facilities, materials, energy, and information should
go into an operating system and how these inputs can best be obtained and used to satisfy
the requirements of the market place. Managers are also responsible for critical activities
such as quality management and control, capacity planning, materials management,
purchasing, and scheduling.
The importance of operations management has increased dramatically in recent years.

Significant foreign competition, shorter product and service life-cycles, better-educated and
quality-conscious consumers, and the capabilities of new technology have placed increasing
pressures on the operations function to improve productivity while providing a broader array
of high-quality products and services. With the globalization of markets, firms are recognizing
that the operations function can be used to strengthen their position in the market place.
Managers in operations management play a strategic and tactical role in satisfying customer
needs and making their firms strong international competitors.
| Introduction 4
1. Content Index
2. Introduction
Management Chapter 1: Productivity and Operations Management
4. Opreations Strategy for a Introduction
PRODUCTION IS A PROCESS OR PROCEDURE DEVELOPED TO TRANSFORM A SET OF INPUT
ELEMENTS INTO A SPECIFIED SET OF OUTPUT ELEMENTS IN THE FORM OF FINISHED PRODUCTS OR
SERVICES, WHEREAS PRODUCTIVITY IS AN EFFICIENCY CONCEPT THAT GAUGES THE RATIO OF
OUTPUTS RELATIVE TO INPUTS IN A PRODUCTIVE PROCESS.
PRODUCTIVITY IS ONE OF THE MAJOR CONCERNS OF MANAGERS AS HIGH PRODUCTIVITY IS

ESSENTIAL TO SURVIVE IN A COMPETITIVE ENVIRONMENT. PRODUCTIVITY IS OF TWO TYPES - TOTAL
PRODUCTIVITY AND PARTIAL PRODUCTIVITY. THE PROBLEMS IN MEASURING PRODUCTIVITY,
ESPECIALLY THAT OF THE KNOWLEDGE WORKERS WERE ALSO DISCUSSED.
OPERATIONS MANAGEMENT IS THE APPLICATION OF CONCEPTS, PROCEDURES AND

TECHNOLOGIES BY MANAGERS TO IMPROVE THE PROCESS OF TRANSFORMATION OF RESOURCE
| Chapter 1: Productivity and Operations Management 5

INPUTS INTO OUTPUTS. THE EFFECTIVENESS AND EFFICIENCY OF AN ORGANIZATION DEPENDS ON HOW
1. Content Index
EFFECTIVELY AND EFFICIENTLY OPERATIONS ARE MANAGED. THE TOOLS OF OPERATIONS RESEARCH
2. Introduction
ARE OF SPECIAL INTEREST TO MANAGERS OF PRODUCTION AND OPERATIONS, AS THEY HELP THE
MANAGERS INCREASE EFFICIENCY AND PROFITABILITY OF THE ORGANIZATION.
Management
OPERATIONS RESEARCH AND LINEAR PROGRAMMING ARE TWO MATHEMATICAL APPROACHES
USED FOR OPTIMIZING OPERATIONS. THE APPLICATIONS OF OPERATIONS RESEARCH TECHNIQUES TO
COMPLEX PROBLEMS OF AN ORGANIZATION TAKE INTO ACCOUNT THE TOTAL SYSTEM THAT
INFLUENCES THE DECISION-MAKING PROCESS. THE DATA IS PRESENTED IN A QUANTIFIED FORM TO THE
EXTENT POSSIBLE, AND THIS HELPS MANAGERS TO ARRIVE AT THE BEST MEANS OF ACHIEVING THE
GOALS.
THE OPERATIONS RESEARCH PROCEDURE COMPRISES SIX STEPS - FORMULATING THE

PROBLEM, CONSTRUCTING A MATHEMATICAL MODEL, DERIVING A SOLUTION FROM THE MODEL,
TESTING THE MODEL, PROVIDING CONTROLS FOR THE MODEL AND THE SOLUTION, AND PUTTING THE
SOLUTION INTO EFFECT. LINEAR PROGRAMMING IS A TECHNIQUE FOR SELECTING AN OPTIMUM
COMBINATION OF FACTORS FROM A SERIES OF INTER-RELATED ALTERNATIVES, EACH SUBJECTED TO
CERTAIN LIMITATIONS, IN ORDER TO ACHIEVE A DESIRED GOAL.

MAINTAINING INVENTORY HELPS ORGANIZATIONS DEAL WITH UNCERTAINTIES IN MARKET SUPPLY AND
1. Content Index
PREVENT STOCKOUTS DURING PERIODS OF PEAK DEMAND. DIFFERENT TYPES OF INVENTORY CONTROL
2. Introduction
USED IN ORGANIZATIONS ARE EOQ, JIT AND KANBAN. DISTRIBUTION LOGISTICS IS A LOGISTICS
SYSTEM THAT HELPS IN OPTIMIZING INVENTORY PROCUREMENT AS WELL AS PRODUCT DISTRIBUTION.
Management
THOUGH OPERATIONS RESEARCH OFFERS MANY ADVANTAGES, IT HAS ITS OWN LIMITATIONS.
THE HIGH MAGNITUDE OF COMPUTATION AND THE INABILITY TO ACCOMMODATE QUALITATIVE FACTORS
PREVENT OR FROM BEING APPLIED IN MANY MANAGEMENT DECISIONS. OTHER TECHNIQUES THAT
HELP TO IMPROVE PRODUCTIVITY ARE TIME-EVENT NETWORKS, VALUE ENGINEERING, WORK
SIMPLIFICATION, QUALITY CIRCLES AND TOTAL QUALITY MANAGEMENT.
A. Productivity
Productivity in economics refers to metrics and measures of output from production
processes, per unit of input. Labor productivity, for example, is typically measured as a ratio
of output per labor-hour, an input. Productivity may be conceived of as a metrics of the
technical or engineering efficiency of production. As such quantitative metrics of input, and
sometimes output, are emphasized. Productivity is distinct from metrics of allocative
efficiency, which take into account both the value of what is produced and the cost of inputs

used, and also distinct from metrics of profitability, which address the difference between the
1. Content Index
revenues obtained from output and the expense associated with consumption of inputs.
2. Introduction
Economic growth and productivity
Management ACTIVITY CAN BE IDENTIFIED WITH PRODUCTION AND CONSUMPTION. PRODUCTION IS A
4. Opreations Strategy for a PROCESS OF COMBINING VARIOUS IMMATERIAL AND MATERIAL INPUTS OF PRODUCTION SO AS TO
Competitive Advantage PRODUCE TOOLS FOR CONSUMPTION. THE METHODS OF COMBINING THE INPUTS OF PRODUCTION IN
THE PROCESS OF MAKING OUTPUT ARE CALLED TECHNOLOGY. TECHNOLOGY CAN BE DEPICTED
MATHEMATICALLY BY THE PRODUCTION FUNCTION WHICH DESCRIBES THE FUNCTION BETWEEN INPUT
AND OUTPUT. THE PRODUCTION FUNCTION DEPICTS PRODUCTION PERFORMANCE AND PRODUCTIVITY
IS THE METRICS FOR IT. MEASURES MAY BE APPLIED WITH, FOR EXAMPLE, DIFFERENT TECHNOLOGY TO
IMPROVE PRODUCTIVITY AND TO RAISE PRODUCTION OUTPUT.
WITH THE HELP OF THE PRODUCTION FUNCTION, IT IS POSSIBLE TO DESCRIBE SIMPLY THE
MECHANISM OF ECONOMIC GROWTH. ECONOMIC GROWTH IS A PRODUCTION INCREASE ACHIEVED BY
AN ECONOMIC ENTITY OR NATION. IT IS USUALLY EXPRESSED AS AN ANNUAL GROWTH PERCENTAGE
DEPICTING (REAL) GROWTH OF THE COMPANY OUTPUT (PER ENTITY) OR THE NATIONAL PRODUCT (PER
NATION). ECONOMIC GROWTH IS CREATED BY TWO FACTORS SO THAT IT IS APPROPRIATE TO TALK
ABOUT THE COMPONENTS OF GROWTH. THESE COMPONENTS ARE AN INCREASE IN PRODUCTION INPUT

AND AN INCREASE IN PRODUCTIVITY.

1. Content Index
2. Introduction BOTH YEARS CAN BE DESCRIBED BY A GRAPH OF PRODUCTION FUNCTIONS, EACH FUNCTION
3. Productivity and Operations BEING NAMED AFTER THE RESPECTIVE NUMBER OF THE YEAR, I.E., ONE AND TWO. TWO COMPONENTS
Management ARE DISTINGUISHABLE IN THE OUTPUT INCREASE: THE GROWTH CAUSED BY AN INCREASE IN
4. Opreations Strategy for a PRODUCTION INPUT AND THE GROWTH CAUSED BY AN INCREASE IN PRODUCTIVITY. CHARACTERISTIC
Competitive Advantage OF THE GROWTH EFFECTED BY AN INPUT INCREASE IS THAT THE RELATION BETWEEN OUTPUT AND
INPUT REMAINS UNCHANGED. THE OUTPUT GROWTH CORRESPONDING TO A SHIFT OF THE
PRODUCTION FUNCTION IS GENERATED BY THE INCREASE IN PRODUCTIVITY.
ACCORDINGLY, AN INCREASE IN PRODUCTIVITY IS CHARACTERISED BY A SHIFT OF THE
PRODUCTION FUNCTION AND A CONSEQUENT CHANGE TO THE OUTPUT/INPUT RELATION. THE FORMULA
OF TOTAL PRODUCTIVITY IS NORMALLY WRITTEN AS FOLLOWS:
 Total productivity = Output quantity / Input quantity
ACCORDING TO THIS FORMULA, CHANGES IN INPUT AND OUTPUT HAVE TO BE MEASURED INCLUSIVE
OF BOTH QUANTITATIVE AND QUALITATIVE CHANGES. IN PRACTICE, QUANTITATIVE AND QUALITATIVE
CHANGES TAKE PLACE WHEN RELATIVE QUANTITIES AND RELATIVE PRICES OF DIFFERENT INPUT AND

OUTPUT FACTORS ALTER. IN ORDER TO ACCENTUATE QUALITATIVE CHANGES IN OUTPUT AND INPUT,
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THE FORMULA OF TOTAL PRODUCTIVITY SHALL BE WRITTEN AS FOLLOWS:
2. Introduction
3. Productivity and Operations  Total productivity = Output quality and quantity / Input quality and quantity
Management
B. Main processes of a company
Competitive Advantage A COMPANY CAN BE DIVIDED INTO SUB-PROCESSES IN DIFFERENT WAYS; YET, THE FOLLOWING
FIVE ARE IDENTIFIED AS MAIN PROCESSES, EACH WITH A LOGIC, OBJECTIVES, THEORY AND KEY
FIGURES OF ITS OWN. IT IS IMPORTANT TO EXAMINE EACH OF THEM INDIVIDUALLY, YET, AS A PART OF
THE WHOLE, IN ORDER TO BE ABLE TO MEASURE AND UNDERSTAND THEM. THE MAIN PROCESSES OF A
COMPANY ARE AS FOLLOWS:
 real process
 income distribution process
 production process
 monetary process
 market value process
PRODUCTIVITY IS CREATED IN THE REAL PROCESS, PRODUCTIVITY GAINS ARE DISTRIBUTED IN THE
INCOME DISTRIBUTION PROCESS AND THESE TWO PROCESSES CONSTITUTE THE PRODUCTION

PROCESS. THE PRODUCTION PROCESS AND ITS SUB-PROCESSES, THE REAL PROCESS AND INCOME
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DISTRIBUTION PROCESS OCCUR SIMULTANEOUSLY, AND ONLY THE PRODUCTION PROCESS IS
2. Introduction
IDENTIFIABLE AND MEASURABLE BY THE TRADITIONAL ACCOUNTING PRACTICES. THE REAL PROCESS
AND INCOME DISTRIBUTION PROCESS CAN BE IDENTIFIED AND MEASURED BY EXTRA CALCULATION, AND
Management
THIS IS WHY THEY NEED TO BE ANALYSED SEPARATELY IN ORDER TO UNDERSTAND THE LOGIC OF
PRODUCTION PERFORMANCE.
REAL PROCESS GENERATES THE PRODUCTION OUTPUT FROM INPUT, AND IT CAN BE DESCRIBED BY
MEANS OF THE PRODUCTION FUNCTION. IT REFERS TO A SERIES OF EVENTS IN PRODUCTION IN WHICH
PRODUCTION INPUTS OF DIFFERENT QUALITY AND QUANTITY ARE COMBINED INTO PRODUCTS OF
DIFFERENT QUALITY AND QUANTITY. PRODUCTS CAN BE PHYSICAL GOODS, IMMATERIAL SERVICES AND
MOST OFTEN COMBINATIONS OF BOTH. THE CHARACTERISTICS CREATED INTO THE PRODUCT BY THE
MANUFACTURER IMPLY SURPLUS VALUE TO THE CONSUMER, AND ON THE BASIS OF THE PRICE THIS
VALUE IS SHARED BY THE CONSUMER AND THE PRODUCER IN THE MARKETPLACE. THIS IS THE
MECHANISM THROUGH WHICH SURPLUS VALUE ORIGINATES TO THE CONSUMER AND THE PRODUCER
LIKEWISE. SURPLUS VALUE TO THE PRODUCER IS A RESULT OF THE REAL PROCESS, AND MEASURED
PROPORTIONALLY IT MEANS PRODUCTIVITY.
INCOME DISTRIBUTION PROCESS OF THE PRODUCTION REFERS TO A SERIES OF EVENTS IN WHICH

THE UNIT PRICES OF CONSTANT-QUALITY PRODUCTS AND INPUTS ALTER CAUSING A CHANGE IN INCOME
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DISTRIBUTION AMONG THOSE PARTICIPATING IN THE EXCHANGE. THE MAGNITUDE OF THE CHANGE IN
2. Introduction
INCOME DISTRIBUTION IS DIRECTLY PROPORTIONATE TO THE CHANGE IN PRICES OF THE OUTPUT AND
INPUTS AND TO THEIR QUANTITIES. PRODUCTIVITY GAINS ARE DISTRIBUTED, FOR EXAMPLE, TO
Management
CUSTOMERS AS LOWER PRODUCT SALES PRICES OR TO STAFF AS HIGHER INCOME PAY. DAVIS HAS
DELIBERATED (DAVIS 1955) THE PHENOMENON OF PRODUCTIVITY, MEASUREMENT OF PRODUCTIVITY,
DISTRIBUTION OF PRODUCTIVITY GAINS, AND HOW TO MEASURE SUCH GAINS. HE REFERS TO AN
ARTICLE (1947, JOURNAL OF ACCOUNTANCY, FEB. P. 94) SUGGESTING THAT THE MEASUREMENT OF
PRODUCTIVITY SHALL BE DEVELOPED SO THAT IT ”WILL INDICATE INCREASES OR DECREASES IN THE
PRODUCTIVITY OF THE COMPANY AND ALSO THE DISTRIBUTION OF THE ’FRUITS OF PRODUCTION’
AMONG ALL PARTIES AT INTEREST”. ACCORDING TO DAVIS, THE PRICE SYSTEM IS A MECHANISM
THROUGH WHICH PRODUCTIVITY GAINS ARE DISTRIBUTED, AND BESIDES THE BUSINESS ENTERPRISE,
RECEIVING PARTIES MAY CONSIST OF ITS CUSTOMERS, STAFF AND THE SUPPLIERS OF PRODUCTION
INPUTS. IN THIS ARTICLE, THE CONCEPT OF”DISTRIBUTION OF THE FRUITS OF PRODUCTION” BY DAVIS
IS SIMPLY REFERRED TO AS PRODUCTION INCOME DISTRIBUTION OR SHORTER STILL AS DISTRIBUTION.
THE PRODUCTION PROCESS CONSISTS OF THE REAL PROCESS AND THE INCOME DISTRIBUTION
PROCESS. A RESULT AND A CRITERION OF SUCCESS OF THE PRODUCTION PROCESS IS PROFITABILITY.

THE PROFITABILITY OF PRODUCTION IS THE SHARE OF THE REAL PROCESS RESULT THE PRODUCER
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HAS BEEN ABLE TO KEEP TO HIMSELF IN THE INCOME DISTRIBUTION PROCESS. FACTORS DESCRIBING
2. Introduction
THE PRODUCTION PROCESS ARE THE COMPONENTS OF PROFITABILITY, I.E., RETURNS AND COSTS.
THEY DIFFER FROM THE FACTORS OF THE REAL PROCESS IN THAT THE COMPONENTS OF
Management
PROFITABILITY ARE GIVEN AT NOMINAL PRICES WHEREAS IN THE REAL PROCESS THE FACTORS ARE AT
PERIODICALLY FIXED PRICES.
MONETARY PROCESS REFERS TO EVENTS RELATED TO FINANCING THE BUSINESS. MARKET VALUE
PROCESS REFERS TO A SERIES OF EVENTS IN WHICH INVESTORS DETERMINE THE MARKET VALUE OF
THE COMPANY IN THE INVESTMENT MARKETS.
Surplus value as a measure of production profitability
THE SCALE OF SUCCESS RUN BY A GOING CONCERN IS MANIFOLD, AND THERE ARE NO CRITERIA
THAT MIGHT BE UNIVERSALLY APPLICABLE TO SUCCESS. NEVERTHELESS, THERE IS ONE CRITERION BY
WHICH WE CAN GENERALIZE THE RATE OF SUCCESS IN PRODUCTION. THIS CRITERION IS THE ABILITY
TO PRODUCE SURPLUS VALUE. AS A CRITERION OF PROFITABILITY, SURPLUS VALUE REFERS TO THE
DIFFERENCE BETWEEN RETURNS AND COSTS, TAKING INTO CONSIDERATION THE COSTS OF EQUITY IN
ADDITION TO THE COSTS INCLUDED IN THE PROFIT AND LOSS STATEMENT AS USUAL. SURPLUS VALUE

INDICATES THAT THE OUTPUT HAS MORE VALUE THAN THE SACRIFICE MADE FOR IT, IN OTHER WORDS,
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THE OUTPUT VALUE IS HIGHER THAN THE VALUE (PRODUCTION COSTS) OF THE USED INPUTS. IF THE
2. Introduction
SURPLUS VALUE IS POSITIVE, THE OWNER’S PROFIT EXPECTATION HAS BEEN SURPASSED.
Management THE TABLE PRESENTS A SURPLUS VALUE CALCULATION. THIS BASIC EXAMPLE IS A SIMPLIFIED
4. Opreations Strategy for a PROFITABILITY CALCULATION USED FOR ILLUSTRATION AND MODELING. EVEN AS REDUCED, IT
Competitive Advantage COMPRISES ALL PHENOMENA OF A REAL MEASURING SITUATION AND MOST IMPORTANTLY THE CHANGE
IN THE OUTPUT-INPUT MIX BETWEEN TWO PERIODS. HENCE, THE BASIC EXAMPLE WORKS AS AN
ILLUSTRATIVE “SCALE MODEL” OF PRODUCTION WITHOUT ANY FEATURES OF A REAL MEASURING
SITUATION BEING LOST. IN PRACTICE, THERE MAY BE HUNDREDS OF PRODUCTS AND INPUTS BUT THE
LOGIC OF MEASURING DOES NOT DIFFER FROM THAT PRESENTED IN THE BASIC EXAMPLE.
BOTH THE ABSOLUTE AND RELATIVE SURPLUS VALUE HAVE BEEN CALCULATED IN THE
EXAMPLE. ABSOLUTE VALUE IS THE DIFFERENCE OF THE OUTPUT AND INPUT VALUES AND THE
RELATIVE VALUE IS THEIR RELATION, RESPECTIVELY. THE SURPLUS VALUE CALCULATION IN THE
EXAMPLE IS AT A NOMINAL PRICE, CALCULATED AT THE MARKET PRICE OF EACH PERIOD.
Productivity model

1. Content Index THE NEXT STEP IS TO DESCRIBE A PRODUCTIVITY MODEL BY HELP OF WHICH IT IS POSSIBLE TO
2. Introduction CALCULATE THE RESULTS OF THE REAL PROCESS, INCOME DISTRIBUTION PROCESS AND PRODUCTION
3. Productivity and Operations PROCESS. THE STARTING POINT IS A PROFITABILITY CALCULATION USING SURPLUS VALUE AS A
Management CRITERION OF PROFITABILITY. THE SURPLUS VALUE CALCULATION IS THE ONLY VALID MEASURE FOR
4. Opreations Strategy for a UNDERSTANDING THE CONNECTION BETWEEN PROFITABILITY AND PRODUCTIVITY OR UNDERSTANDING
Competitive Advantage THE CONNECTION BETWEEN REAL PROCESS AND PRODUCTION PROCESS. A VALID MEASUREMENT OF
TOTAL PRODUCTIVITY NECESSITATES CONSIDERING ALL PRODUCTION INPUTS, AND THE SURPLUS
VALUE CALCULATION IS THE ONLY CALCULATION TO CONFORM TO THE REQUIREMENT.
THE PROCESS OF CALCULATING IS BEST UNDERSTOOD BY APPLYING THE CLAUSE OF CETERIS

PARIBUS, I.E. "ALL OTHER THINGS BEING THE SAME," STATING THAT AT A TIME ONLY THE IMPACT OF
ONE CHANGING FACTOR BE INTRODUCED TO THE PHENOMENON BEING EXAMINED. THEREFORE, THE
CALCULATION CAN BE PRESENTED AS A PROCESS ADVANCING STEP BY STEP. FIRST, THE IMPACTS OF
THE INCOME DISTRIBUTION PROCESS ARE CALCULATED, AND THEN, THE IMPACTS OF THE REAL
PROCESS ON THE PROFITABILITY OF THE PRODUCTION.
Depicting the development by time series

1. Content Index DEVELOPMENT IN THE REAL PROCESS, INCOME DISTRIBUTION PROCESS AND PRODUCTION
2. Introduction PROCESS CAN BE ILLUSTRATED BY MEANS OF TIME SERIES. (KENDRICK 1984, SAARI 2006) THE
3. Productivity and Operations PRINCIPLE OF A TIME SERIES IS TO DESCRIBE, FOR EXAMPLE, THE PROFITABILITY OF PRODUCTION
Management ANNUALLY BY MEANS OF A RELATIVE SURPLUS VALUE AND ALSO TO EXPLAIN HOW PROFITABILITY WAS
4. Opreations Strategy for a PRODUCED AS A CONSEQUENCE OF PRODUCTIVITY DEVELOPMENT AND INCOME DISTRIBUTION. A TIME
Competitive Advantage SERIES CAN BE COMPOSED USING THE CHAIN INDEXES AS SEEN IN THE FOLLOWING.
NOW THE INTENTION IS TO DRAW UP THE TIME SERIES FOR THE TEN PERIODS IN ORDER TO
EXPRESS THE ANNUAL PROFITABILITY OF PRODUCTION BY HELP OF PRODUCTIVITY AND INCOME
DISTRIBUTION DEVELOPMENT. WITH THE TIME SERIES IT IS POSSIBLE TO PROVE THAT PRODUCTIVITY
OF THE REAL PROCESS IS THE DISTRIBUTABLE RESULT OF PRODUCTION, AND PROFITABILITY IS THE
SHARE REMAINING IN THE COMPANY AFTER INCOME DISTRIBUTION BETWEEN THE COMPANY AND
INTERESTED PARTIES PARTICIPATING IN THE EXCHANGE.
THE GRAPH SHOWS HOW PROFITABILITY DEPENDS ON THE DEVELOPMENT OF PRODUCTIVITY
AND INCOME DISTRIBUTION. PRODUCTIVITY FIGURES ARE FICTIONAL BUT IN PRACTICE THEY ARE
PERFECTLY FEASIBLE INDICATING AN ANNUAL GROWTH OF 1.5 PER CENT ON AVERAGE. GROWTH
POTENTIALS IN PRODUCTIVITY VARY GREATLY BY INDUSTRY, AND AS A WHOLE, THEY ARE DIRECTLY

PROPORTIONATE TO THE TECHNICAL DEVELOPMENT IN THE BRANCH. FAST-DEVELOPING INDUSTRIES

1. Content Index
ATTAIN STRONGER GROWTH IN PRODUCTIVITY. THIS IS A TRADITIONAL WAY OF THINKING. TODAY WE
2. Introduction
UNDERSTAND THAT HUMAN AND SOCIAL CAPITALS TOGETHER WITH COMPETITION HAVE A SIGNIFICANT
IMPACT ON PRODUCTIVITY GROWTH. IN ANY CASE, PRODUCTIVITY GROWS IN SMALL STEPS. BY THE
Management
ACCURATE MEASUREMENT OF PRODUCTIVITY, IT IS POSSIBLE TO APPRECIATE THESE SMALL CHANGES
AND CREATE AN ORGANISATION CULTURE WHERE CONTINUOUS IMPROVEMENT IS A COMMON VALUE.
Measuring and interpreting partial productivity
MEASUREMENT OF PARTIAL PRODUCTIVITY REFERS TO THE MEASUREMENT SOLUTIONS WHICH

DO NOT MEET THE REQUIREMENTS OF TOTAL PRODUCTIVITY MEASUREMENT, YET, BEING PRACTICABLE
AS INDICATORS OF TOTAL PRODUCTIVITY. IN PRACTICE, MEASUREMENT IN PRODUCTION MEANS
MEASURES OF PARTIAL PRODUCTIVITY. IN THAT CASE, THE OBJECTS OF MEASUREMENT ARE
COMPONENTS OF TOTAL PRODUCTIVITY, AND INTERPRETED CORRECTLY, THESE COMPONENTS ARE
INDICATIVE OF PRODUCTIVITY DEVELOPMENT. THE TERM OF PARTIAL PRODUCTIVITY ILLUSTRATES
WELL THE FACT THAT TOTAL PRODUCTIVITY IS ONLY MEASURED PARTIALLY – OR APPROXIMATELY. IN A
WAY, MEASUREMENTS ARE DEFECTIVE BUT, BY UNDERSTANDING THE LOGIC OF TOTAL PRODUCTIVITY,
IT IS POSSIBLE TO INTERPRET CORRECTLY THE RESULTS OF PARTIAL PRODUCTIVITY AND TO BENEFIT

FROM THEM IN PRACTICAL SITUATIONS.

1. Content Index
2. Introduction
3. Productivity and Operations Typical solutions of partial productivity are:
Management
1. Single-factor productivity
4. Opreations Strategy for a 2. Value-added productivity
Competitive Advantage 3. Unit cost accounting
4. Efficiency ratios
5. Managerial control ratio system
SINGLE-FACTOR PRODUCTIVITY REFERS TO THE MEASUREMENT OF PRODUCTIVITY THAT IS A RATIO

OF OUTPUT AND ONE INPUT FACTOR. A MOST WELL-KNOWN MEASURE OF SINGLE-FACTOR
PRODUCTIVITY IS THE MEASURE OF OUTPUT PER WORK INPUT, DESCRIBING WORK PRODUCTIVITY.
SOMETIMES IT IS PRACTICAL TO EMPLOY THE VALUE ADDED AS OUTPUT. PRODUCTIVITY MEASURED IN

THIS WAY IS CALLED VALUE-ADDED PRODUCTIVITY. ALSO, PRODUCTIVITY CAN BE EXAMINED IN COST
ACCOUNTING USING UNIT COSTS. THEN IT IS MOSTLY A QUESTION OF EXPLOITING DATA FROM
STANDARD COST ACCOUNTING FOR PRODUCTIVITY MEASUREMENTS. EFFICIENCY RATIOS, WHICH TELL
SOMETHING ABOUT THE RATIO BETWEEN THE VALUES PRODUCED AND THE SACRIFICES MADE FOR IT,
ARE AVAILABLE IN LARGE NUMBERS. MANAGERIAL CONTROL RATIO SYSTEMS ARE COMPOSED OF

SINGLE MEASURES WHICH ARE INTERPRETED IN PARALLEL WITH OTHER MEASURES RELATED TO THE
1. Content Index
SUBJECT. RATIOS MAY BE RELATED TO ANY SUCCESS FACTOR OF THE AREA OF RESPONSIBILITY, SUCH
2. Introduction
AS PROFITABILITY, QUALITY, POSITION ON THE MARKET, ETC. RATIOS MAY BE COMBINED TO FORM ONE
WHOLE USING SIMPLE RULES, HENCE, CREATING A KEY FIGURE SYSTEM.
Management
4. Opreations Strategy for a THE MEASURES OF PARTIAL PRODUCTIVITY ARE PHYSICAL MEASURES, NOMINAL PRICE VALUE
Competitive Advantage MEASURES AND FIXED PRICE VALUE MEASURES. THESE MEASURES DIFFER FROM ONE ANOTHER BY
THE VARIABLES THEY MEASURE AND BY THE VARIABLES EXCLUDED FROM MEASUREMENTS. BY
EXCLUDING VARIABLES FROM MEASUREMENT MAKES IT POSSIBLE TO BETTER FOCUS THE
MEASUREMENT ON A GIVEN VARIABLE, YET, THIS MEANS A MORE NARROW APPROACH. THE TABLE
BELOW WAS COMPILED TO COMPARE THE BASIC TYPES OF MEASUREMENT. THE FIRST COLUMN
PRESENTS THE MEASURE TYPES, THE SECOND THE VARIABLES BEING MEASURED, AND THE THIRD
COLUMN GIVES THE VARIABLES EXCLUDED FROM MEASUREMENT.
C. Aspects of productivity
Productivity studies
PRODUCTIVITY STUDIES ANALYZE TECHNICAL PROCESSES AND ENGINEERING RELATIONSHIPS
SUCH AS HOW MUCH OF AN OUTPUT CAN BE PRODUCED IN A SPECIFIED PERIOD OF TIME. IT IS RELATED

TO THE CONCEPT OF EFFICIENCY. WHILE PRODUCTIVITY IS THE AMOUNT OF OUTPUT PRODUCED

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RELATIVE TO THE AMOUNT OF RESOURCES (TIME AND MONEY) THAT GO INTO THE PRODUCTION,
2. Introduction
EFFICIENCY IS THE VALUE OF OUTPUT RELATIVE TO THE COST OF INPUTS USED. PRODUCTIVITY
IMPROVES WHEN THE QUANTITY OF OUTPUT INCREASES RELATIVE TO THE QUANTITY OF INPUT.
Management
EFFICIENCY IMPROVES, WHEN THE COST OF INPUTS USED IS REDUCED RELATIVE THE VALUE OF
OUTPUT. A CHANGE IN THE PRICE OF INPUTS MIGHT LEAD A FIRM TO CHANGE THE MIX OF INPUTS USED,
IN ORDER TO REDUCE THE COST OF INPUTS USED, AND IMPROVE EFFICIENCY, WITHOUT ACTUALLY
INCREASING THE QUANTITY OF OUTPUT RELATIVE THE QUANTITY OF INPUTS. A CHANGE IN
TECHNOLOGY, HOWEVER, MIGHT ALLOW A FIRM TO INCREASE OUTPUT WITH A GIVEN QUANTITY OF
INPUTS; SUCH AN INCREASE IN PRODUCTIVITY WOULD BE MORE TECHNICALLY EFFICIENT, BUT MIGHT
NOT REFLECT ANY CHANGE IN ALLOCATIVE EFFICIENCY.
Increases in productivity
COMPANIES CAN INCREASE PRODUCTIVITY IN A VARIETY OF WAYS. THE MOST OBVIOUS
METHODS INVOLVE AUTOMATION AND COMPUTERIZATION WHICH MINIMIZE THE TASKS THAT MUST BE
PERFORMED BY EMPLOYEES. RECENTLY, LESS OBVIOUS TECHNIQUES ARE BEING EMPLOYED THAT
INVOLVE ERGONOMIC DESIGN AND WORKER COMFORT. A COMFORTABLE EMPLOYEE, THE THEORY
MAINTAINS, CAN PRODUCE MORE THAN A COUNTERPART WHO STRUGGLES THROUGH THE DAY. IN

FACT, SOME STUDIES CLAIM THAT MEASURES SUCH AS RAISING WORKPLACE TEMPERATURE CAN HAVE
1. Content Index
A DRASTIC EFFECT ON OFFICE PRODUCTIVITY. EXPERIMENTS DONE BY THE JAPANESE SHISEIDO
2. Introduction
CORPORATION ALSO SUGGESTED THAT PRODUCTIVITY COULD BE INCREASED BY MEANS OF
PERFUMING OR DEODORIZING THE AIR CONDITIONING SYSTEM OF WORKPLACES. INCREASES IN
Management
PRODUCTIVITY ALSO CAN INFLUENCE SOCIETY MORE BROADLY, BY IMPROVING LIVING STANDARDS,
AND CREATING INCOME. THEY ARE CENTRAL TO THE PROCESS GENERATING ECONOMIC GROWTH AND
CAPITAL ACCUMULATION. A NEW THEORY SUGGESTS THAT THE INCREASED CONTRIBUTION THAT
PRODUCTIVITY HAS ON ECONOMIC GROWTH IS LARGELY DUE TO THE RELATIVELY HIGH PRICE OF
TECHNOLOGY AND ITS EXPORTATION VIA TRADE, AS WELL AS DOMESTIC USE DUE TO HIGH DEMAND,
RATHER THAN ATTRIBUTING IT TO MICRO ECONOMIC EFFICIENCY THEORIES WHICH TEND TO DOWNSIZE
ECONOMIC GROWTH AND REDUCE LABOR PRODUCTIVITY FOR THE MOST PART. MANY ECONOMISTS
SEE THE ECONOMIC EXPANSION OF THE LATER 1990S IN THE UNITED STATES AS BEING ALLOWED BY
THE MASSIVE INCREASE IN WORKER PRODUCTIVITY THAT OCCURRED DURING THAT PERIOD. THE
GROWTH IN AGGREGATE SUPPLY ALLOWED INCREASES IN AGGREGATE DEMAND AND DECREASES IN
UNEMPLOYMENT AT THE SAME TIME THAT INFLATION REMAINED STABLE. OTHERS EMPHASIZE DRASTIC
CHANGES IN PATTERNS OF SOCIAL BEHAVIOUR RESULTING FROM NEW COMMUNICATION
TECHNOLOGIES AND CHANGED MALE-FEMALE RELATIONSHIPS.

1. Content Index
Labor productivity
2. Introduction
LABOUR PRODUCTIVITY IS GENERALLY SPEAKING HELD TO BE THE SAME AS THE "AVERAGE
PRODUCT OF LABOR" (AVERAGE OUTPUT PER WORKER OR PER WORKER-HOUR, AN OUTPUT WHICH
Management COULD BE MEASURED IN PHYSICAL TERMS OR IN PRICE TERMS). IT IS NOT THE SAME AS THE MARGINAL
4. Opreations Strategy for a PRODUCT OF LABOR, WHICH REFERS TO THE INCREASE IN OUTPUT THAT RESULTS FROM A
Competitive Advantage CORRESPONDING INCREASE IN LABOR INPUT. THE QUALITATIVE ASPECTS OF LABOR PRODUCTIVITY
SUCH AS CREATIVITY, INNOVATION, TEAMWORK, IMPROVED QUALITY OF WORK AND THE EFFECTS ON
OTHER AREAS IN A COMPANY ARE MORE DIFFICULT TO MEASURE.
Marx on productivity
IN KARL MARX'S LABOR THEORY OF VALUE, THE CONCEPT OF CAPITAL PRODUCTIVITY IS
REJECTED AS AN INSTANCE OF REIFICATION, AND REPLACED WITH THE CONCEPTS OF THE ORGANIC
COMPOSITION OF CAPITAL AND THE VALUE PRODUCT OF LABOR. A SHARP DISTINCTION IS DRAWN BY
MARX FOR THE PRODUCTIVITY OF LABOR IN TERMS OF PHYSICAL OUTPUTS PRODUCED, AND THE
VALUE OR PRICE OF THOSE OUTPUTS. A SMALL PHYSICAL OUTPUT MIGHT CREATE A LARGE VALUE,
WHILE A LARGE PHYSICAL OUTPUT MIGHT CREATE ONLY A SMALL VALUE - WITH OBVIOUS
CONSEQUENCES FOR THE WAY THE LABOR PRODUCING IT WOULD BE REWARDED IN THE

MARKETPLACE. MOREOVER IF A LARGE OUTPUT VALUE WAS CREATED BY PEOPLE, THIS DID NOT
1. Content Index
NECESSARILY HAVE ANYTHING TO DO WITH THEIR PHYSICAL PRODUCTIVITY; IT COULD BE JUST DUE TO
2. Introduction
THE FAVORABLE VALUATION OF THAT OUTPUT WHEN TRADED IN MARKETS. THEREFORE, MERELY
FOCUSING ON AN OUTPUT VALUE REALISED, TO ASSESS PRODUCTIVITY, MIGHT LEAD TO MISTAKEN
Management
CONCLUSIONS. IN GENERAL, MARX REJECTED THE POSSIBILITY OF A CONCEPT OF PRODUCTIVITY THAT
WOULD BE COMPLETELY NEUTRAL AND UNBIASED BY THE INTERESTS OR NORMS OF DIFFERENT SOCIAL
CLASSES. AT BEST, ONE COULD SAY THAT OBJECTIVELY, SOME PRACTICES IN A SOCIETY WERE
GENERALLY REGARDED AS MORE OR LESS PRODUCTIVE, OR AS IMPROVING PRODUCTIVITY -

IRRESPECTIVE OF WHETHER THIS WAS REALLY TRUE. IN OTHER WORDS, PRODUCTIVITY WAS ALWAYS
INTERPRETED FROM SOME DEFINITE POINT OF VIEW. TYPICALLY, MARX SUGGESTED IN HIS CRITIQUE
OF POLITICAL ECONOMY, ONLY THE BENEFITS OF RAISING PRODUCTIVITY WERE FOCUSED ON, RATHER
THAN THE HUMAN (OR ENVIRONMENTAL) COSTS INVOLVED. THUS, MARX COULD EVEN FIND SOME
SYMPATHY FOR THE LUDDITES, AND HE INTRODUCED THE CRITICAL CONCEPT OF THE RATE OF
EXPLOITATION OF HUMAN LABOUR POWER TO BALANCE THE OBVIOUS ECONOMIC PROGRESS
RESULTING FROM AN INCREASE IN THE PRODUCTIVE FORCES OF LABOR.
Productivity paradox
DESPITE THE PROLIFERATION OF COMPUTERS, THERE HAVE NOT BEEN ANY OBSERVABLE

[1]
INCREASES IN PRODUCTIVITY AS A RESULT. ONE HYPOTHESIS TO EXPLAIN THIS IS THAT COMPUTERS
1. Content Index
ARE PRODUCTIVE, YET THEIR PRODUCTIVE GAINS ARE REALIZED ONLY AFTER A LAG PERIOD, DURING
2. Introduction
WHICH COMPLEMENTARY CAPITAL INVESTMENTS MUST BE DEVELOPED TO ALLOW FOR THE USE OF
COMPUTERS TO THEIR FULL POTENTIAL. ANOTHER HYPOTHESIS STATES THAT COMPUTERS ARE SIMPLY
Management
NOT VERY PRODUCTIVITY ENHANCING BECAUSE THEY REQUIRE TIME, A SCARCE COMPLEMENTARY
HUMAN INPUT. THIS THEORY HOLDS THAT ALTHOUGH COMPUTERS PERFORM A VARIETY OF TASKS,
THESE TASKS ARE NOT DONE IN ANY PARTICULARLY NEW OR EFFICIENT MANNER, BUT RATHER THEY
ARE ONLY DONE FASTER. IT HAS ALSO BEEN ARGUED THAT COMPUTER AUTOMATION JUST FACILITATES
EVER MORE COMPLEX BUREAUCRACIES AND REGULATION, AND THEREFORE PRODUCES A NET
REDUCTION IN REAL PRODUCTIVITY. ANOTHER EXPLANATION IS THAT KNOWLEDGE WORK
PRODUCTIVITY AND IT PRODUCTIVITY ARE LINKED, AND THAT WITHOUT IMPROVING KNOWLEDGE WORK
PRODUCTIVITY, IT PRODUCTIVITY DOES NOT HAVE A GOVERNING MECHANISM

1. Content Index
2. Introduction
Management
Chapter 2: Operations Strategy for a Competitive Advantage
| Chapter 2: Operations Strategy for a Competitive Advantage 25

1. Content Index
2. Introduction
A. COMPETITIVE STRATEGIES
3. Productivity and Operations Definition
Management
A competitive advantage is an advantage over competitors gained by offering consumers greater value,
4. Opreations Strategy for a either by means of lower prices or by providing greater benefits and service that justifies higher prices.
Following on from his work analysing the competitive forces in an industry, Michael Porter suggested
four "generic" business strategies that could be adopted in order to gain competitive advantage. The four
strategies relate to the extent to which the scope of businesses' activities are narrow versus broad and the
extent to which a business seeks to differentiate its products.
The four strategies are summarized in the figure below:

1. Content Index
2. Introduction
Management
The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or
industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow
market or industry.

Strategy - Differentiation
1. Content Index
2. Introduction This strategy involves selecting one or more criteria used by buyers in a market - and then positioning
the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price
for the product - often to reflect the higher production costs and extra value-added features provided for the
Management
consumer. Differentiation is about charging a premium price that more than covers the additional production
4. Opreations Strategy for a costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.
Strategy - Cost Leadership
With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps
all) market segments in the industry are supplied with the emphasis placed minimising costs. If the achieved
selling price can at least equal (or near)the average for the market, then the lowest-cost producer will (in theory)
enjoy the best profits. This strategy is usually associated with large-scale businesses offering "standard"
products with relatively little differentiation that are perfectly acceptable to the majority of customers.
Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant
cost advantage over the competition and, in doing so, it can further increase its market share.
Strategy - Differentiation Focus
In the differentiation focus strategy, a business aims to differentiate within just one or a small number of
target market segments. The special customer needs of the segment mean that there are opportunities to
provide products that are clearly different from competitors who may be targeting a broader group of customers.

The important issue for any business adopting this strategy is to ensure that customers really do have different
1. Content Index
needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor
2. Introduction products are not meeting those needs and wants.
Strategy - Cost Focus
Management
4. Opreations Strategy for a Here a business seeks a lower-cost advantage in just on or a small number of market segments. The
product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable
to sufficient consumers. Such products are often called "me-too's".
B. Operations Strategy& Process

1. To understand the competitive priorities available to an organization and their relationships
2. To consider the impact of strategy on operations also of operations on strategy
Organization Strategy
Corporate strategy focuses on the questions:

 Where are we going?

1. Content Index
 How are we going to compete?
2. Introduction  How are we going to meet customer needs in order to accomplish our objectives?
Typical steps in setting an organization's strategy:
Management
4. Opreations Strategy for a 1. Establishing Goals
2. Market and Competitive Analysis - See the Society of Competitive Intelligence Professionals site for
information
3. Identification of Products, Markets and Competitive Priorities
4. Establishment of Policy Guidelines and Constraints
Mission - Why are we in the business?
Vision - What do we want our organization to look like 5 years from now?
Strategic Goals- Specific intended targets that indicate how the organization will achieve its mission and vision
Operations Strategy

Once the organization has a clear picture of where it is heading the operations strategy can be addressed.
1. Content Index
2. Introduction  Purpose - To support the organization strategy.

 Operations can be used as a Competitive Weapon
Management
4. Opreations Strategy for a - by excelling in one or two key areas of operations a company may gain an edge over its competition.
The relationship between Operations and Corporate Strategy
Product Strategy.
Definition = combination of physical, service and other characteristics to meet customer needs
Product Differentiation
 · design a product to meet customers’ needs

 · to create a competitive advantage
Market Strategy
Grouping of customers based on important difference in their needs, preferences and/or ability to buy options,

 mass
1. Content Index
 differentiation
2. Introduction  niche-focus
Competitive Premise
Management
4. Opreations Strategy for a How do we intend to compete in the market place?
What will we offer our customers that is
1. important to them
2. different from our competitors
3. Economically feasible
4. difficult to match / imitate
Competitive Priorities

Competitive priorities: the elements in which operations must excel in order to support corporate
1. Content Index
strategy. A company cannot excel on all dimensions and must select the ones most important to its operations
2. Introduction and organizational strategy.
1. Cost and/or price
Management
4. Opreations Strategy for a  the production and distribution of a product or service with a minimum of expenses or
Competitive Advantage  wasted resources

 low cost production and distribution
 low price product or service
2. Quality and dependability
 producing a product which meets (or exceeds) customer expectations for quality
 providing
 consistent quality ("dependability")
3. Performance
 product features
 high-performance design allows product to do things that other products cannot

4. Delivery
1. Content Index
2. Introduction  the ability to meet requested and promised delivery schedules
3. Productivity and Operations  short lead time or fast delivery ("speed")

 on-time delivery ("reliability")
Management
 speed in developing and introducing new products or services
Competitive Advantage 5. Flexibility
The ability to respond to rapid changes in customer demand and requirements for existing
 products or services
 product flexibility - quickly introduce new products or ability to make rapid design changes to existing
products
 process flexibility ("volume flexibility")
6. Innovativeness:
Ability to introduce and incorporate new ideas into products and processes.
Top Ranked Competitive Priorities
1990 Competitive Priorities 1996 Competitive Priorities

Conformance quality Conformance quality

1. Content Index
On-time delivery Product reliability
2. Introduction
Product reliability On-time delivery
Performance quality Low price
Management
Low Price Fast delivery
4. Opreations Strategy for a Performance quality
Competitive Advantage Speedy new product introduction
Market Qualifying/Order Winning Priorities
Market qualifying - characteristics a product must have to be in the market
- Which is market qualifying for a luxury car?
Order winning - characteristics make a product different and cause customers to buy
- Which is market winning for a Porsche 911?
Business system focus
What are the key value adding activities

< Previous Page
Which activities will be done.

1. Content Index
2. Introduction  · Within the organization (internal)?
3. Productivity and Operations  · By others (external)?

 · Jointly?
Management
4. Opreations Strategy for a Business system - the combination of all activities (physical vs. service; primary vs. support;
Competitive Advantage internal, joint, external) that must be performed to product and market a product
Developing an Operations Strategy
1. Segment the markets by product groups
2. Identify product requirements, demand patterns and profit margins for each group
3. Determine market qualifying and order winning attributes for each product group
4. Convert these attributes into specific performance characteristics - most focus will be
on order winning

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1. Content Index OPERATIONS MANAGEMENT

B. Main Processes of a Company

Chapter 2: Operations Strategy for a Competitive Advantage

B. Operations Strategy& Process

The role of operations management

The importance of operations management has increased dramatically in recent years.

SERVICES, WHEREAS PRODUCTIVITY IS AN EFFICIENCY CONCEPT THAT GAUGES THE RATIO OF

OUTPUTS RELATIVE TO INPUTS IN A PRODUCTIVE PROCESS.

PRODUCTIVITY IS ONE OF THE MAJOR CONCERNS OF MANAGERS AS HIGH PRODUCTIVITY IS

PRODUCTIVITY AND PARTIAL PRODUCTIVITY. THE PROBLEMS IN MEASURING PRODUCTIVITY,

ESPECIALLY THAT OF THE KNOWLEDGE WORKERS WERE ALSO DISCUSSED.

OPERATIONS MANAGEMENT IS THE APPLICATION OF CONCEPTS, PROCEDURES AND

| Chapter 1: Productivity and Operations Management 5

THE OPERATIONS RESEARCH PROCEDURE COMPRISES SIX STEPS - FORMULATING THE

SOLUTION INTO EFFECT. LINEAR PROGRAMMING IS A TECHNIQUE FOR SELECTING AN OPTIMUM

COMBINATION OF FACTORS FROM A SERIES OF INTER-RELATED ALTERNATIVES, EACH SUBJECTED TO

CERTAIN LIMITATIONS, IN ORDER TO ACHIEVE A DESIRED GOAL.

| Chapter 1: Productivity and Operations Management 6

HELP TO IMPROVE PRODUCTIVITY ARE TIME-EVENT NETWORKS, VALUE ENGINEERING, WORK

SIMPLIFICATION, QUALITY CIRCLES AND TOTAL QUALITY MANAGEMENT.

| Chapter 1: Productivity and Operations Management 7

IMPROVE PRODUCTIVITY AND TO RAISE PRODUCTION OUTPUT.

MECHANISM OF ECONOMIC GROWTH. ECONOMIC GROWTH IS A PRODUCTION INCREASE ACHIEVED BY

AN ECONOMIC ENTITY OR NATION. IT IS USUALLY EXPRESSED AS AN ANNUAL GROWTH PERCENTAGE

NATION). ECONOMIC GROWTH IS CREATED BY TWO FACTORS SO THAT IT IS APPROPRIATE TO TALK

| Chapter 1: Productivity and Operations Management 8

AND AN INCREASE IN PRODUCTIVITY.

INPUT REMAINS UNCHANGED. THE OUTPUT GROWTH CORRESPONDING TO A SHIFT OF THE

PRODUCTION FUNCTION IS GENERATED BY THE INCREASE IN PRODUCTIVITY.

ACCORDINGLY, AN INCREASE IN PRODUCTIVITY IS CHARACTERISED BY A SHIFT OF THE

OF TOTAL PRODUCTIVITY IS NORMALLY WRITTEN AS FOLLOWS:

 Total productivity = Output quantity / Input quantity

| Chapter 1: Productivity and Operations Management 9

| Chapter 1: Productivity and Operations Management 10

PROPORTIONALLY IT MEANS PRODUCTIVITY.

INCOME DISTRIBUTION PROCESS OF THE PRODUCTION REFERS TO A SERIES OF EVENTS IN WHICH

| Chapter 1: Productivity and Operations Management 11

PROCESS. A RESULT AND A CRITERION OF SUCCESS OF THE PRODUCTION PROCESS IS PROFITABILITY.

| Chapter 1: Productivity and Operations Management 12

THE COMPANY IN THE INVESTMENT MARKETS.

Surplus value as a measure of production profitability

TO PRODUCE SURPLUS VALUE. AS A CRITERION OF PROFITABILITY, SURPLUS VALUE REFERS TO THE

| Chapter 1: Productivity and Operations Management 13

ILLUSTRATIVE “SCALE MODEL” OF PRODUCTION WITHOUT ANY FEATURES OF A REAL MEASURING

EXAMPLE IS AT A NOMINAL PRICE, CALCULATED AT THE MARKET PRICE OF EACH PERIOD.

| Chapter 1: Productivity and Operations Management 14

VALUE CALCULATION IS THE ONLY CALCULATION TO CONFORM TO THE REQUIREMENT.

THE PROCESS OF CALCULATING IS BEST UNDERSTOOD BY APPLYING THE CLAUSE OF CETERIS

PROCESS ON THE PROFITABILITY OF THE PRODUCTION.

Depicting the development by time series

| Chapter 1: Productivity and Operations Management 15

EXPRESS THE ANNUAL PROFITABILITY OF PRODUCTION BY HELP OF PRODUCTIVITY AND INCOME

INTERESTED PARTIES PARTICIPATING IN THE EXCHANGE.

THE GRAPH SHOWS HOW PROFITABILITY DEPENDS ON THE DEVELOPMENT OF PRODUCTIVITY

| Chapter 1: Productivity and Operations Management 16

PROPORTIONATE TO THE TECHNICAL DEVELOPMENT IN THE BRANCH. FAST-DEVELOPING INDUSTRIES

MEASUREMENT OF PARTIAL PRODUCTIVITY REFERS TO THE MEASUREMENT SOLUTIONS WHICH

AS INDICATORS OF TOTAL PRODUCTIVITY. IN PRACTICE, MEASUREMENT IN PRODUCTION MEANS