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Lecture 2

GMS 401 Lecture Notes - Lecture 2: Computer Virus, Cost Leadership, Vertical Integration


Department
Global Management Studies
Course Code
GMS 401
Professor
Wally Whistance- Smith
Lecture
2

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January 22, 2017 Chapter 2 GMS401
Productivity, and Operations Strategy in a Global Environment
Better quality, higher productivity, lower cost and the ability to respond quickly to
customer needs are more important than ever and the bar is getting higher
Competitiveness:
How effectively an organization meets the wants and needs of customers relative to
others that offer similar goods or services
Organizations compete through some combination of their marketing and operations
functions
What do customers want?
How can these customer needs best be satisfied?
Productivity
The ratio of outputs (goods and services) divided by one or more inputs (such as labour,
capital, or management)
Efficiency means doing the job well -with a minimum of resources and waste
Note the distinction between being efficient, which implies doing the job well, and being
effective, which means doing the right thing
A job well done helps us be efficient; developing and using the correct strategy helps us
be effective
Labour, Capital, and Management
1. Labour, which contributes about 10% of the annual increase
2. Capital, which contributes about 38% of the annual increase
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January 22, 2017 Chapter 2 GMS401
3. Management, which contributes about 52% of the annual increase
Perhaps as many as 25% of North American workers lack the basic skills needed for their
current job
Why Productivity Matters
High productivity is linked to higher standards of living
As an economy replaces manufacturing jobs with lower productivity service jobs, it is
more difficult to maintain high standards of living
Higher productivity relative to the competition leads to competitive advantage in the
marketplace
Pricing and profit effects
For an industry, high relative productivity makes it less likely it will be supplanted by
foreign industry
Productivity = Outputs / Inputs
Productivity Growth = Current Period Productivity Previous Period Productivity / Previous
Period Productivity
Outputs = goods and/or services produced by the operations system (measured in units
or $)
Inputs
Single input/single factor (labour, materials, capital, time)
Multiple input/multifactor (labour + materials, in $)
All inputs/total factor (total system productivity, in $)
Total Outputs Total Inputs = Value Added
Partial measures
Output / (single input)
Multi-factor measures
Output / (multiple inputs)
Total measure
Output / (total outputs)
About Productivity
Productiit groth is a ke factor i a coutr’s stadard of liig
Labour productivity is still the main measure used to gauge the performance of
individuals and plants
Wage and price increases not accompanied by productivity increases tend to create
inflationary pressure on the economy
Because of the large amount of trade with US, it is very important not to lose ground on
productivity
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January 22, 2017 Chapter 2 GMS401
Productivity Paradox
Despite massive investment in computers, the rate of productivity growth is now longer
tha it as efore oputers ere itrodued… Why?
Possibly measures of productivity are not sensitive enough to detect growth in the area
of services where most of the growth has occurred
Perhaps gains in productivity are still building and may become apparent in the next few
years
Perhaps information technology is not the boon to productivity that it was anticipated
to be
Industry Productivity
Differences exist in the productivity between services and goods manufacturing sectors,
with the services sector showing slower growth
Differences also exist within specific industries
Agriculture is more productive internationally for Canada than steel or automobile
production due to investment in technology and superior natural resources
Company Productivity
A more productive company:
Enjoys lower costs
Can pass on savings in reduced prices
Can obtain a competitive edge
Enjoys better stock prices
Can offer employee profit-sharing plans based on productivity-improvement
Can rely on productivity-planning to maintain a long term market advantage
Important internal performance measure for operation
“igle factor easures are usuall epressed i useful ters: output per a hour
(labour), output per machine hour (equipment), output per square foot of space
(facilities), etc.
Performance measures
Planning factors
For multiple measures, the most common approach is to use $ as common unit of
measure for multiple inputs
Output in $ / Input in $ => an index (just a number, no units)
Can be used to track productivity changes from period
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