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Lecture 2

GMS 401 Lecture Notes - Lecture 2: Cost Leadership, Man-Hour, Vertical Integration

Global Management Studies
Course Code
GMS 401
Wally Whistance- Smith

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Saturday, September 17, 2016
Class Two
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
-what do customers wan?
-How can these customer needs best be satisfied
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. Not
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
Economic System

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Saturday, September 17, 2016
Why Productivity Matters
High productivity is linked to higher standards of living
-as an economy replaces manufacturing jobs lower productivity service jobs, it is
more difficult to maintain high standards of living
higher productivity relative to the competition leads 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
Outputs = goods and/or services
produced by the operations system
(measured in units or $ )
-Single input/single factor (e.g. labor, materials, capital, time)
-Multiple input/multifactor (e.g. labor + materials, in $ )
-All inputs/ total factor (total system productivity, in $)
Total Outputs - Total Inputs = Value Added
Productivity Paradox
-despite massive investment in computers, the rate of productivity growth is now lower
than it was before computer were introduced… why?
-possibly measure of productivity ar 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 no the boon to productivity that is was
Industry Productivity
difference exist in the productivity between services and goods manufacturing sectors,
with the services sector showing sower growth
tyProductivi =

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Saturday, September 17, 2016
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 operations
Single factor measures are usually expressed in “useful” terms: output per man hour
(labor), output per machine hour (equipment), output per square foot space (facilities),
-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
Productivity Growth
Current'Period'Productivity' Previous'Period'Productivity
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