Productivity Improvement and operations strategy

Given the imperatives resulting from the cost leadership strategy and some types of segmentation strategies that emphasize cost and the concepts of the experience curve, all coupled with the amplifying effects of productivity increase differences, an operations strategy that emphasizes all kinds of productivity improvements seems essential. Depending on the particular industry, this may mean large investments in plant and equipment, with particular emphasis on advanced process technology.

Productivity improvement is an imperative in operations strategy for all firms. In order to remain competitive, a firm must continually seek ways of reducing costs: profits are the difference between prices and costs, and prices are not normally under direct managerial control. It is with firms following the low cost strategies in one form or another that the concepts of the experience curve and productivity improvement become crucial. This applies even to those firms operating in a sheltered domestic environment. For those firms operating in global markets, productivity improvement needs to become managerial religion, in part because strong foreign competitors are giving so much attention to it but also because of the amplification of productivity differences through the exchange rate.

It is largely through operations strategy that productivity improvement becomes implemented. If the sale positioning of the type of productive system mismatches the market, then productivity improvement is hampered by an inappropriate system. The wrong technology can be a result or jobs and processes may be poorly designed to achieve market objectives. The systems for planning scheduling and control may be mismatched, together with all kinds of operating decisions. Productivity improvements cannot be left to the experience curve phenomenon, as something what will simply happen as volume cumulates. It must be managed as a conscious part of operations strategy.

The Six Basic Components of Operations strategy:

All of the activities in the line of material flow from suppliers through fabrication and assembly and culminating in product distribution must be integrated for sensible operations strategy formulation. Leaving any part out can lead to uncoordinated strategies. In addition to materials, the other crucial inputs of labor, job design, and technology must be parts of the integrated strategy.

The six components of operations strategy are:

1) Positioning the productive system
2) Capacity / location decisions
3) Product and process technology
4) Work force and job design
5) Strategic implications of operating decisions
6) Suppliers and vertical integration

These components are basic to operations strategy because there is a wide managerial choice available within each, and each affects the long term competitive position of the firm by impacting cost, quality, product availability, and flexibility / service.

Positioning the Productive System:

If production is not made a part of corporate strategy, the likelihood of a mismatch between system and markets is high, with resulting conflicts, usually between the marketing and production functions. A firm without a unified strategy that includes the operations function is likely to anticipate low cost, high quality, product availability, and flexibility/service from its production system all at the same time, not realizing that one cannot optimize all these dimensions simultaneously, that there are trade offs between them. A firm that attempts to be all things in its production system is likely to compromise all four dimensions of production competence and end up stuck in the middle with low margins.

First Examine the Product – Process Strategies:

Looking at the product and productive system types jointly, it is useful to think of product volume as the independent variable and the productive system type as the dependent variable. As the product develops through its life cycle, the productive system goes through a life cycle of its own, from a job shop system (process focused, to order) when the product is in its initial stages through intermediate stages to a continuous system (product focused, to stock) when the product is demanded in large volume.