Enterprise Competitiveness and the operations function

We have alluded to the cost-quality connection in competing for global markets. Indeed, these factors are of great significance but they are not the only ones. There are four dimensions of competitiveness that measure the effectiveness of the operation function:

1. Cost
2. Quality
3. Dependability as a supplier.
4. Flexibility

Cost: Although price is the competitive weapon used in the marketplace, profitability is related to the difference price and cost. Cost is the variable that can allow lower prices that may be profitable. To compete on the basis of price requires an operations function capable of producing at low cost. Therefore, the effects of location, product design, equipment use and replacement, labor productivity, good inventory management, employment of process technology, and so on all contribute to the resulting costs.

It is well known in manufacturing that unit costs are usually reduced as experience is gained through production. It was originally though that the cost improvement was simply the result of a learning effect among workers, reflecting the development of skill and dexterity that occurs when a task is performed repeatedly. Now, however, this effect is recognized as resulting from a wide variety of additional sources, such as improved production methods and tools, improved product design, standardization, improved material utilization, reduction of system inventories, improved layout and flow, economies of scale, and improved organization. The entire effect might be called organizational learning. Actually, the worker learning effect occurs rather quickly and is minor compared to the total organizational learning effect. The cost effects of organizational learning are quantified by the experience curve.

Although all the dimensions of production performance are important in competitiveness the cost factor is one that is particularly crucial for survival

A survey of 171 of the more than 1000 plant closings during the 1970s by Fortune 500 manufacturers showed that the six most common reasons for plant closings were as shown as below:

Most often cited reasons for Plant Closings:

Reasons %

Inefficient or outdated process technology 46
Lack of sales volume 27
Price competition from other US companies
With better process technology 25
High labor rates 21
Price competition from other US companies
With lower labor cost, and so on 17
Superior product performance and features by
other US companies 16

Quality: The effectiveness of this factor has been highlighted by Japanese market dominance in consumer electronics, steel, automobiles, and machine tools, where product quality has often been cited as a reason for preferring the products purchased. Customers and clients are often willing to pay more for or wait for delivery of superior products.

Dependability as a Supplier: A reputation for dependability of supply or even off the shelf availability is often a strong competitive weapon. Customers may compromise on cost or even quality in order to obtain on time delivery when they need an item. The scheduling and coordination of all elements of the product is its ability to produce on time.

Flexibility / Service: How standard is a product or service? Can variations in the product or service be accommodated? The ability to be flexible will depend a great deal on the design of the productive system and the process technology employed. It is probably not worthwhile for a product of a standardized item in large volume to offer this kind of flexibility. Such a producer would probably respond to a request for variation with the statement, “I am not in that kind of business”. Yet there may be a substantial market for that kind of business. Therefore, a competitor could offer such flexibility as a way of competing effectively. What services accompany the sale? Are spare parts readily available? If problems in product performance occur, will the item be serviced quickly and effectively? Flexibility and service, then, are important elements of operations in an enterprise strategy that is provided by the production function.