Chapter 2: Competitiveness, 8.
Balanced Scorecard – A
strategic management tool that
Strategy, and Productivity. helps organizations measure
performance from financial,
Definition of Terms
customer, internal process, and
1. Competitiveness – The ability learning perspectives.
of an organization to maintain
9. Productivity – A measure of how
and gain market share in its
efficiently resources are used to
industry by offering superior
produce outputs.
value to customers through
cost, quality, flexibility, and 10.Lean Operations – A systematic
innovation. approach to minimizing waste
without sacrificing productivity.
2. Strategy – A long-term plan
outlining how a business will
achieve its objectives and
compete in the market.
3. Operations Management – Competitiveness
The administration of business Competitiveness determines an
practices to ensure efficiency organization's ability to attract and
and effectiveness in converting retain customers. Businesses compete
resources into goods and based on:
services.
Cost: Producing goods or
4. Competitive Advantage – The services at a lower cost than
attributes that allow an competitors (e.g., Walmart).
organization to outperform its
competitors, such as cost Quality: Offering superior or
leadership, product consistent quality products
differentiation, or customer (e.g., Toyota’s reliability in
service. vehicles).
5. Operations Strategy – The Flexibility: Adapting to
approach a business takes to changing customer demands
align its operational processes (e.g., Zara’s fast fashion model).
with its overall strategy to gain Innovation: Continuous
a competitive advantage. improvement and new product
6. Supply Chain Management – development (e.g., Apple’s
Coordination of production, technological advancements).
inventory, location, and Mission and Strategies
transportation to achieve
efficiency. A company's mission statement
defines its purpose, while strategies
7. Capacity Planning – Determining help achieve that mission.
the production capacity needed
to meet demand. Levels of Strategy:
1. Corporate Strategy – Overall Speed: Responding quickly to
organizational direction (e.g., customer demands.
market expansion,
Flexibility: Adapting operations
diversification).
to market changes.
2. Business Strategy – How the
Examples:
company competes in a specific
market (e.g., cost leadership, McDonald's focuses on
differentiation). efficiency through standardized
processes.
3. Functional Strategy – How
specific departments, like Amazon emphasizes speed in
operations, support business order fulfillment and customer
strategy. service.
Porter’s Competitive Strategies: Implications for Operations
Management
Cost Leadership – Providing
goods/services at the lowest Operations strategy affects:
cost (e.g., Walmart).
Product design
Differentiation – Offering
unique products (e.g., Apple, Supply chain decisions
Tesla). Workforce management
Focus Strategy – Targeting a Challenges:
specific niche (e.g., Rolex in
luxury watches). Managing resources efficiently
Discussion: What Responding to changing market
makes a company conditions
competitive today?
Balancing cost, quality, and
Think about
speed
technology,
customer service, Discussion: What
and sustainability. happens if
operations strategy
Operations Strategy
does not align with
Operations strategy ensures that business strategy?
processes align with business goals. Consider
Key performance objectives include: companies that
struggled due to
Cost efficiency: Reducing poor alignment.
waste and improving resource
utilization. The Balanced Scorecard
Quality management: A framework that ensures strategies
Maintaining consistency and translate into action through four
customer satisfaction. perspectives:
Financial: Profitability, revenue Employee training (Investing
growth in workforce skills)
Customer: Customer Discussion: Why do some companies
satisfaction, retention struggle with productivity despite
using advanced technology?
Internal Process: Efficiency in
production and operations
Learning & Growth: Employee
training, innovation
Example:
A retail chain might set targets
like increasing revenue
(financial), improving service Chapter 3: Forecasting
quality (customer), reducing Definition of Terms
delivery times (internal
process), and upskilling 1. Forecasting – The process of
employees (learning & growth). making predictions about future
trends based on historical data
Productivity and analysis.
Productivity is crucial for profitability 2. Demand Forecasting –
and competitiveness. Estimating future customer
Types of Productivity Measures: demand for a product or
service.
1. Partial Productivity – Output
per single input (e.g., labor 3. Quantitative Forecasting –
productivity = output per Forecasting based on
worker). mathematical models and
historical data.
2. Multifactor Productivity –
Output per multiple inputs (e.g., 4. Qualitative Forecasting –
labor + capital + materials). Forecasting based on expert
opinions and market research.
3. Total Productivity – Output
per total inputs used. 5. Supply Chain Management
(SCM) – The coordination of
Ways to Improve Productivity: production, inventory, location,
and transportation to optimize
Lean operations (Toyota
efficiency.
Production System)
6. Lead Time – The time between
o Is a business strategy
placing an order and receiving
that aims to eliminate
the goods.
waste and improve
efficiency 7. Forecast Horizon – The period
covered by a forecast (short-
Technology and automation
term, medium-term, long-term).
(Robotics in manufacturing)
8. Forecast Error – The difference Discussion: Why do companies rely
between actual and predicted on forecasts despite their inherent
values. uncertainty?
9. Mean Absolute Deviation Elements of a Good Forecast
(MAD) – A measure of forecast
A high-quality forecast should be:
accuracy that calculates the
average error. Timely: Useful for decision-
making before critical deadlines.
10.Time-Series Data – Historical
data collected over regular time Accurate: Minimized error rates
intervals. improve reliability.
11. Reliable: Consistently correct
over multiple forecasting
Introduction to Forecasting
periods.
Forecasting is essential in various
Cost-Effective: The benefits
business functions, including:
should outweigh the costs of
Operations and production creating forecasts.
planning
Easy to Understand: Clear
Inventory management and interpretable for decision-
makers.
Financial budgeting
Supply chain coordination
Forecasting and the Supply Chain
It helps businesses make proactive
decisions instead of reacting to market Accurate forecasting is crucial for
changes. supply chain efficiency. It helps:
Features Common to All Forecasts Reduce excess inventory and
stockouts
1. Assumption of Past Trends –
Most forecasts rely on historical Improve supplier coordination
data to predict future events.
Optimize transportation and
2. Inherent Uncertainty – No logistics
forecast is 100% accurate; there
Balance demand and supply
is always a degree of error.
Case Study: How does Amazon use
3. Aggregation of Data –
forecasting to optimize its supply
Forecasts can be made for
chain?
individual products, entire
industries, or economies. Steps in the Forecasting Process
4. Accuracy Improves with 1. Determine the Purpose of
Shorter Time Horizons – the Forecast – Identify why the
Forecasts for short-term periods forecast is needed.
tend to be more reliable than
long-term ones.
2. Establish a Forecasting
Horizon – Choose between
1. Mean Absolute Deviation (MAD)
short-term (weeks/months) and
long-term (years).
3. Gather and Analyze Data –
Use historical sales, market
trends, and other relevant
information.
4. Select a Forecasting Interpretation: On average,
Technique – Choose qualitative the forecast is off by 7 units
or quantitative approaches. per month.
5. Prepare the Forecast –
Develop the forecast using the 2. Mean Squared Error (MSE)
selected method.
6. Monitor and Update the
Forecast – Regularly compare
actual results with forecasts to
improve accuracy.
Forecast Accuracy Interpretation: The squared
errors average 55, emphasizing
Measuring accuracy is crucial to larger errors more than MAD.
refining forecasting methods. Common
accuracy measures include: 3. Mean Absolute Percentage
Error (MAPE)
Mean Absolute Deviation
(MAD) – Measures the average
absolute errors.
Mean Squared Error (MSE) –
Squares each error before
averaging to emphasize larger
errors.
Mean Absolute Percentage
Error (MAPE) – Expresses error
as a percentage of actual Interpretation: The forecast
values. error is 4.91% of actual sales
on average.
Example:
Here are the meanings of the symbols 2. Exponential Smoothing –
used in the calculations for MAD, Gives more weight to recent
observations.
3. Trend Projection – Identifies
patterns in long-term data.
4. Seasonal Adjustments –
Adjusts forecasts based on
recurring seasonal trends.
Example: Predicting retail sales
during holiday seasons using time-
series models.
MSE, and MAPE:
Discussion: Why are time-series
forecasts more effective in stable
Approaches to Forecasting industries compared to rapidly
changing industries?
Forecasting methods fall into two
categories:
Qualitative Methods (based
on judgment and intuition)
o Delphi Method (expert
consensus)
o Market Research
o Executive Opinions
Quantitative Methods (based
on numerical data and
statistical models)
o Time-Series Models
o Causal Models
Forecasts Based on Time-Series
Data
Time-series forecasting uses historical
data to predict future trends. Common
methods include:
1. Moving Averages – Averages
past data points to smooth
fluctuations.
