Strategy, Cost and Industrial Engineering - Presentation - Transcipt

Strategy, Cost and Industrial Engineering

Books referred

Strategic Management and Competitive Advantage

J.B. Barney and W.S. Hesterly

Strategy

Decisions that assure that a firm has products or services that have a profitable demand for a long period of time

Competitive Advantage

A firm has competitive advantage when it is able to create more economic value than rival firm or firms.

Economic value is the difference between the perceived benefits gained by a customer and the full economic cost the product or service.

Gaining or Increasing Competitive Advantage

Increasing the perceived benefits gained by a customer (Differentiating the product or service by providing more benefit – Product/service improvement based strategy).

Decreasing  the full economic cost the product or service (Cost based strategy).

Business Level Strategies

Two Generic Business Level Strategies

Cost Leadership: generate economic value by having lower costs  than competitors

Example:  Wal-Mart

Product Differentiation: generate economic value by offering a product  that customers prefer over competitors’ product

Example:  Harley-Davidson

Industrial Engineering and Cost of Products

Industrial engineering optimizes (minimizes) cost of resources to produce the products and services at the designed level of quality.

Industrial engineering uses rationalization  to identify wastes and eliminates them from products and processes.

IE and Continuous Improvement

IE encourages all the employees to contribute ideas to reduces costs in various microlevel elements and tasks that help in continuous reduction of cost elements.

IE and Cost Reduction/Process Improvement Projects

IE department periodically undertakes process improvement projects to incorporate the latest efficiency improving technologies into the processes and contributes to cost reduction.

Industrial engineering identifies engineering changes in products and processes in the system that give productivity improvement and cost reduction.

Periodic Mathematical Optimization of Costs

Thus there are opportunities to do mathematical, statistical and OR based optimization periodically.

Cost Leadership Business Strategy

A firm that chooses a cost leadership business strategy focuses on gaining advantages by reducing its cost to below those of all its competitors

Popular companies following cost leadership strategies

Ryanair – Air travel

Timex and Casio – watches

BIC – disposable pen and razors

Walmart - Retail

What factors or actions create cost advantage?

Economies of scale

Diseconomies of scale create cost advantage sometimes – Mass versus Lean production

Experience difference – Learning curve economies

Acquisition of low cost productive inputs

Technology advantages independent of scale

Management policies

Economies of Scale

average cost per unit falls as quantity increases until the minimum efficient scale is reached

are a cost advantage because competitors may  not be able to match the scale because of capital

requirements (barrier to entry).

international expansion may allow a firm to have  enough sales to justify investing in additional

capacity to capture economies of scale.

Diseconomies of Scale

are an advantage for those who do not have  diseconomies of scale

occur when firms become too large and bureaucratic

are a risk of international expansion

Learning Curve Economies

a firm gets more efficient at a process with experience

the more complicated/technical the process,  the greater the experience advantage

international expansion may propel a firm down the  experience curve because of higher volumes

Differential Low-Cost Access to Productive Inputs

may result from:

history—being in the right place at the right time

being first into a market—esp. foreign markets

locking up a source—buying all of its output

Technology Independent of Scale

may allow small firms to become cost competitive

advantage typically accrues to the ‘owner’ of the  technology—may or may not be the ones who actually  use the technology

size of the advantage depends both on how valuable  and protectable the technology is

Industrial engineering department plays a key role in this.

Policy Choices

firms get to choose how they will serve the market

we’ll offer level of quality that is inexpensive to  produce

firms can make policy choices that give people  incentives to reduce cost at every opportunity 

Organization: Having staff consultants who decrease costs on a continuous basis using IE methods.

Cost Leadership & Competitive Advantage

A source of cost advantage will lead to competitive advantage  if that source is:

Valuable

Rare

Costly to Imitate

Organized (Implemented Appropriately)

Updated 2018 - May 2018

First published 22 September 2013