Effectiveness, Efficiency, and Productivity

To be effective means you are making progress to your goal.  To be efficient is usually used in measuring how much of your resources are being used (like measuring fuel efficiency in your car... how kilometers can you travel on one liter of petrol?) or measuring a rate or speed.

For many people the words "efficiency" and "productivity" have the same meaning.  To me there is a bit of a difference:  Imagine a guy is great at cutting down trees and making wood for fires.  He may be the most efficient person to ever hold an ax.

He is very efficient.

However, this woman using a chainsaw will be much more productive than him.

Productivity:  Output per unit of input.  It is one of the most important concepts in business/economics.  Why?  In the long run companies and countries that are able to create more productive workers will see their companies and countries grow faster.

Increasing productivity is one of the most important factors in the long-term growth of an economy.

Why delivery matters and other Week 1 topics

Week 1 of SCML200

Sourcing:  Deciding where to buy from.
Delivery:  How a customer receives a product or service.  How important is delivery?  Netflix allowed people to order DVD's over the internet and have them delivered directly to the customer's home in the US.

Ten years Blockbuster was a hugely successful company renting DVD's.  Netflix's superior delivery model put Blockbuster into bankruptcy.

Netflix didn't stop with offering movies by mail.  They now offer a streaming service that costs users $8 (Dh 30) per month.  One-third of all internet traffic in the US is now Netflix streaming videos.  ONE-THIRD!

Delivery is also how Amazon wants to take over the world.  Imagine a future where you order something online and this delivers it in less than an hour:

Other concepts we discussed in class:
Returns:  How easy/hard is it to return a product if the customer is not satisfied?
Make or buy:  Companies must decide whether to produce (make) something inside the company or to buy it from someone else (outsourcing).
A good example of outsourcing for UAEU is Khadamat.  UAEU used to handle scheduling, IT services, and building maintenance using employees of the university.  Now those functions have been outsourced to Khadamat.
This brings up two more terms:  Anything going inside a company is referred to as "internal" while anything going outside a company is called "external."

Companies will often offer a package of services or goods.  This is called bundling and it helps sales and it helps companies sell stuff they might have trouble selling.

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In class we spent time discussing the difference between a good and a service.  My teaching this class is a pure service.  The textbook for this class is a pure product.  Most of the things you buy is a mixture of products and services:  Like going to a restaurant.  The food is a product.  The waiter/waitress is a service.  Both need to be good for you to want to return to that restaurant.

What's App? $19 billion for a company that has never made a profit!

One of my goals in this class is for students to look at decisions companies make and ask, "Is that a good decision?"

On Wednesday, 19 February, Facebook shocked the world by buying What's App for $19 billion (70 billion dirhams).  That's enough money to build 12 Burj Khalifas!

The next day the stock of Blackberry went up 8%.  Why?  Let's look at Blackberry's business model:  Blackberry currently generates revenue by:
1. Selling to retail customers (like people in the Emirates that love their Blackberries)
2. Selling to corporate customers (which in the business world this is called "Enterprise" sales or B2B - Business to Business sales)

BlackBerry also gets a tiny amount of revenue from BBM ads... but it is not much.  However, after What's App sold for $19 billion some investors wondered if maybe BBM might be worth much more than they previous thought.

What's App has 450 million users.  With a sales price of $19 billion that means Facebook purchased What's App for $42 per current user.  Think about that.  If you have a What's App? account like I do it means FB just paid $42 for your account and all of your friends.  How will they ever get $42 worth of revenue from me, you and everyone you know?  Advertisements?  If they start giving me lots of ads people will switch.  Some people have suggested Facebook did it to gather more information about users.  I doubt it.  While What's App knows who I talk to and what I like to talk about, Facebook knows EVERYTHING about me already.

Anyhow, it seems to me that Facebook paid way, way, WAY too much money.  What What's App offers is great but it is very easy to duplicate.  If they try to make money (by showing a bunch of ads or charging for the App) we can all just switch to one of the other apps out there.

Related vocabulary:
Business model:  How a company gets money coming in.  Many companies have a business model of selling stuff.  Some companies sell to other companies.  Some companies- like Google - make money without much retail sales.  Google makes money from you every time you do a search and they can show you an advertisement.

Revenue - Money coming into a company
Expenses - Money going out of a company

Revenue - expenses = operating profit (or loss)

Profit is also called income.

In your accounting classes you will learn about how paying interest on debt and paying taxes affects income.  For supply chain we will keep it simple.

Why did Coke start selling tall thin cans?

In January 2013 Coke began selling taller, thinner cans.  Why?  Almost certainly it is a marketing idea.  Coke hopes it is something that will make all of you want to buy more Coke.  It is almost certainly NOT something that made their Supply Chain people happy.  Why?

• The taller cans don't fit the same way as the smaller cans.  Coke's trucks are designed to carry traditional sized cans and it is likely that they can't fit quite as many of these cans on a truck.  Also, I have noticed that Carrefoure and Lulu have trouble with cans because they spaced their shelves apart for the size of the old cans.  It means these stores can't keep as much inventory out there as they used to and that means they have restock more often.
• As you learned in geometry, a tall thin can will require more aluminum than a shorter, bigger can.  This increases the cost of inputs
• The new can contains 355ml instead of the traditional 330ml.  This also means the costs of inputs (aluminum and the flavored water will be higher).  As an American this makes me happy.  355ml is the same as 12 ounces - which is what every soda can in the US has.  In the UAE I feel like they are ripping me off when I get only 330ml.

So is it a good idea?  I don't know.  I doubt Coke will increase its sales enough to justify the problems.  I love my Coke (notice the Coke placemat, Coke napkins and even Coke salt & pepper shakers in the picture above), but this seems like a dumb idea.

Related vocabulary:

Stock - the product... to have something "in stock" means it is available for the customer to buy right now.  

Inventory - The product is available for the customer to buy right now.  It is another way of saying it is "in stock".

Stockout - the product is not available.

Economies of scale - As production increases the cost per unit decreases.