chapter twelve operations and materials management © 2007 the mcgraw-hill companies, inc., all...

Chapter Twelve

Operations and Materials Management

© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/IrwinIntroduction to Business

12 - 3

Learning Objectives

1. Describe the nature of the operations and materials management process and explain how it can create a competitive advantage for a company.

2. Identify the five main components of operations and materials management costs and the methods companies use to reduce them.

3. Differentiate between the three major kinds of operating systems companies use to produce goods and services.

12 - 4

Learning Objectives

4. Understand the way total quality management can significantly improve both quality and productivity.

5. Describe three materials management methods companies use to improve the flow of resources into and out of production and increase operations efficiency.

12 - 5

The Nature of Operations and Materials Management

• Operations - a company’s system of value-creation

activities used to transform inputs into finished goods and services

• Materials management - the set of activities that control the flow of

resources into and out of a firm’s operating system

12 - 6

The Operations and Materials Management Process

• Input •Operations•Output

12 - 7

The Operations and Materials Management Process

Figure 12.1

12 - 8

Operations, Materials Management, and Competitive Advantage

Figure 12.2

12 - 9

Productivity

• Quality• Innovation• Responsiveness to customers• Balancing costs versus revenues

12 - 10

Five Major Components of OMM Costs

Figure 12.3

12 - 11

Operations and Materials Management Costs

• Raw Materials and Component Costs• Plant Costs• Labor Costs• Inventory Costs• Distribution Costs

12 - 12

Question?

Which cost is the cost of getting products to customers?

A. Plant costB. Distribution costC. Inventory costD. Labor cost

12 - 13

Operations and Materials Management Costs

• Raw Materials and Component Costs - comprise a significant percentage of

companies’ total operating costs, particularly companies that make physical products

12 - 14

Operations and Materials Management Costs

• Plant Costs - cost of the machinery, computers, tools,

buildings, and equipment needed to transform inputs into finished products

12 - 15

Operations and Materials Management Costs

• Labor Costs - number of employees needed to produce a

given quantity of outputs- amount each employee must be paid- health and social insurance benefits each

employee is given

12 - 16

Labor Costs

• Maquiladoras - U.S. companies’ manufacturing plants in

cities along the Mexican border

12 - 17

Operations and Materials Management Costs

• Inventory - the resources – materials, supplies, and

goods – a company holds in stock

• Work-in-process goods - the semifinished goods that move through

a company’s production process

12 - 18

Three Types of Inventory

Figure 12.4

12 - 19

Operations and Materials Management Costs

• Distribution Costs - the cost of getting products to customers

Find some small business distribution solutions at ups.com

12 - 20

Types of Operating Systems

• Small-Batch Production• Mass Production• Flexible Production• Total Quality Management

12 - 21

Three Types of Operating Systems

Figure 12.5

12 - 22

Question?

What is an operating system based on the use of automated machines and standard operating procedures?

A. Flexible productionB. Mass productionC. Small-batch productionD. Elastic production

12 - 23

Types of Operating Systems

• Small-batch production - an operating system designed to make

one-of-a-kind or small quantities of customized products

• Customized products - products designed to match the need of

individual customers

12 - 24

Types of Operating Systems

• Mass production - an operating system based on the use of

automated machines and standard operating procedures to make work routine and create a large number of standardized products

• Standardized products - products that are identical

12 - 25

Types of Operating Systems

• Flexible production - an advanced operating system that

combines the benefits of mass production with the benefits of small-batch production

12 - 26

Flexible Production

• Computer-integrated manufacturing - a manufacturing technique that controls the

changeover of machines from one operation to another via computer software

12 - 27

Flexible Employees and Work Groups

• Flexible work team - a team of self-managed employees who

assume responsibility for performing the operating tasks necessary to make a part, or all, of a product

12 - 28

The Use of Flexible Work Teams to Assemble Cars

Figure 12.6

12 - 29

Flexible Employees and Work Groups

• Production layout - the way teams of employees are physically

grouped into work cells or pods to assemble a product

12 - 30

Improving Operations Quality

• Total quality management - an operations technique to continuously

improve the production process, increase the quality of products, and help companies lower their operating costs

12 - 31

Improving Operations Quality

• Quality control circles - team meetings in which production

employees discuss ways to improve operating quality and productivity

12 - 32

Advanced MaterialsManagement Methods

• Computer-Aided Materials Management• Computer-Based Global Supply Chain Management

• Just-in-Time Inventory System

12 - 33

Advanced Materials and Management Methods

• Computer-aided materials management - a technique that relies on computers to

manage the flow of raw materials and component parts into and out of a company’s operating system

12 - 34

Advanced MaterialsManagement Methods

• Global supply chain management - the coordination of the flow of raw

materials, semifinished goods, and finished products around the world

12 - 35

Advanced MaterialsManagement Methods

• Just-in-Time Inventory System - an inventory management system whereby

inputs are delivered to the firm just when they are needed rather than being purchased and warehoused prior to their use

12 - 36

Just-in-Time Inventory Systems

Figure 12.7

12 - 37

Video: Jet Blue

• Jet Blue defines itself as a “customer service company.” From its innovative mission statement to the teamwork displayed by its employees, Jet Blue is focused on its customers.

• How does Jet Blue differentiate its service from that of its competitors?