Chapter Twelve

Operations and Materials Management: Managing the Production and Flow of Goods and Services
McGraw-Hill/Irwin Introduction to Business 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
1. Describe the nature of the operations and materials management process and explain how it builds competitive advantage and profitability. 2. Identify the five main components of operations and materials management costs and the methods companies use to reduce them. 3. Differentiate three major kinds of operating systems companies use to produce goods and services. 4. Understand total quality management (TQM) 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 the production system and increase operations efficiency.

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations
Value-creation activities that convert and change inputs into finished goods and services Evaluate the role of operations management from an online company tour of your choice and relate to the flow of goods and services

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Technology
The combination of skills, knowledge, abilities, techniques, methods, tools, machines, computers, and other equipment Used to bring about change to some resource And add value to it

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services

Materials Management Set of activities involved in controlling the flow of resources into and out of the operating system Includes the activities necessary to find and purchase highquality raw materials or low-cost components and deliver them to operations as efficiently as possible

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations and Materials Management Process
Input Stage

Operations Stage
Output Stage

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations and Materials Management Process

Input Stage

Raw materials
Components Labor Customers

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations and Materials Management Process

Operations Stage

Skills
Knowledge Machines Experts

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations and Materials Management Process

Output Stage

Goods
Services Evaluate Jet Blues in the Operations Management process

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services

Controlling OMM activities

Determines competitive advantage and Profitability of the business model

Enhancing OMM leads to:

Superior productivity Higher quality Innovation Responsiveness to customers

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations and Materials Management Methods

Increase Productivity

Better ways to use resources

Lower inventory holding costs Reduce time to process customer orders

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations and Materials Management Methods

Increase Innovation

Find ways to improve product quality

Find ways to reduce production costs Find ways to sell product at a lower cost

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operations and Materials Management Methods

Increase responsiveness to customers

High-quality customer service

Satisfying shopping experience Good after-sales service

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Materials Management Methods

Increase Quality

Number of orders correctly processed

Consistent reliable products Ensure supply of high quality inputs
Evaluate role of quality control from online tour of Winslow Life Rafts and relate to production management

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services

Operations and Materials Management Costs

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Raw Material and Component Costs

Materials management find high quality raw materials and components at low costs. Locating low cost suppliers (e.g., outsourcing) is important way to reduce OMM costs.

Purchasing suppliers can assure control over costs and quality of needed flow of inputs.

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Plant Costs
The cost of machinery, computers, tools, buildings, equipment needed to convert inputs into finished products. Efficient design of operating systems can reduce the cost of production. Companies may outsource parts or all of their production processes to reduce costs. Leasing facilities instead of owning them avoids the need to invest scarce capital in buildings and equipment. Franchising reduces operating costs of the parent company by having franchisees invest the capital needed for a retail outlet.

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Labor Costs Costs of direct wages combined with training and benefits (medical, sick leave, vacation) Depends on skill level, knowledge, experience, etc. Highly complex or technical operating system requires higher cost labor Reduce costs by
Going offshore (e.g., maquiladoras) Investing in technology Redesigning systems Involving customers in processes

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Distribution Costs
Include the costs of disposing, delivering, and shipping products to customers. Reduced costs by
changes to packaging, for example using pallets or plastic materials instead of glass to ship products such as mayonnaise, ketchup, and mustard. manufacturing products in the countries where they are sold. licensing producers to manufacture products in other countries shifts distribution costs. use of the Internet to eliminate bricks-and-mortar facilities.

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Inventory Costs: Three Types of Inventory

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Three Types of Operating Systems
Small Batch Production

Production
Flexible production Evaluate the role of small batch production at Cameron Hot Air Balloons and relate to production management Evaluate the role of Production at New Balance Shoes and relate to production management

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operating Systems

Small batch production is designed to provide one of a kind or small quantities of customized products Customized product are designed and made to more closely match and satisfy the needs of particular users

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operating Systems

Mass production is based on the use of automated machines and SOPs to control the work process Used to manufacture large quantities of standardized products to reduce operating costs

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Operating Systems

Flexible production
an advanced, computer-based operating system

allowing mass production to achieve the benefits of small- batch production but at a much lower cost
Costs are reduced by the use of computer integrated manufacturing flexible employees and work teams

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Total Quality Management An operations technique for continuous improvement to increase quality and reduce costs TQM can be used to improve the efficiency and effectiveness of any operating system

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Materials Management Methods

To build competitive advantage Computer aided materials management Global supply chain management Just-in-time inventory systems

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Just-in-Time (JIT) Inventory Systems

Crucial for efficient flexible production operations. Ability to order components as needed Allows company to rapidly change design of products for changing customer needs It is not forced to carry on making the same unpopular product because of large inventories of component parts

Evaluate the role of an entrepreneurs in the Material Management process

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Chapter 12 Operations and Materials Management: Managing the Production and Flow of Goods and Services
Just-in-Time (JIT) Inventory Systems
Customer buys product Store orders more product from manufacturer

Manufacture signals suppliers and makes product to meet stores order

Suppliers signal their suppliers and produce to meet manufacturers order

Other Suppliers and so on