Operations and Materials Management Chapter Twelve Operations and Materials Management © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Introduction to Business

Learning Objectives Describe the nature of the operations and materials management process and explain how it can create a competitive advantage for a company. Identify the five main components of operations and materials management costs and the methods companies use to reduce them. Differentiate between the three major kinds of operating systems companies use to produce goods and services.

Learning Objectives Understand the way total quality management can significantly improve both quality and productivity. Describe three materials management methods companies use to improve the flow of resources into and out of production and increase operations efficiency.

The Nature of Operations and Materials Management 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

The Operations and Materials Management Process Input Operations Output

The Operations and Materials Management Process Figure 12.1

Operations, Materials Management, and Competitive Advantage Figure 12.2

Productivity Quality Innovation Responsiveness to customers Balancing costs versus revenues

Five Major Components of OMM Costs Figure 12.3

Operations and Materials Management Costs Raw Materials and Component Costs Plant Costs Labor Costs Inventory Costs Distribution Costs

Question? Which cost is the cost of getting products to customers? Plant cost Distribution cost Inventory cost Labor cost The correct answer is “B” – distribution cost. See slide 3-19.

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

Operations and Materials Management Costs Plant Costs cost of the machinery, computers, tools, buildings, and equipment needed to transform inputs into finished products

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

Labor Costs Maquiladoras U.S. companies’ manufacturing plants in cities along the Mexican border

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

Three Types of Inventory Figure 12.4

Operations and Materials Management Costs Distribution Costs the cost of getting products to customers Find some small business distribution solutions at ups.com

Types of Operating Systems Small-Batch Production Mass Production Flexible Production Total Quality Management

Three Types of Operating Systems Figure 12.5

Question? What is an operating system based on the use of automated machines and standard operating procedures? Flexible production Mass production Small-batch production Elastic production The correct answer is “B” – mass production. See slide 12-24.

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

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

Types of Operating Systems Flexible production an advanced operating system that combines the benefits of mass production with the benefits of small-batch production

Flexible Production Computer-integrated manufacturing a manufacturing technique that controls the changeover of machines from one operation to another via computer software

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

The Use of Flexible Work Teams to Assemble Cars Figure 12.6

Flexible Employees and Work Groups Production layout the way teams of employees are physically grouped into work cells or pods to assemble a product

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

Improving Operations Quality Quality control circles team meetings in which production employees discuss ways to improve operating quality and productivity

Advanced Materials Management Methods Computer-Aided Materials Management Computer-Based Global Supply Chain Management Just-in-Time Inventory System

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

Advanced Materials Management Methods Global supply chain management the coordination of the flow of raw materials, semifinished goods, and finished products around the world

Advanced Materials Management 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

Just-in-Time Inventory Systems Figure 12.7

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? Discussion Questions: How does Jet Blue differentiate its service from that of its competitors? Answer: They are a low-cost airline and define themselves as a service company. They differentiate themselves in several ways including more leg room, lower fares, leather seats, direct satellite television, and point-to-point service. These are examples of the product qualities and features, the price, promotion and people. What is the “marketing message” of Jet Blue? Answer: Product differentiation is a key factor in the company’s business model and its vision. It tries to convince its potential customers that its product (“service”) is different and superior to competitors. The marketing message is designed to be persuasive communication that is used to attract and inform customers. Would you consider Jet Blue to be a product “brand”? Answer: The Jet Blue Experience captures the essence of a “brand.” This gives the company a distinctive image and a competitive advantage over its competitors. The name, the use of key differentiators such as seating, cost, leg room, and in seat satellite television are examples of the elements of the brand or identity of Jet Blue.