2. Operations and Materials Management
Chapter Twelve
Operations and Materials Management
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McGraw-Hill/Irwin
Introduction to Business

3. 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.

4. 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.

5. 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

6. The Operations and Materials Management Process
Input
Operations
Output

7. The Operations and Materials Management Process
Figure 12.1

8. Operations, Materials Management, and Competitive Advantage
Figure 12.2

9. Productivity Quality Innovation Responsiveness to customers
Balancing costs versus revenues

10. Five Major Components of OMM Costs
Figure 12.3

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

12. 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.

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

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

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

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

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

18. Three Types of Inventory
Figure 12.4

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

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

21. Three Types of Operating Systems
Figure 12.5

22. 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

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

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

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

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

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

28. The Use of Flexible Work Teams to Assemble Cars
Figure 12.6

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

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

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

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

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

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

35. 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

36. Just-in-Time Inventory Systems
Figure 12.7

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?
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.