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The wealth of a country is measured by its gross national product—the output of goods and services produced by the nation in a given time. Goods are physical objects, something we can touch, feel, or see. Services are the performance of some useful function such as banking, medical care, restaurants, clothing stores, or social services. But what is the source of wealth? It is measured by the amount of goods and services produced, but where does it come from? Lecture 2 - Introduction to Materials Management.
Lecture 2 Introduction to Materials Management Books • Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. Clive, P.E., CFPIM, Fleming College • Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, N.Y.: McGrawHill/Irwin Operating Environment • • • • Government Economy Competition Quality – Order qualifiers – Order winners Delivery Lead Time • • • • Engineer to order Make to order Assemble to order Make to stock Supply Chain Concepts • • • 1970’s JIT (Toyota) 198090’s Enterprise Resource Planning (ERP) Currently Supply Chain Management (SCM) – Flow of Materials, information, and $$$$$$ Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Conflicts in Traditional Systems • Four Main Objectives to get most Profit: – Provide best customer service – Provide lowest production costs – Provide lowest inventory investment – Provide lowest distribution costs Conflicts in Traditional Systems • • Is there any conflict in the objectives of best customer service, lowest production costs, and lowest inventory investment? Why? How can the conflicts be managed? Conflicts in Traditional Systems Marketing w w w Maintain high inventories Finance w w Interrupt production runs Create extensive and costly distribution system w w Reduce inventory Decrease plants and warehouses Use long production runs Manufacture to customer order Production w w Make long production runs Maintain high inventories of raw materials and WIP What is Materials Management? The grouping of management functions supporting the complete cycle of material flow, from the purchase and internal control of production materials to the planning and control of work in process to the warehousing, shipping, and distribution of the finished product APICS Dictionary, 8th Edition Management Make/Buy Considerations Reasons for Making • • • • • • • Reasons for Buying lower production cost unsuitable suppliers assure adequate supply utilize surplus labor and make a marginal contribution obtain desired quantity remove supplier collusion obtain a unique item that would entail a prohibitive commitment from the supplier • • • • • • lower acquisition cost preserve supplier commitment inadequate capacity reduce inventory costs ensure flexibility and alternate source of supply product improvements may be difficulty because it is a sideline Objectives of Materials Management • • Maximize the use of the firm’s resources • Manufacturing Planning and Control Provide the required level of customer service • Customer service means being able to provide the customer the right quality, quantity, time, place, price Competitive Dimensions All of the competitive dimensions are important… why not try to excel along every one? Competitive Dimensions and Tradeoffs Tradeoffs Tradeoffs: Decisions that arise because of the inability of processes to excel simultaneously across all competitive dimensions Which Dimensions Should Be the Focus? Order winners: Criterion that differentiates one firm from another Examples: Cost (Southwest Airlines), service quality (RitzCarlton Hotels), Flexibility (Dell) Order qualifier: Criterion that permits the firm’s products to even be considered for purchase Example: basic quality necessary to be considered a good car (consumer reports) Example Southwest Airlines overall corporate strategy is to “serve price and conveniencesensitive customers.” Corporate Strategy Finance Strategy Marketing Strategy Operations Strategy Developing an Operations Strategy Segment the market according to the product group. Example: Highend vs. lowend consumers Identify (a) product requirements, (b) demand patterns, (c) profit margins. Example: many components, seasonal, low demand, high profit margin Determine the order winners and order qualifiers. Example: delivery speed (winner), cost (qualifier) Convert order winners into specific performance requirements. Example: Must sell at or below $600 Developing an Operations Strategy The next step is to analyze the process level… Define the complexity and volume of your product/service Define whether you offer few specific products/services or highly customized products/services Determine product design, process design, supply chain design, supplier relations, capacity management plan & technology choice Examples Examples • Southwest Operations – low cost – Pointtopoint between midsize cities & secondary airports in large cities – 15min gate turnaround – No meals – No assigned seats – No interline baggage checking – No premium classes of service – Automated gate ticketing – Standardized fleet of aircraft Measuring whether the strategy is working Productivity is a common measure for how well a company is utilizing its resources Outputs Productivi ty Inputs • • Productivity measurement shows how well the company performs for a given level of inputs Partial measures may give more specific details about performance Output Output Output or or Labor Captial Material Productivity Measurement Example: Consider the following case. A bank has net output (income) of $500,000. The bank employs 40,000 people The partial labor productivity is 500,000 / 40,000 = 12.5 What does this tell you? Productivity Measurement The productivity index is a relative measure. It has to be compared with something else: Benchmarking Changes over time The important thing is to be consistent in measurement! Examples Examples • Walmart – low cost – High investment into IT to manage inventory, analyze point of sales data, track shipments, etc – Management by data – Scale – Negotiation power with suppliers Summary and Conclusions Firms must tradeoff competitive dimensions when defining operations strategy This can be done by defining order winners and order qualifiers A Productivity Index can measure the relative performance between firms (or products, SBU’s, etc) End of Lecture 2 ... inventories of raw materials and WIP What is Materials? ?Management? The grouping? ?of? ?management? ?functions supporting the complete cycle? ?of? ?material? ? flow, from the purchase? ?and? ?internal control? ?of? ?production materials to the ... reduce? ?inventory? ?costs ensure flexibility? ?and? ?alternate source? ?of? ?supply product improvements may be difficulty because it is a sideline Objectives? ?of? ?Materials? ?Management • • Maximize the use? ?of? ?the firm’s resources... control? ?of? ?production materials to the planning? ?and? ?control? ?of? ?work in process to the warehousing, shipping,? ?and? ?distribution of? ?the finished product APICS Dictionary, 8th Edition Management? ?Make/Buy Considerations