INTRODUCTION
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? Wealth is measured by the amount of goods and ser-
vices produced, but where does it come from? Although we may have rich natural
resources in our economy such as mineral deposits, farmland, and forests, these are only
potential sources of wealth. A production function is needed to transform these resources
into useful goods. Production takes place in all forms of transformation-extracting min-
erals from the earth, farming, lumbering, and fishing and using these resources to manu-
facture useful products.
There are many stages between the extraction of resource material and the final con-
sumer product. At each stage in the development of the final prodact, value is added, thus
creating more wealth. If ore is extracted from the earth and sold, wealth is gained from our
efforts, but those who continue to transform the raw material will gain more and usually
far greater wealth. Japan is a prime example of this. It has very few natural resources and
buys most of the raw materials it needs. However, the Japanese have developed one of the
wealthiest economies in the world by transforming the raw materials they purchase and
adding value to them through manufacturing.
Manufacturing companies are in the business of converting raw materials to a form
that is of far more value and use to the consumer than the original raw materials. Logs are
converted into tables and chairs, iron ore into steel, and steel into cars and refrigerators.
This conversion process, called manufacturing or production, makes a society wealthier and
creates a better standard of living.
To get the most value out of our resources, we must design production processes that
make products most efficiently. Once the processes exist, we need to manage their opera-
tion so they produce goods most economically. Managing the operation means planning
for and controlling the resources used in the process: labor, capital, and material. All are
The flow of materidamportant, but the maior way in which management plans and contols through the fow of materials. The flow of materials controls the performance of the process. If the right
materials in the right quantities are not available at the right time, the process cannot pro-
duce what it should. Labor and machinery will be poorly utilized. The profitability, and
even the existence, of the company will be threatened.
OPERATING ENVIRONMENT
Operations management works in a complex environment affected by many factors.
Among the most important are government regulation, the economy, competition, cus-
2
tomer expectations, and quality.
Government. Regulation of business by the various levels of government is extensive.
Regulation applies to such areas as the environment, safety, product liability, and
taxation. Government, or the lack of it, affects the way business is conducted.
Economy. General economic conditions influence the demand for a company's products or services and the availability of inputs. During economic recession the demand for many products decreases while demand for others may increase. Materials and labor shortages or surpluses influence the decisions management makes. Shifts in the age of the population, needs of ethnic groups,low population growth, freer trade between countries, and increased global competition all contribute to changes in the marketplace.
Competition. Competition is severe today.
. Manufacturing companies face competition from throughout the world. They find foreign competitors selling in their markets even though they themselves
may not be selling in foreign markets. Companies also are resorting more to
worldwide sourcing.
. Transportation and the movement of materials are relatively less costly than
they used to be.
. Worldwide communications are fast, effective, and cheap. Information and data can be moved almost instantly halfway around the globe. The Internet allows
buyers to search out new sources of supply from anywhere in the world as easily as they can from local sources.
Customers. Both consumers and industrial customers have become much more demanding, and suppliers have responded by improving the range of characteris-tics they offer. Some of the characteristics and selection customers expect in the products and services they buy are
. A fair price.
. Higher-(right) quality products and services.
. Delivery lead time.
. Better presale and after-sale service.
. Product and volume flexibility.
Quality. Since competition is international and aggressive, successful companies pro-vide quality that not only meets customers' high expectations but exceeds them.
Chapter 16 discusses quality in detail.
Order Qualifiers and Order Winners
Generally, a supplier must meet set minimum requirements to be considered a viable com-petitor in the marketplace. Customer requirements may be based on price, quality, deliv-ery, and so forth and are called order qualifiers. For example, the price for a certain type of product must fall within a range for the supplier to be considered by potential cus-tomers. But being considered does not mean winning the order. To win orders, a supplier must have characteristics that encourage customers to choose its products and services over competitors. Those competitive characteristics, or combination of characteristics,that persuade a company's customers to choose its products or services are called order winners. They provide a competitive advantage for the firm. Order winners change over time and may well be different for different markets. For example, fast delivery may be vital in one market but not in another. Characteristics that are order winners today proba-bly will not remain so, because competition will try to copy winning characteristics, and the needs of customers will change.
It is very important that a firm understands the order winners and order qualifiers for each of its products and in each of its markets because they should drive the manufactur-ing strategy. Since it is virtually impossible to be the best in every dimension of competi-tion, firms should in general strive to provide at least a minimal level of acceptance for each of the order qualifiers but should try to be the best in the market for the order winner(s).
One also should recognize that the order winners and qualifiers for any product/market combination are not static. Not only will customers change perspectives as competitors jockey for position, but the order winners and qualifiers will often change based on the
concepts of the product life cycle. The product life cycle implies that most products go
through a life cycle, including lintroduction, growth, maturity, and decling For example, in the introduction phase, design and availability are often much more important than price.
Quality and delivery tend to have increased importance during growth, while price and delivery are often the order winners for mature products. This life cycle approach is com-plicated in that the duration of the life cycle will be very different for different products.
Although some products have life cycles many years long, the life cycle of other products (certain toys or electronics, for example) can be measured in months or even weeks.
Manufacturing Strategy → winning stratyy
A highly market-oriented company will focus on meeting or exceeding customer expecta-tions and on order winners. In such a company, all functions must contribute toward a winning strategy. Thus, operations must have a strategy that allows it to supply the needs of the marketplace and provide fast on-time delivery.
观点
Delivery lead time From the supplier's perspective delivery lead time
is the time from
receipt of an order to the delivery of the product. From the customer's perspective, it may also include time for order preparation and transmittal. Customers want delivery lead time to be as short as possible, and manufacturing must design a strategy to achieve this. There are four basic strategies: engineer-to-order, make-to-order, assemble-to-order, and make-to-stock. Customer involvement in the product design, delivery lead time, and inventory state are influenced by each strategy. Figure 1. I shows the effect of each strategy.
CEngineer to-order means that the customer's specifications require unique engineering design or significant customization. Usually the customer is highly involved in the product design. Inventory will not normally be purchased until needed by manufacturing. Delivery lead time is long because it includes not only purchase lead time but also design lead time.
Make-to-order means that the manufacturer does not start to make the product until
a customer's order is received. The final product is usually made from standard items but may include custom-designed components as well. Delivery lead time is reduced because there is little design time required and inventory is held as raw material. √Assemble-to-order means that the product is made from standard components that the manufacturer can inventory and assemble according to a customer order. Delivery lead time is reduced further because there is no design time needed and inventory is held ready for assembly. Customer involvement in the design of the product is limited to selecting the component part options needed.
Make-to-stock means that the supplier manufactures the goods and sells from a fin-ished-goods inventory. Delivery lead time is shortest. The customer has little direct involvement in the product design.
Delivery Lead Time
ENGINEER-TO-
DESIGN
PURCHASE
MANUFACTURE
ASSEMBLE
SHIP
ORDER
-Delivery Lead Time-
MAKE-TO-
SHIP
MANUFACTURE
ASSEMBLE
INVENTORY
ORDER
Delivery Lead Time
ASSEMBLE-
SHIP
ASSEMBLE
INVENTORY
MANUFACTURE
TO-ORDER
Delivery Lead Time
MAKE-TO-
INVENTORY
SHIP
ASSEMBLE
MANUFACTURE
STOCK
FIGURE 1.1 Manufacturing strategy and lead time.
CHAPTER ONE
Postponement is another application of assemble-to-order, described by the Associa-tion for Operations Management (APICS) as "a product design strategy that shifts product differentiation closer to the consumer by postponing identity change to the last possible sup-ply chain location."This strategy reduces the number of different items in the supply chain,lowering the amount of in-process inventory.
Computer printers for a global market use universal power supplies that can be switched to different voltages; on receipt of a customer's order, they are packaged with the appropriate cords, instructions, and labeling. This avoids filling an entire supply chain with expensive printers destined for different countries. Some basic postponement can be done in a distribution center and often by third parties. Foreign suppliers of appliances such as vacuum cleaners destined for multiple customers postpone the packaging of their products, applying customer-specific labels, bar codes, boxes, instructions, and so forth until after receipt of the customer order.
THE SUPPLY CHAIN CONCEPT
There are three phases to the flow of materials. Raw materials flow into a manufacturing company from a physical supply system, they are processed by manufacturing, and finally,finished goods are distributed to end consumers through a physical distribution system.
Figure 1.2 shows this system graphically. Although this figure shows only one supplier and one customer, usually the supply chain consists of several companies linked in a supply/demand relationship. For example, the customer of one supplier buys a product,adds value to it, and supplies yet another customer. Similarly, one customer may have sev-eral suppliers and may in turn supply several customers. As long as there is a chain of sup-plier/customer relationships, they are all members of the same supply chain.
There are a number of important factors in supply chains:
. The supply chain includes all activities and processes to supply a product or service to
a final customer.
. Any number of companies can be linked in the supply chain.
. A customer can be a supplier to another customer so
the total chain can have a number of supplier/customer relationships.
. Although the distribution system can be direct from supplier to customer, depending on the products and markets, it can contain a number of intermediaries (distributors)such as wholesalers, warehouses, and retailers.
. Product or services usually flow from supplier to customer; design and demand infor-mation usually flows from customer to supplier. Rarely is this not so.
Although these systems vary from industry to industry and company to company, the basic elements are the same: supply, production, and distribution. The relative importance of each depends on the costs of the three elements.
C D S T O M E R
DISTRIBUTION
MANUFACTURER
SYSTEM
Physical Manufacturing,
Physical Distribution
Supply
Planning, and
Control
DOMINANT FLOW OF PRODUCTS AND SERVICES
DOMINANT FLOW OF DEMAND AND DESIGN INFORMATION
FIGURE 1.2 Supply-production-distribution system.
S
Supply Chain Concepts
In recent years there has been a great deal of attention given to the concept of supply chain management (SCM). It is important to understand the fundamental issues behind this movement, as well as the impact on materials management.
Historical perspective In the past, many company managers placed most of their attention on the issues that were internal to their companies. Of course they were aware of the impact of suppliers, customers, and distributors, but those entities were often viewed as business entities only. Specialists in purchasing, sales, and logistics were assigned to" deal" with those outside entities, often through formal legal contracts that were negotiated regularly and represented short-term agreements. For example, suppliers were often viewed as business adversaries. A key responsibility of a purchasing agent was to negotiate the best financial and delivery conditions from a supplier, whose job was to maximize company profit. Organization theorists often called the functions that dealt with outside entities boundary spanners, indicating that for most people in the organization there were well-defined and rigid boundaries between their organization and the rest of the world.
dree
精确
The first major change in that perspective for most companies can be traced to the explo-sive growth in just-in-time (JIT) concepts, originally developed by Toyota and other Japanese companies in the 1970s. Supplier partnerships were felt to be a major aspect of successful JIT.
With that concept, suppliers were viewed as partners as opposed to adversaries. In that sense the supplier and the customer had mutually linked destinies, in that the success of each was linked to the success of the other. Great emphasis was put on trust between the partners, and many of the formal boundary mechanisms, such as the receiving/ inspection activity of incoming parts, were changed or eliminated altogether. As the partnership concept grew, there were many other changes in the relationship, including
. Mutual analysis for cost reduction. Both parties examined the process used to transmit information and deliver parts, with the idea that cost reductions would be shared between the two parties.
Mutual product design. In the past the customer often submitted complete designs to the supplier, who was obligated to produce according to design. With partnering, both companies worked together. Often the supplier would know more about how to make
a specific product, whereas the customer would know more about the application for which the design was intended. Together, they could probably produce a superior design compared to what either could do alone.
. Enhanced information flow. With JIT, the concept of greatly reduced inventory in the process and the need for rapid delivery according to need, the speed of accurate infor-mation flow became critical. Formal paper-based systems gave way to electronic data interchange and informal communication methods.
The growth of the supply chain concept As we continue into the new millennium,the world continued to change, forcing additional modifications to the trend:. There has been explosive growth in computer capability and associated software appli-cations. Highly effective and integrated systems such as enterprise resource planning (ERP) and the ability to link companies electronically (through the Internet, for exam-ple) have allowed companies to share large amounts of information quickly and easily.The ability to have the information rapidly has become a competitive necessity for many companies.
. There has been a large growth in global competition. Very few companies can still say they have only local competition, and many of the global competitors are forcing exist-ing companies to find new ways to be successful in the marketplace.
There has been a growth in technological capabilities for products and processes.Product life cycles for many products are shrinking rapidly, forcing companies to not only become more flexible in design but also to communicate changes and needs to suppliers and distributors.
. The changes prompted by JIT in the 1980s have continued to mature and become more accurately defined as lean production (see Chapter 15). Now many companies
have new approaches to interorganizational relationships as a normal form of business.
. Partially in response to the preceding conditions, more and more companies are sub.
contracting more of their work to suppliers, keeping only their most important core competencies as internal activities.
What is the current supply chain concept? Companies currently adopting the supply chain concept view the entire set of activities from raw material production to final customer purchase to final disposal as a linked chain of activities. To result in optimal performance for customer service and cost, it is felt that the supply chain of activities should be managed as an extension of the partnership. This implies many issues, but three critical ones include
1. Flow of materials.
2. Flow of information and sharing of information, mostly through the Internet.
3. Fund transfers.
In addition, a new trend is to manage the recovery, recycling, and reuse of material.
The primary supply chain management approach is a conceptual one. All portions of the material production, from raw materials to final customer, are considered to be in a linked chain. The most efficient and effective way to manage the activities along the chain is to view each separate organization in the chain as an extension of oneapos;s own organiza-tion. There can be many organizations in a supply chain. Take as an example the chain of organizations that represents the flow from raw silicon used to make computer chips to the delivery and disposal of the computer itself:
COMPUTER
INTEGRATED
PRINTED CIRCUIT
SILICON
PRODUCTION
CIRCUIT (CHIP)
BOARD PRODUCTION
PRODUCTION
PRODUCTION
DISPOSAL
CUSTOMER
RETAILER
DISTRIBUTOR
What is illustrated here is but one chain of a set of different component chains that represent a network of suppliers and distributors for a product.
Most companies work with a network of supply chains, obtaining from multiple sup-pliers a variety of materials and sending them to different customers. Even a grocery store has to deal with suppliers of dry goods, magazines, frozen and fresh products, and small suppliers of local produce or specialty goods.
The many independent businesses that make up a supply chain have individual profit motives and do not naturally cooperate to gain savings. This requires someone to take the initia-tive. Any member of the supply chain can work with other members to show the benefits of sharing information on forecasts, sales information, or schedules. "Orchestrator" or "channel master" are two emerging terms that describe the individual or company that takes the initiative to integrate both the upstream and downstream supply chain, getting members to work cooper-atively to lower total costs. The result is a network of companies who openly share information.To manage a supply chain, one must not only understand the network of suppliers and customers along the chain but also try to efficiently plan material and information flows along each chain to maximize cost efficiency, effectiveness, delivery, and flexibility. This clearly implies not only taking a different conceptual approach to suppliers and customers but also a highly integrated information system and a different set of performance mea-sures. Overall, the key to managing such a concept is with rapid flows of accurate informa-tion and increased organizational flexibility.
Introduction to Materials Management
Supply Chain Metrics
A metric is a verifiable measure stated in either quantitative or qualitative terms defined with respect to a reference point. Without metrics, no firm could expect to function effec-tively or efficiently on a daily basis. Metrics give us
1. Control by superiors.
2. Reporting of data to superiors and external groups.
3. Communication.
4. Learning.
5. Improvement.
Metrics communicate expectations, identify problems, direct a course of action, and motivate people. Building the right metrics is vital to a company. Problems must be antici-pated and corrective action taken before they become severe. Companies cannot risk wait-ing to react until the order cycle is completed and feedback from customers is received.
Today, production control works in a demanding environment shaped by six major challenges:
1. Customers that are never satisfied.
2. A supply chain that is large and must be managed.
3. A product life cycle that is getting shorter and shorter.
4. A vast amount of data.
压梯
5. An emphasis on profit margins that are more squeezed.
6. An increasing number of alternatives.
选择记
A firm has a corporate strategy that states how it will treat its customers and what ser-vices it will supply. This identifies how a firm will compete in the marketplace. It is the customer who assesses the firm's offering by its decision to buy or not to buy. Metrics link strategy to operations. Finally, the two are brought together by metrics. Figure 1.3 shows实现
this graphically.
The right-hand side of the figure deals with operations and with the implementation and use of metrics. Focus describes the particular activity that is to be measured. Standards are the yardstick that is the basis of comparison on which performance is judged.
There is a difference between measurement and standards. A performance measure must be both quantified and objective and contain at least two parameters. For example,the number of orders per day consists of both a quantity and a time measurement.
Transforming company policies into objectives and specific goals creates performance standards. Each goal should have target values. An example of this would be to improve含义.带连
目标
IMPLICATION
OBJECTIVE
FUNCTION
High
. High Revenues
Marketing
Customer Service
. High Product
Low
Availability
Disruptions
. Low Production
Many
Production
Cost
Few
Production
. High-Level
Production
. Long Production
Runs
. Low Investment
Finance
High
and Cost
Inventories
. Fewer Fixed
Low
Costs
. Low Inventories
FIGURE 1.3 Metrics context.
order fill rate to 98% measured by number of lines. Performance standards set the goal,PTER ONE
Many companies do not realize the potential benefits of performance measurement,while performance measures say how close you came.
nor do they know how to measure performance. It can be used without performance stan-dards. This might occur when the concept of performance measurement and standards is new. When standards are put into use, management can begin to monitor the company.
The old saying "What you do not measure, you cannot control"is as valid today as it was The necessary steps in implementing such a program are
when first stated.
1. Establish company goals and objectives.
2. Define performance.
3. State the measurement to be used.
4. Set performance standards.
20500
5. Educate the user.
6. Make sure the program is consistently applied.
Although financial performance has traditionally been the measure of success in most companies, today the focus is on continuous improvement and, with this, an increase in standards. Emphasis should not be placed on a" one-shot" improvement but on such things as the rate of improvement in quality, cost, reliability, innovation, effectiveness, and productivity.
冲突箱
Conflicts in Traditional Systems
In the past, supply, production, and distribution systems were organized into separate functions that reported to different departments of a company. Often, policies and prac-tices of the different departments maximized departmental objectives without consider-ing the effect they would have on other parts of the system. Because the three systems are interrelated, conflicts often occurred. Although each system made decisions that were best for itself, overall company objectives suffered. For example, the transportation department would ship in the largest quantities possible so it could minimize per-unit shipping costs. However, this increased inventory and resulted in higher inventory-carrying costs.
To get the most profit, a company must have at least four main objectives:
1. Provide best customer service.
2. Provide lowest production costs.
3. Provide lowest inventory investment.
4. Provide lowest distribution costs.
These objectives create conflict among the marketing, production, and finance departments because each has different responsibilities in these areas.
OMarketing's objective is to maintain and increase revenue; therefore, it must provide the best customer service possible. There are several ways of doing this:
. Maintain high inventories so goods are always available for the customer.
. Interrupt production runs so that a noninventoried item can be manufactured quickly.. Create an extensive-and consequently costly-distribution system so goods can be shipped to the customer rapidly.
OFinance must keep investment and costs low. This can be done in the following ways:. Reduce inventory so inventory investment is at a minimum.
. Decrease the number of plants and warehouses.
. Produce large quantities using long production runs.
. Manufacture only to customer order.
Introduction to Materials Management
Strategy
Strategic- Metrics- Operational
Focus
Customer
Standard
FIGURE 1.4 Conflicting objectives.
O Production must keep its operating costs as low as possible. This can be done in the following ways:
. Make long production runs of relatively few products. Fewer changeovers will be needed and specialized equipment can be used, thus reducing the cost of making the product.
. Maintain high inventories of raw materials and work-in-process so production is not disrupted by shortages.
These conflicts among marketing, finance, and production center on customer service,disruption of production flow, and inventory levels. Figure 1.4 shows this relationship.
Today, the concepts of lean production stress the need to supply customers with what they want when they want it and to keep inventories at a minimum. These objectives put further stress on the relationship among production, marketing, and finance. Chapter 15 will discuss the concepts of lean production and how it influences materials management.
One important way to resolve these conflicting objectives is to provide close coordination of the supply, production, and distribution functions. The problem is to balance conflicting objectives to minimize the total of all the costs involved and maximize customer service con-sistent with the goals of the organization. This requires some type of integrated materials management or logistics organization that is responsible for supply, production, and distribu-tion. Rather than having the planning and control of these functions spread among market-ing, production, and distribution, they should occur in a single area of responsibility.
WHAT IS MATERIALS MANAGEMENT?
The concept of having one department responsible for the flow of materials, from supplier through production to consumer, is relatively new. Although many companies have adopted this type of organization, there are still a number that have not. If companies wish to minimize total costs in this area and provide a better level of customer service, they will move in this direction.
The name usually given to this function is materials management. Other names include distribution planning and control and logistics management, but the one used in this text is materials management. As discussed in Chapter 15, lean production not only requires efficient individual operations but also requires all operations to work together. A materials management department can improve this coordination by having overall responsibility for material.
Materials management is a coordinating function responsible for planning and con-trolling materials flow. Its objectives are as follows:
. Maximize the use of the firm's resources.
Provide the required level of customer service.
Materials management can do much to improve a company's profit. An income (profit and loss) statement for a manufacturing company might look something like the following:Percent of
Sales
Dollars
100
$1,000,000
Revenue (sales)
Cost of Goods Sold
overhead:经常翻
$500,000
Direct Material
$200,000
Direct Labor
$200,000
Factory Overhead
Total Cost of
$900,000
Goods Sold
$100,000
Gross Profit
50
20
20
Direct labor and direct material are costs that increase or decrease with the quantiy sold. Overhead (all other costs) does not vary directly with sales. For simplicity this section CHAPTER ONE
assumes overhead is constant, even though it is initially expressed as a percentage of sales.If, through a well-organized materials management department, direct materials can be reduced by 10% and direct labor by 5%, the improvement in profit would be:不走的悟定的
Percent
of Sales
Dollars
100
$1,000,000
Revenue (sales)
Cost of Goods Sold
$450,000
Direct Material
$190,000
Direct Labor
$200,000
Overhead
84
$840.000
Total Cost of
$160,000
Goods Sold
Gross Profit
Profit has been increased by 60%. To get the same increase in profit ($60,000) by increasing revenue, sales would have to increase to $1.2 million.
Percent
of Sales
Dollars
100
$1,200,000
Revenue (sales)
Cost of Goods Sold
Direct Material $600,000
$240,000
Direct Labor
$200,000
Overhead
Total Cost of
87
$1,040,000
Goods Sold
$160,000
Gross Profit
Example Problem
a. If the cost of direct material is 60%, direct labor is 10%, and overhead is 25% of sales,what will be the improvement in profit if cost of direct material is reduced to 55%?
b. How much will sales have to increase to give the same increase in profit? (Remem-ber, overhead cost is constant.)
ANSWER
After
Before
Improvement
Improvement
100%
100%
Revenue (sales)
Cost of Goods Sold
55%
60%
Direct Material
10%
10%
Direct Labor
25%
Overhead
25%
95%
90%
Total Cost of Goods Sold
5%
Gross Profit
10%
b. Profit = sales- (direct material+ direct labor+ 0.25)
= sales-(0.6sales+0.1sales+0.25)
=sales-0.7sales-0.25
0.1=0.3sales-0.25
0.3Sales = 0.35
0.35
Sales =
=1.17
0.3
Sales must increase 17% to give the same increase in profit.
45
19
20
16
50
20
17
13
Introduction to Materials Management
Work-in-Process
Inventory not only makes up a portion of the cost of goods sold but also has to be purchased at the beginning of production to be processed into finished goods. This type of inventory is called work-in-process (WIP). WIP is a major investment for many companies, and reducing the amount of time that inventory spends in produc-tion is a good way to reduce the costs associated with this investment. Labor, materi-als, and overhead are applied to goods continuously throughout production and the value of the WIP is estimated to be on half the final value. Further discussion on WIP and reducing it is covered in Chapters 9 and 15.
Example Problem
On average, a company has a 12-week production lead time and an annual cost of goods sold of $36 million. Assuming the company works 50 weeks per year:
a. What is the dollar value of the WIP?
b. If the lead time could be reduced to 5 weeks, and the annual cost of carrying inven-tory was 20% of the inventory value, what would be the annual savings?
ANSWER
Weekly Cost of Goods Sold = $36,000,000 per year/50 weeks per year
=$720,000/week
WIP Value at 12 Weeks LT = 12 weeks x $720,000/week x h=$4,320,000WIP Value at 5 Weeks LT = 5 weeks x $720,000/week x %=$1,800,000
Reduction in WIP=$4,320,000-$1,800,000=$2,520,000
Annual Savings = $2,520,000×20%=$504,000
Reducing cost contributes directly to profit. Increasing sales increases direct costs of labor and materials so profit does not increase in direct proportion. Materials manage-ment can reduce costs by being sure that the right materials are in the right place at the right time and the resources of the company are properly used.
There are several ways of classifying this flow of material. A very useful classification,and the one used in this text, is manufacturing planning and control and physical supply/4回低的
distribution.
Manufacturing Planning and Control
Manufacturing planning and control are responsible for the planning and control of the flow of materials through the manufacturing process. The primary activities carried out are as follows:
1. Production planning. Production must be able to meet the demand of the market-place. Finding the most productive way of doing so is the responsibility of production planning. It must establish correct priorities (what is needed and when) and make cer-tain that capacity is available to meet those priorities. It will involve:
a. Forecasting.
b. Master planning.
c. Material requirements planning.
d. Capacity planning.
2. Implementation and control. These functions are responsible for putting into action and achieving the plans made by production planning. These responsibilities are accom-plished through production activity control (often called shop floor control) and pur-车间管理
3. Inventory management. Inventories are materials and supplies carried on hand either chasing.
for sale or to provide material or supplies to the production process. They are part of the planning process and provide a buffer against the differences in demand rates and production rates.
Production planning, implementation, control, and inventory management work APTER ONE
together. Inventories in manufacturing are used to support production or are the result of production. Only if items are purchased and resold without further processing can inven-tory management operate separately from production planning and control. Even then, it cannot operate apart from purchasing.
Inputs to the manufacturing planning and control system There are five basic投入
inputs to the manufacturing planning and control system:
1. Product description. The product description shows how the product will appear at some stage of production. Engineering drawings and specifications are methods of describing the product. Another method-and the most important for manufactur-ing planning and control-is the bill of material. As used in materials management,
30M
this document does two things:
. Describes the components used to make the product.
. Describes the subassemblies at various stages of manufacture.
2. Process specifications. Process specifications describe the steps necessary to make the end product. They are a step-by-step set of instructions describing how the product is made. This information is usually recorded on a route sheet or in a routing file.
These are documents or computer files that give information such as the following on the manufacture of a product:
. Operations required to make the product.
. Sequence of operations.
. Equipment and accessories required.
. Standard time required to perform each operation.
3. Time. The time needed to perform operations is usually expressed in standard time, which is the time taken by an average operator, working at a normal pace, to perform a task. It is needed to schedule work through the plant, load the plant, make delivery promises, and cost the product. Usually, standard times for operations are obtained from the routing file.
4. Available facilities. Manufacturing planning and control must know what plant,equipment, and labor will be available to process work. This information is usually found in the work center file.
5. Quantities required. This information will come from forecasts, customer orders,orders to replace finished-goods inventory, and the material requirements plan.
Physical Supply/Distribution
Physical supply/distribution includes all the activities involved in moving goods, from the supplier to the beginning of the production process, and from the end of the production process to the consumer.
O The activities involved are as follows:
. Transportation.
. Distribution inventory.
Warehousing.
. Packaging.
. Materials handling.
Order entry.
Materials management is a balancing act. The objective is to be able to deliver what customers want, when and where they want it, and do so at minimum cost. To achieve this objective, materials management must make trade-offs between the level of customer ser-vice and the cost of providing that service. As a rule, costs rise as the service level increases,and materials management must find that combination of inputs to maximize service and
Introduction to Materials Management
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minimize cost. For example, customer service can be improved by establishing warehouses in major markets. However, that causes extra cost in operating the warehouse and in the extra inventory carried. To some extent, these costs will be offset by potential savings in otfset. 抵消
transportation costs if lower-cost transportation can be used.
priority:优先有
By grouping all those activities involved in the movement and storage of goods into one department, the firm has a better opportunity to provide maximum service at minimum cost Capacoty:生产能力
and to increase profit. The overall concern of materials management is the balance between priority and capacity. The marketplace sets demand. Materials management must plan the firm's priorities (what goods to make and when) to meet that demand. Capacity is the ability of the system to produce or deliver goods. Priority and capacity must be planned and controlled to meet customer demand at minimum cost. Materials management is responsible for doing this.
SUMMARY
Manufacturing creates wealth by adding value to goods. To improve productivity and wealth, a company must first design efficient and effective systems for manufacturing. It must then manage these systems to make the best use of labor, capital, and material. One of the most effective ways of doing this is through the planning and control of the flow of materials into, through, and out of manufacturing. There are three elements to a material flow system: supply, manufacturing planning and control, and physical distribution. They are connected, and what happens in one system affects the others.
Traditionally, there are conflicts in the objectives of a company and in the objectives of marketing, finance, and production. The role of materials management is to balance these conflicting objectives by coordinating the flow of materials so customer service is main-tained and the resources of the company are properly used.
This text will examine some of the theory and practice considered to be part of the"body of knowledge" as presented by the Association for Operations Management. Chapter15 will study the concepts of just-in-time manufacturing to see how they affect the practice of materials management.
KEY TERMS
Order winners 2
Assemble-to-order 3
Performance measure 7
Available facilities 12
Performance standards 7
Bill of material 12
Postponement 4
Engineer-to-order 3
Process specifications 12
Implementation and control 11
Product description 12
Inventory management 11
Production planning 11
Make-to-order 3
Quantities required 12
Make-to-stock 3
Time needed to perform
Materials management 9
operations 12
Metric 7
Work-in-process 11 a type of mventory
Order qualifiers 2
QUESTIONS
1. What is wealth, and how is it created?
2. What is value added, and how is it achieved?
3. Name and describe four major factors affecting operations management.
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4. What are an order qualifier and an order winner?
5. Describe the four primary manufacturing strategies. How does each affect delivery lead time?
6. What is a supply chain? Describe five important factors in supply chains.
7. What must manufacturing management do to manage a process or operation? What is the major way in which management plans and controls?
8. Name and describe the three main divisions of supply, production, and distribution systems.
9. What are the four objectives of a firm wishing to maximize profit?
10. What is the objective of marketing? What three ways will help it achieve this objective?
11. What are the objectives of finance? How can these objectives be met?
12. What are the objectives of production? How can these objectives be met?
13. Describe how the objectives of marketing, production, and finance are in conflict over cus-tomer service, disruption to production, and inventories. there 1.4
14. What is the purpose of materials management? It
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15. Name and describe the three primary activities of manufacturing planning and control.
16. Name and describe the inputs to a manufacturing planning and control system.
17. What are the six activities involved in the physical supply/ distribution system?
18. Why can materials management be considered a balancing act?
19. What are metrics? What are their uses?
20. A computer carrying case and a backpack are familiar items to a student of manufacturing planning and control. Discuss the manufacturing planning and control activities involved in producing a variety of these products. What information from other departments is necessary for manufacturing planning and control to perform its function?
21. Describe at least three supply chains that provide products to your school book store. Do they use cooperative supply chain methods to help reduce their costs?
22. From the bookstore example in question 21, describe how one of the supply chains would use a supply chain "channel master."
23. Which manufacturing strategies are used in a fast-food business? How does this affect the lead time from the customers' point of view?
PROBLEMS
1.1. If the cost of manufacturing (direct material and direct labor) is 60% of sales and profit is 10% of sales, what would be the improvement in profit if, through better planning and control, the cost of manufacturing was reduced from 60% of sales to50% of sales?
Answer. Profits would improve by 100%.
1.2. In problem 1.1, how much would sales have to increase to provide the same increase in profits?
Answer. Sales would have to increase 25%.
1.3. On the average, a firm has a 10-week lead time for work-in-process, and annual cost of goods sold is $15 million. Assuming that the company works 50 weeks a year:
a. What is the approximate dollar value of the work-in-process?
b. If the lead time could be reduced to 7 weeks and the annual cost of carrying inven-tory was 20% of the inventory value, what would be the annual saving?
Answer. a. $1,500,000
b. $90,000
1.4. On the average, a company has a work-in-process lead time of 12 weeks and annual cost of goods sold of $40 million. Assuming that the company works 50 weeks a year:
a. What is the dollar value of the work-in-process?
