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Business LibreTexts

11.3: Managing the Production Process in a Manufacturing Company

  • Page ID
    4051
  • Learning Objective

    1. Identify the activities undertaken by the operations manager in overseeing the production process in a manufacturing company.

    Once the production process is in place, the attention of the operations manager shifts to the daily activities of materials management, which encompass the following activities: purchasing, inventory control, and work scheduling.

    Purchasing and Supplier Selection

    The process of acquiring the materials and services to be used in production is called purchasing (or procurement). For many products, the costs of materials make up about 50 percent of total manufacturing costs. Not surprisingly, then, materials acquisition gets a good deal of the operations manager’s time and attention.

    As a rule, there’s no shortage of vendors willing to supply parts and other materials, but the trick is finding the best suppliers. In selecting a supplier, operations managers must consider such questions as the following:

    • Can the vendor supply the needed quantity of materials at a reasonable price?
    • Is the quality good?
    • Is the vendor reliable (will materials be delivered on time)?
    • Does the vendor have a favorable reputation?
    • Is the company easy to work with?

    Getting the answers to these questions and making the right choices—a process known as supplier selection—is a key responsibility of operations management.

    E-Purchasing

    Technology is changing the way businesses buy things. Through e-purchasing (or e-procurement), companies use the Internet to interact with suppliers. The process is similar to the one you’d use to find a consumer good—say, a forty-two-inch LCD high-definition TV—over the Internet. You might start by browsing the Web sites of TV manufacturers, such as Sony or Samsung, or electronics retailers, such as Best Buy. To gather comparative prices, you might go to a comparison-shopping Web site, such as Amazon.com, the world’s largest online retailer. You might even consider placing a bid on eBay, an online marketplace where sellers and buyers come together to do business through auctions. Once you’ve decided where to buy your TV, you’d complete your transaction online, even paying for it electronically.

    If you were a purchasing manager using the Internet to buy parts and supplies, you’d follow basically the same process. You’d identify potential suppliers by going directly to private Web sites maintained by individual suppliers or to public Web sites that collect information on numerous suppliers. You could do your shopping through online catalogs, or you might participate in an online marketplace by indicating the type and quantity of materials you need and letting suppliers bid on prices. (Some of these e-marketplaces are quite large. Covisint, for example, which was started by automakers to coordinate online transactions in the auto industry, is used by more than two hundred and fifty thousand suppliers in the auto industry, as well as suppliers in the health care field.) (Jingzhi, 2011) Finally, just as you paid for your TV electronically, you could use a system called electronic data interchange (EDI) to process your transactions and transmit all your purchasing documents.

    The Internet provides an additional benefit to purchasing managers by helping them communicate with suppliers and potential suppliers. They can use the Internet to give suppliers specifications for parts and supplies, encourage them to bid on future materials needs, alert them to changes in requirements, and give them instructions on doing business with their employers. Using the Internet for business purchasing cuts the costs of purchased products and saves administrative costs related to transactions. And it’s faster for procurement and fosters better communications.