Solution Qp Omm Mid March 2012 Ogpm Psm Ifm Ism

Roll No.__________

University of Petroleum & Energy Studies

College of Management & Economics StudiesBidholi Campus, Dehradun

Mid Semester Examination – MARCH, 2012

Programme Name: MBA (O&G/IFM/PM/PSM/ISM) Semester IISubject: Operations and Materials Management Max.Marks:100Subject code: MBCQ 722 Duration: 2 Hrs________________________________________________________________________

MODEL ANSWERS

Section-A(Multiple choice questions) Marks: 20×1=20

1. On the basis of Hawthorne studies, Elton Mayo and his team concluded that -------- had an impact on employee productivity.

a) Physical work conditionsb) Attention, importance and recognitionc) Job contentd) Fear of losing job

2. Operations manager decisions on ------come under the preview of long- term decisions.a) Daily production schedulesb) Appropriate inventory levelsc) Facility location and layoutd) Formulating the departmental budgets

3. The key objective of transformation sub-subsystem of an operations management system is

a) Value addition to resource inputsb) Produce more productsc) Maintain control over production processd) Generate feedback

4. Providing healthcare services to patients is an example fora) Job shop productionb) Batch manufacturingc) Standardized serviced) Customized service

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5. Encouraging through praise, recognition, and other intangibles is an example of a) Controllingb) Motivatingc) Trainingd) Organizing

6. Which of the following is not an advantage of computerizing production systems?a) Increased productivityb) Better qualityc) Lower initial investmentd) Improved worker safety

7. Identify the stage of product life cycle in which the activities in operations function that are related to product/service design and development are generally more intense.

a) Introductionb) Growthc) Maturityd) Declination

8. Once an idea is generated, managers generally test it for its feasibility. The feasibility test is conducted to check the idea’s

a) Technical feasibilityb) Marketing feasibilityc) Economic feasibilityd) All the above

9. Production policy where the products are produced well in advance and stored in the warehouse from where they are distributes in accordance with customer orders is known as

a) Produce-to-stock policyb) Produce-to-order policyc) Assemble-to-order policyd) Custom-to-order policy

10. Large organizations are often divided into separate operating divisions that operate as autonomous business units, controlling their own functions. Such units are technically referred to as

a) Subsidiary unitsb) Strategic business unitsc) Franchise centersd) Sister concerns

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11. Nucor, a steel producer in the US, competes successfully with larger integrated steel producers by processing scrap steel rather than producing steel from iron ore. The company is gaining an advantage by virtue of its

a) Production flexibilityb) Qualityc) Low-cost processd) Batch process facility

12. The numeric difference of forecast demand and actual demand is called a) Standard deviationb) Forecast errorc) Forecast varianced) Forecast noise

13. A forecast made by using exponential smoothing was found to be overreacting to the most recent demand. Which of the following is the most suitable corrective action?

a) Change the value of αb) Increase the value of αc) Decrease the value of αd) Shift to some other forecasting method

14. If the demand for a product is stable and is representative of the future the value of α used to forecast the demand for the product should be

a) Low b) High c) Mediumd) Can take any value

15. Which of the following forecasting method is an example for causal models?a) Simple moving average b) Weighted moving averagec) Exponential smoothing d) Regression

16. Graphical method can be applied for solving those problems which containa) More than three decision variables b) A maximum of three decision variablesc) A maximum of three constraintsd) A minimum of three constraints

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17. Which of the following transportation techniques does not emphasize on cost control?a) North –west corner method b) Least cost methodc) Vogel’s Approximation methodd) All the above

18. Linear programming models evaluate the solutions only with respect to a few quantifiable criteria. Which one of the following is a non-quantifiable criterion?

a) Profitability b) Cost effectivenessc) Motivation level d) Productivity

19. The constants are used to balance the inequality constraints are referred to as a) Artificial variables b) Slack variables c) Decision Variables d) Key Variables

20. Which of the following types of integration determines the extent to which a product and its components are produced integrally?

a) Horizontal integrationb) Vertical integration c) Diagonal integrationd) Lateral integration

Section-B(Short Answer type questions)

Answer any four out of the six following questions Marks: 4×5=20

1. Mance Fraily, the Production Manager at Ralts Mills, can currently expect his operation to produce 1000 square yards of fabric for each ton of raw cotton. Each ton of raw cotton requires 5 labor hours to process. He believes that he can buy a better quality raw cotton, which will enable him to produce 1200 square yards per ton of raw cotton with the same labor hours.

What will be the impact on productivity (measured in square yards per labor-hour) if he purchases the higher quality raw cotton?

ANS:

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Productivity improves 20% = ( 240 - 200 ) / 200 = .2

2. Define strategic decision. Give an example of a strategic decision for: a. a retailer, b. a manufacturer, and c. a governmental agency.

A strategic decision in POM is about products, processes, and facilities. These decisions are of strategic importance and have long-term importance for the organization.a. retailer--deciding whether to open a branch outlet in a soon to be opened

shopping mall in the suburbs. b. manufacturer--deciding on the technology to include in a new production

process.c. governmental agency--deciding how to allocate resources among competing

community needs.

3. What is the tracking signal? How is it calculated? How is it used?

The tracking signal is a measure of how far forecasts are diverging from the actual data over time. It is calculated with this formula:

It is used to monitor the performance of forecasting models. For example, if the tracking signal is +4, this indicates that the cumulative forecast error has been 4 MADs above the actual demand for the n periods. A tracking signal of -2 would indicate that the cumulative forecast error has been 2 MADs below the actual data over the n periods. The ability of the tracking signal to indicate the direction, either above or below the actual data, is helpful in making adjustments to the

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Tracking Signal = Algebraic sum of errors over n periodsMean absolute deviation over n periods

=

∑ ¿

i = 1

n

( Actual - Forecast )i

MAD¿ =

∑ ¿

i = 1

n

( Actual - Forecast )i

∑ ¿

i = 1

n

| Actual - Forecast | i

n

¿¿

forecasting model. If the forecasting model is performing well, the tracking signal should be nearly zero.

1. 4. Define corporate mission, business strategy, and operations strategy? How is operations strategy related to business strategy? How does operations strategy impact business strategy?

ANS: Corporate mission--long-range goals and objectives that are unique for each organization. Business strategy--long-range game plan of an organization that provides a road map of how to achieve the corporate objectives. These strategies are embodied in the company's business plan, which includes a plan for each functional area of the business, including a marketing plan and a production plan. Operations strategy--the road map that the operations function must follow if the business strategies are to be successfully. The operations strategy lays out the long-range game plan for production of the firm's products and services. Operations strategy forms the basis of the production plan which is a part of the business plan. The capability of the production function can become a competitive weapon for the business to capture increased market share.

5. Define Causal Regression Forecasting. Explain the methods of Moving Average and Exponential Smoothing Forecasting?

ANS: Moving Average and Exponential Smoothing : In this forecasting method an averaging period (AP) is given or selected. The forecast for the next period is the arithmetic average of the AP most recent actual demands. It is called a “simple” average because each period used to compute the average is equally weighted. It is called “moving” because as new demand data becomes available, the oldest data is not used. By increasing the AP, the forecast is less responsive to fluctuations in demand (low impulse response and high noise dampening). & in exponential smoothing the weights used to compute the forecast (moving average) are exponentially distributed. The forecast is the sum of the old forecast and a portion (a) of the forecast error (A t-1 - Ft-1). The forecast for the period t using the method of exponential smoothing is Ft = Ft-1 + a(A t-1 - Ft-1). The smoothing constant, a, must be between 0.0 and 1.0. A large α provides a high impulse response forecast. A small α provides a low impulse response forecast.

6. Ramona Martin, staff analyst at the San Jose headquarters of Computer Products Corporation (CPC), is studying the decision of where to locate the new plant to manufacture small-business computers. Cleveland and Tulsa have emerged as the top two contenders. Ramona has prepared rating factors and the scores of each of the two locations:

════════════════════════════════════════════════════════════ Location

Factor ───────────────────Locational Factor Weight Cleveland Tulsa────────────────────────────────────────────────────────────Cost per computer .50 $4,900 $5,190Cost of living .05 .60 .80Labor availability .15 .70 .70

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Union activities .15 .40 .80Proximity to similar industry .10 .70 .50Local transportation systems .05 .70 .70════════════════════════════════════════════════════════════Use the relative-aggregate-scores approach to compare the two alternative locations. Which location would you recommend? Why?

Solution

═════════════════════════════════════════════════════════════════ CLEVELAND TULSA ───────────────── ──────────────── Factor Weighted WeightedLocation Factors Weight Scores Scores Scores Scores ───────────────────────────────────────────────────────────────── Cost per computer .50 1.000* .500 .944* .472Cost of living .05 .60 .030 .80 .040 Labor availability .15 .70 .105 .70 .105Union .15 .40 .060 .80 .120Proximity to similar industry .10 .70 .070 .50 .050Local transportation .05 .70 .035 .70 .035───────────────────────────────────────────────────────────────── TOTAL LOCATION SCORES .800 .822═════════════════════════════════════════════════════════════════

* These scores are determined by dividing the lowest costs by the actual costs: 4,900/4,900 = 1.000 and 4,900/5,190 = .944. All other factor scores are based on a maximum score of 1.000.

This analysis shows that Tulsa is preferred to Cleveland when both economic and qualitative factors are considered. The difference between the two aggregate scores, however, seems quite small.

Section-C(Descriptive type questions)

Answer any two out of the three following questions Marks: 2×15=30

1. A manufacturer is developing a facility plan to provide production capacity for its factory. The amount of capacity required in the future depends on the number of products demanded by its customers. The data below reflect past sales of its products.

Annual Sales Annual Sales(Number of (Number of

Year Products) Year Products)

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1 490 5 4612 487 6 4753 492 7 4724 478 8 458

a. Use time series regression to forecast annual demand for the products for each of the next three years.

b. Determine the correlation coefficient for the data and interpret its meaning.c. Find the coefficient of determination for the data and interpret its meaning.

ANS: a.

YEARx

SALESy x2 xy y2

1 490 1 490 240,100

2 487 4 974 237,169

3 492 9 1,476 242,064

4 478 16 1,912 228,484

5 461 25 2,305 212,521

6 475 36 2,850 225,625

7 472 49 3,304 222,784

8 458 64 3,664 209,764

x=36 y=3,813 x2=204 xy=16,975 y2=1,818,511

From a regression analysis: a = 496.286, b = -4.369

Y = a + bX = 496.286 - 4.369X

Y9 = 496.286 - 4.369(9) = 496.286 - 39.321 = 456.965 or 457.0

Y10 = 496.286 - 4.369(10) = 496.286 - 43.690 = 452.596 or 452.6

Y11 = 496.286 - 4.369(11) = 496.286 - 48.059 = 448.227 or 448.2

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Continued

b. Compute r

r=n∑ xy−∑ x∑ y

√[ n∑ x2−(∑ x )2 ][ n∑ y2−(∑ y )2 ]

r=8(16 , 975 )−36(3 ,813 )

√[ 8(204 )−(36 )2 ] [8 (1 , 818 , 511)−(3 , 813 )2 ]

r=135 ,800−137 , 268√[1 , 632−1 , 296 ][ 14 , 548 , 088−14 ,538 , 969 ]

r=−1 ,468

√[336 ][9 ,119 ]=

−1 , 468

√3 ,063 , 984=

−1 , 4681 ,750 .4239

r = - .8387 or about - .84

A correlation coefficient of - .84 indicates both direction and strength of relationship between sales and time period. The strength of the relationship is indicated by the absolute value of the coefficient or .84, this indicates a rather strong relationship between sales and time period where 0 indicates no relationship and - 1.00 Indicates an absolute relationship. The direction of the relationship is negative. In other words, as X increases, Y decreases and as X decreases, Y increases.

c. Compute r2

Coefficient of Determination = r2 = (- .8387)2 = .7034 or about 70%

A coefficient of determination of 70 percent indicates that 70 percent of the variation in y or sales is explained by the variation in x or the time period. 30 percent of the variation in y is explained by other factors.

2. Define Facility Location and Layout? Highlight the importance of various facility layouts of both manufacturing and service firms?

ANS: Planning for the location or arrangement of all machines, utilities, work stations, customer service areas, material storage areas, aisles, restrooms, lunchrooms, drinking fountains, internal walls, offices, computer rooms, and flow patterns of materials and people around, into, and within buildings.

a. Process layouts-- layouts based on grouping similar production processes into departments.

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b. Product layouts-- layouts based on assembly lines or departments that may include several different production processes operating on a single product or a few similar products.c. Cellular Manufacturing (CM) layouts—l layouts in which machines are grouped into cells and the cells function more like a product layout island within a larger process layout environment.

d. Fixed position layouts- layouts based on fixing the position of the product and bringing production processes to the product as required for its completion.

e. Mixed Layouts

3. William Green, vice president of manufacturing for Computer Products Corporation (CPC), and his staff are studying three Midwestern alternative locations for a new production facility for producing bar code scanners. His staff analysts predict that the bar code scanners will be a growing market over the next ten years, and the analysis group shares marketing's enthusiasm for planning production facilities for producing this new product line. The analysts have developed these estimates for the three locations:

════════════════════════════════════════════════════════════ Annual Variable Cost Fixed Costs per Bar Code

Location Alternative (Millions of Dollars) Scanner────────────────────────────────────────────────────────────Cleveland, Ohio $3.9 $3,400South Bend, Indiana 3.6 3,700Grand Rapids, Michigan 3.1 4,000════════════════════════════════════════════════════════════The marketing department at CPC estimates sales for the bar code scanners will be 5,000 scanners in the first year, 20,000 in the third year, and 30,000 in the fifth year.

a. Use break-even analysis to determine which location would be preferred in Years 1, 3, and 5.

b. In what range of production capacity would each of the locations be preferred?

Solution

a. Use break-even analysis to determine which location would be preferred in Years 1, 3, and 5.

TCGR = 3,100,000 + 4,000(X) = TCC = 3,900,000 + 3,400(X) 600X = 800,000

X = 1,333.33

This means that the total annual cost for the Grand Rapids and Cleveland locations are equal when 1,333.33 scanners are produced in a year. The annual cost for producing this number of scanners at South Bend is higher

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than for the other 2 locations. This means that South Bend would never be preferred at any level of production. See the volume and cost values below:

═════════════════════════════════════════════════════════════════ COST AT COST AT COST AT COST AT 0 1,000 1,333.33 1,666.67 SCANNERS SCANNERS SCANNERS SCANNERSLOCATION ($ MILLION) ($ MILLION) ($ MILLION) ($ MILLION) ─────────────────────────────────────────────────────────────────Cleveland 3.9 7.3 8.433** 9.567**South Bend 3.6 7.3 8.533 9.767Grand Rapids 3.1** 7.1** 8.433** 9.767═════════════════════════════════════════════════════════════════

Notice from this table that the Grand Rapids location is preferred until the annual level of production reaches 1,333.33 scanners. Above this level, the Cleveland location is preferred.

The graph below further illustrates this result but it is not drawn to scale because of the proximity of the lines. In other words, the distance between the lines and the angles between the lines are exaggerated to illustrate the cost relationships.

Grand Rapids

South Bend

Cleveland

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b. In what range of production capacity would each of the locations be preferred?

Grand Rapids would be preferred in the 0 - 1,333.33 range; Cleveland would be preferred above 1,333.33; and South Bend would not be preferred at any level of production.

Section-D (Case /Analytical Questions) Marks: 30

Birmingham Amusement Machines was a company which manufactured gaming and video-amusement machines. The company sold its products to an operating company which distributed them to bars, country clubs, casinos and pubs. Both companies were started by Bob Greenwood, an engineer who was fascinated by the design of the early mechanical gaming machines. Largely through innovative design, the company had grown to be one of the four largest in the market with a 30 per cent market share.

Four years ago Bob Greenwood sold out to a large industrial group, but he was retained as chief executive of the manufacturing company. The new owners were happy to let Bob indulge his talent for design, especially since the company had entered the video-amusement market. Video-amusement machines did not pay out cash prizes like gaming machines, but allowed the player time on the machine to play a game, usually with a theme drawn from the ‘Wild West’ or ‘Interplanetary Space Warfare’. The company manufactured all parts for the gaming machines and assembled them in its factory. However, many of the components for the video-amusement machines were imported and only assembled into the outer casings in the factories.

Recently, the owners became dissatisfied with the company’s performance. The market for its goods was still growing, but the company’s profitability had failed to match expectations. The owners decided to install a new chief executive and to fire Bob, who was predictably upset at being replaced:

‘It’s always been the combination of high technology and fashion that’s fascinated me about this industry. You have to be first in the field with every advance in technology, especially now video amusements are a big part of our business, but you also have to keep an eye out for the fashionable trends. On average, we’ve brought out a new product every four months, for the last five years. You can’t run a company like this by putting an accountant as its boss – you need an innovator.’

In fact the owners had installed an accountant to be the head of the company. On his first day, the new boss made a tour of the plant, after which he called the manufacturing

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manager into his office and began to criticize what he had seen of the production set-up:

‘It seems to me that the whole plant is totally disorganized. There’s part-finished goods everywhere, and no one seems to know exactly what they’re going to do next. I found some parts of the plant clearly overworked, and other parts with nothing to do. I am sure, with a bit of tighter management, you could get your unit production costs down dramatically.’

The production manager was defensive.

‘Of course I’d like to get my unit costs down, and of course I could rearrange the whole plant to make it more efficient. The trouble is, the design department are getting me to change products every few months, so I never really have time to let the production system settle down. At the same time, marketing are wanting me to give them instant delivery on new products, almost as soon as I have the drawings from the design office, and they insist on quality being of the highest standard at all times.’

The new boss called in the marketing manager to explain these demands placed on the production system. The marketing manager was equally forthright.

‘I couldn’t care less about his unit costs. It’s not low cost which sells these machines. Look at it this way: in a heavy gambling club one of these machines can pay for itself in less than three months. Under those circumstances, nobody in this industry is competing on price. It’s not totally unimportant, but plus or minus 10 per cent isn’t going to make much difference to our sales. What sells machines is a new product on the books every few months or so and almost instant delivery – many of the club owners buy on impulse – and an unimpeachable reputation for the highest product reliability.’

After listening to the testimony of his managers, the new boss was a lot less certain on how he should proceed to reshape the business.

Questions

1. What do you think were Bob Greenwood’s objectives when he ran the company?2. List what you think might now be the priority objectives of:

a) the production managerb) the marketing managerc) the new boss.

ANS: This case exercise described the views and objectives of various managers in a company which manufactures gaming machines. It highlights the contributions made by three sets of people within the organization.

The research and development people who are responsible for incorporating the latest technology ideas into the products.

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The marketing staff who are keen to understand the trends in the industry and meet them before any competitors.

The production operations staff who are somewhat squeezed between conflicting objectives of speed and cost.

1. What do you think were Bob Greenwood’s objectives when he ran the company?

Bob seems to be an enthusiast who derives satisfaction from the incorporation of novel technology in the company’s products. He sees product development as the main driver of the company, a process which combines ‘high technology and fashion’. The key organizational linkages under Bob’s vision of the company are likely to be those between Marketing (who should understand the trends in the market) and Product Development ) who understand the potential of new technologies). He seems to give a lot of time to considering the cost consequences of continual product design changes. See the figure below.

2. List what you think might now be the priority objectives of:

the production manager

The production manager sees himself as being squeezed between two sets of pressures. The first, from Product Development, is represented by a series of product changes. No sooner has the production system been set up to make one mist of products than it is replaced by another. This continual change prevents the production operation from moving down the learning curve and achieving the stability which will let

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Product Development

Marketing

Market trends

New technologies

Product Development

Product Development

MarketingMarketing

Market trends

New technologies

them reduce costs. The second set of pressures comes from Marketing, who want fast delivery both of existing products and of new products.

The production manager must therefore try to achieve:

Low costs; Fast delivery; Short ‘time-to;-market’ of new products.

the marketing manager

The marketing manager certainly does not seem to be interested in costs. Customers for these products are making so much profit from them that they are relatively indifferent to the price they pay. However, the availability of new products is crucial to making a sale. This has two aspects. Firs, the existing product must be delivered quickly to any customer who places an order. Unless prompt delivery is promised the customer could go elsewhere. Second, the company must be first onto the market with any new fashion or technical development. Being second in following a trend might substantially reduce sales. The quality of the products is also briefly mentioned, as is product reliability. The market manager therefore requires.

Fast delivery; Short ‘time-to-market’ of new products; Product reliability; Product quality.

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Product Development

Marketing

Production

Delivery and quality

New designsProduct

DevelopmentProduct

Development

MarketingMarketing

ProductionProduction

Delivery and quality

New designs

the new boss

The new boss faces something of a dilemma. On the one hand competitiveness in the market clearly requires innovation and product reliability. On the other, although the company is not under price pressure, profitability seems to be unsatisfactory. The only explanation for this is that costs are too high.

The key to this problem must be the development of enhanced flexibility. What Slack et al call response flexibility (that is the ability to change rapidly and without excessive cost) must be of importance to the production manager. Yet nowhere in the case exercise is flexibility mentioned by the various managers.

Two types of flexibility are likely to be important – new product flexibility and volume flexibility.

New product flexibility means that the operation must be able to introduce new or modified products quickly. This topic is treated in Chapter 5 of Slack et al and depends on a close collaboration between the Product and Product Development departments.

Volume flexibility means that the output of the operation can be adjusted quickly. This will be important because of the intrinsic unpredictability of such a fashion oriented market. It is treated in Chapter 11 of Slack et al and depends on a close collaboration between Production and Market.

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Product Development

Marketing

Production

The flexibility to adapt to a fast changing

market

Product Development

Product Development

MarketingMarketing

ProductionProduction


market


market

Solution Qp Omm Mid March 2012 Ogpm Psm Ifm Ism

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