Operations Management (MB241) : January 2004 Suggested Answers

Section B : Problems/Caselet
1. Given:
Co = Cost per order = Rs.50.
P = Cost/price per unit = Rs.1,000.
Cc = Carrying cost/holding cost per unit per year
= Rs.10.
D = Annual demand
= 8,000 units.
a. Total annual cost, TC = Ordering Cost + Carrying Cost + Purchase Cost
=
= 50 ×
For quantity Q to be most economical,
+ 10 × = 0.
or, Q2 =
= 8 × 104
Q = 282.84
≈ 283 units.
b. Number of orders per year =
=
= 28.27
≈ 29.
c. TC = 50 ×
= Rs. 80,02,828.43.
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2. (The numerical values included in brackets are for reference.)
o C
CD CQ P.D
Q 2
+ +
8000 10 Q 1000 8000
Q 2
+ × + ×
dTC 0
dQ
=
2
50 8000 ( 1)
Q
× × −
∴ 1
2
50 8000
5
×
D
Q
8000
283
8000 10 283 1000 8000
283 2
+ × + ×
Rank First in, First
Serve Earliest due date
Shortest
processing
time
Longest
processing time Critical ratio
1st A E (2) E (2) C (7) B (0.80)
2nd B B (4) D (3) A (6) E (1.00)
3rd C A (7) B (5) B (5) C (1.14)
4th D C (8) A (6) D (3) A (1.17)
Critical ratio of A = = 1.17.
Critical ratio of B = = 0.80.
Critical ratio of C = = 1.14.
Critical ratio of D = = 3.33.
Critical ratio of E = = 1.00.
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3.
∴ the critical path is A-C-D-E-G.
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4. The circumstances that led GM to adopt CAD/CAM/CAE solutions were mostly manufacturing inefficiencies.
They were as follows:
i. GM’s cost of production in terms of time and labour was more than any other automaker in the world.
ii. GM often used outdated procedures in many of its production processes. As a result, the production process
was very long.
iii. There was no coordination between the design, engineering and manufacturing functions of the company.
This resulted in long vehicle development process times and assembly times and slow response to market
requirements.
iv. Designers and engineers seemed to be duplicating their efforts as a vehicle moved from the concept to the
production stage. Due to the long and complex process, the company was not able to make modifications at
a later stage.
v. Toyota’s time-to-market was twice as fast as that of GM throughout the 1980s and early 1990s. Ford Motor
Co., which was half of GM in size, was believed to be much more productive. Thus, despite being the
5th E D (10) C (7) E (2) D (3.33)
7
6
4
5
8
7
10
3
2
2
Activity LS – ES Slack On Critical Path
A 0-0 0 Yes
B 16-7 9 No
C 7-7 0 Yes
D 15-15 0 Yes
E 18-18 0 Yes
F 19-18 1 No
G 23-23 0 Yes
world’s largest car manufacturer, GM earned a bad reputation of being one of the most inefficient automakers.
The competition was increasing rapidly and companies were looking at ways to improve productivity, save
time, reduce costs and increase customer satisfaction. Moreover, the birth of CAD/CAM/CAE systems
brought automation in the manufacturing industry.
Therefore to overcome its manufacturing inefficiencies and keeping in mind the increasing competition and
the advantages that would be gained by implementing CAD/CAM/CAE systems, GM adopted
CAD/CAM/CAE solutions at its plants.
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5. The various physical benefits that might have accrued to GM after adopting CAD/CAM/CAE software are as
under:
i. CAD/CAM/CAE tools would help in introducing the concept of virtual prototypes and thus enable the
company to save costs by reducing the number of physical prototypes and hence the number of physical
validations.
ii. It would bring down the costs of production related to time and labour due to reduction in vehicle
development process time, because of automation. The new system would help the company to launch
innovative new cars and trucks in the market faster, due to automated design and manufacturing.
iii. It would help to integrate the design, engineering and manufacturing functions of the company by
introducing a common database from which data can be shared among the various functions.
iv. It would help to reduce warranty costs because of better quality products and enhanced model designs.
v. The manual engineering drawings could be replaced by computer drawings. This would do away with the
need of draftsmen. The physical space required to store the manual drawings could be better utilized for
storing spare parts or other things.
vi. Sharing and updating of data and files could be done simultaneously around the world on a ‘real’ time basis.
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6. The other initiatives that could have been taken by GM to overcome the manufacturing inefficiencies are as
follows:
i. Flexible Manufacturing System (FMS):
Flexible Manufacturing System (FMS) is a set of automated machines, which are controlled by a central
computer to produce a variety of products on the same machinery, by automatically changing the machine
settings, as required. It is applied by those production organizations in which all the products produced utilize
the same family of components and are variations of a stable basic design. It is also applied when the demand
is moderate. It is generally applied for making mechanical parts such as gears, handles and some electrical
components. The items that generally make up a typical FMS are:
• An automated loading system to load materials
• Two or more machining centers, which are automated to change tools by themselves
• A system to move materials in between machining centers
• An unloading system
• A central computer that integrates the whole process.
In an FMS, the automated material handling equipment moves the loaded materials to the appropriate
machining center. The machines at each center are preprogrammed to select, position and perform specific
operations with many tool options. Once the machine processes one batch, the central computer signals the
details of the next job and each machine repositions and retools accordingly. In the meantime, the processed
parts are automatically transferred to the next machining center in its route.
In comparison with the traditional automated system, the Flexible Manufacturing System offers many
advantages such as reduced direct labour, shorter response time, consistent quality of products and better
control of work.
However, the above benefits do not come cheaply, as FMS requires huge capital investments in equipment
and planning and control systems.
But GM had the necessary capital and could easily invest in FMS, to make use of the aforementioned
advantages offered by it.
ii. Enterprise Resource Planning (ERP):
ERP system consists of techniques and concepts employed for the integrated management of business, from
the viewpoint of the effective use of management resources, to improve the efficiency of an enterprise, with
the goal of integrating information across the company. An ERP system provides access and connectivity of
data between the employees of different departments. The company uses this integrated data for analysis and
decision-making. This approach reduces data redundancy and provides updated information about the entire
organization to all the employees. Integrated data can be effective only if it clearly depicts the organization. It
should reflect the day-to-day transactions and it should be updated continuously. So, when designing the data
model for the ERP system, the most important aspect that should be kept in mind is the integration of
information and the process or procedure automation. The data model should reflect the organization and it
should clearly depict and integrate the data structure of the entire organization.
In GM, where there was lack of coordination between the design, engineering and manufacturing functions,
ERP could have been used to effectively integrate the various functions.
iii. Computer Integrated Manufacturing (CIM):
Computer Integrated Manufacturing (CIM) system includes all the engineering functions of CAD/CAM and
the business functions of the firm as well. These business functions include order entry, cost accounting,
employee time records and payroll, and customer billing.
In an ideal CIM system, computer technology is applied to all the operational and informationprocessing
functions of the company, from customer orders through design and production to product
shipment and customer service. The scope of the computer system includes all activities that are concerned
with manufacturing. In many ways, CIM represents the highest level of automation in manufacturing.
The system ties all the database systems and all the manufacturing equipment and sub-systems together into a
single integrated system in order to enable the organization to transform product ideas to high-quality
products in minimum time and at minimum cost.
The main objective of CIM is not only to reduce direct labour costs but also to reduce indirect costs like
materials handling and inspection costs.
Implementing CIM is initially costly, of course, and progress in applying this technology has been
slowed down not only by its cost but also by the lack of standardized interfaces between the various CIM
components and the slow acceptance of standardized communication protocols to support integration.
However, proper application of CIM by an organization will result in a broadening of the market for its
products, reduced costs, improved quality and reliable delivery performance. Many organizations like
Motorola, Sony and Toshiba have greatly integrated their design, sales, scheduling, manufacturing,
purchasing and accounting system by using CIM.
Similarly, GM could implement CIM to reap its benefits.
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Section C: Applied Theory
7. Electronic Supply Chain Management (ESCM) integrates the entire supply chain, from the raw materials to the
end use of the product, with the help of Internet technology. With ESCM, the ultimate strategy of SCM seems to
be falling in place, i.e., to look beyond the boundaries of an organization, to look at the customer’s customer and
the supplier’s supplier.
The possible advantages that will be derived by the organization in implementing Electronic Supply Chain
Management (ESCM) are as follows:
i. Cost savings:
The integration of the supply chain results in cost savings. The costs and the time necessary to transfer
transaction information between the supply chain partners would be greatly reduced because of the Internet.
ii. Reduction in inventory levels:
ESCM results in "extended organizations", which also include the suppliers. This kind of extension enables
the supplier's access to information on inventory, so it can be replenished as and when necessary. This
reduces the need to carry high inventory.
iii. Reduction in procurement cost:
The supplier's access to information on inventory reduces the organization's procurement costs. Since the
suppliers possess the facility to access the inventory and procurement information automatically, the
purchasing management and staff can reduce their involvement in lower value transactions. Their focus can
now be on higher value activities like vendor sourcing and managing relationships with them.
iv. Reduction in cycle time:
ESCM results in improved forecasting accuracy. As a result, organizations will produce products only when
they are needed. This will reduce stock-out costs.
Extended supply chain applications are not meant only for manufacturing companies. Electronic Supply Chain
Management can be beneficial across a wide spectrum of industries: transportation, pharmaceuticals, chemicals,
entertainment and medical services, to name a few. It provides quite a few advantages over traditional ERP. In
fact, ESCM is a logical extension of ERP. ESCM is completing what ERP has begun.
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8. As Operations Manager of the company, I identify the following wastages in production processes using JIT
principles:
i. Waste of overproduction:
JIT eliminates the waste of overproduction by reducing setup times, synchronizing quantities and timing
between subsequent processes, compacting layout, visibility, and so on.
ii. Waste of waiting:
JIT eliminates the wastage of resources, while they wait before processing units, by synchronizing workflow
to the maximum extent possible and balancing uneven loads by using multi-skilled workers and flexible
equipment.
iii. Waste of transportation:
JIT eliminates the wastage of transportation by establishing layouts and locations to make transportation and
materials handling unnecessary, if possible. If these wastages cannot be totally eliminated, it rationalizes
transportation and materials handling to minimize wastage.
iv. Waste of processing:
JIT eliminates the waste of processing by first questioning why the part or product should be made at all, and
then why each process is necessary.
v. Waste of stocks:
JIT reduces the wastage of stocks by shortening setup times and reducing lead times, by synchronizing
workflows and improving work skills, and even by smoothing the demand functions for the product.
vi. Waste of motion:
JIT studies the movements of materials in the process for economy and consistency. Through this study, it
brings in economy to improve the productivity, consistency and quality of the products.
vii. Waste of making defective parts:
JIT develops the production process to prevent defects and eliminate inspection. Each process in JIT
manufacturing rejects defects and makes no defective items. It makes quality products by using a quality
process.