Operations Management (MB241) : July 2006
• This section consists of questions with serial number 1 - 30.
• Answer all questions.
• Each question carries one mark.
• Maximum time for answering Section A is 30 Minutes.
1. A renowned automobile manufacturing company wants to automate its production process in order to
bring efficiency in the process. With regard to this, it has sought the help of an external consultant.
However, the consultant has warned that the company should clearly understand the advantages and
disadvantages of automation before going for it. Which of the following is not an advantage that would
be offered by automation?
(a) Improvement in productivity (b) Efficient use of materials
(c) Reduced factory lead-time (d) Greater flexibility
(e) Improvement in product quality.
< Answer >
2. The planning division of a manufacturing organization wants to formulate its aggregate output plan for
the coming six months on the basis of historical planning data available with it. For this purpose, which
of the following models should it use?
(a) Linear Programming (b) Linear Decision Rules
(c) Heuristic Model (d) Computer Search Model (e) Data Model.
< Answer >
3. Out of the following materials handling equipment, used by a cement manufacturing company, which
one can be classified as a fixed path equipment?
(a) Trucks (b) Forklifts
(c) Mobile cranes (d) Conveyors (e) Tractors.
< Answer >
4. A popular tractor manufacturing company uses an MRP (Materials Requirement Planning) system to
manage its complex production process, that involves many components and sub-assemblies. An MRP
system is used because of the many advantages offered by it. However, it might not be advantageous in
some respects. Which of the following is not an advantage of an MRP system?
(a) Reduced per unit cost of production
(b) Low inventory levels, especially for in-process materials
(c) Lesser time required in implementing the system
(d) Optimized production scheduling
(e) Reduced set-up and tear-down costs.
< Answer >
5. The quality inspection team of the client company has been told by the Quality Control Manager to be
more vigilant in checking whether the products manufactured by the contractee firm were as per the
agreed specifications. This aspect refers to which of the following quality dimensions?
(a) Performance (b) Conformance
(c) Reliability (d) Serviceability (e) Durability.
< Answer >
6. Which of the following is not true about constrained optimization models?
(a) An optimization model reduces the feasible solutions for complex problem to a manageable
number
(b) Optimization models make the decision-making process more objective
(c) Optimization models enable the decision-maker to solve practical problems mathematically
(d) Only an experienced and skilled modeler can formulate a practical problem into an optimization
model
(e) Non-quantifiable criteria like worker motivation level, do not affect the effectiveness of the
solution.
< Answer >
7. If selling price of a product ‘x’ is Rs.45. Variable cost per unit is Rs.40. If fixed cost is Rs.1,00,000.
What will the profit, if sales are Rs.11,25,000
(a) Rs.25,000 (b) Rs.30,000 (c) Rs.40,000 (d) Rs.45,000 (e) Rs.50,000.
< Answer >
2
8. In a big hospital like Seba, the lower-level managers have been arguing for some time that a large
amount of nurses’ were spending time in non-nursing activities. This has resulted in increased hospital
costs, because nurses’ wages are the highest single cost in the operation of the hospital. Which of the
following Work Measurement Techniques will be the most appropriate and economical to use by the top
management to verify the above argument?
(a) Time Study (b) Predetermined Motion Times
(c) Work Sampling (d) Standard Data
(e) Historical Analysis.
< Answer >
9. Which of the following is not true in case of Point Rating technique?
(a) It is based on the ranking of various weighted factors that influence the choice of location
(b) Locations are ranked by the appropriate weightages given to each factor
(c) Evaluation should be only quantitative and not qualitative
(d) Implementation of this type of system requires careful judgment
(e) Location with highest score is considered superior.
< Answer >
10. A firm achieved sales of 1000 units in the month of June when the forecast was for 900 units. The
estimated sales for the month of July for a smoothing constant of 0.1, is
(a) 850 units (b) 870 units (c) 890 units
(d) 910 units (e) 930 units.
< Answer >
11. Which of the following constitute functions of Master Production Schedule?
I. Forecast the aggregate demand.
II. Translate aggregate plans.
III. Identify material requirements.
IV. Generate capacity requirements.
(a) (I), (II) and (III) above (b) (I), (II) and (IV) above
(c) (I), (III) and (IV) above (d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
12. Which of the following is not correct regarding Make-or-Buy Analysis?
(a) Purchase managers, with the assistance of production engineers, generally do a Make-or-buy
analysis for materials
(b) It is made based on the break-even analysis
(c) Lead time is not to be considered for making the decision
(d) Break-even demand is the demand at which the total cost of making a product is equal to the total
cost of buying the product
(e) Managers use this analysis to determine if the purchase cost of a product from a supplier is less
than the production cost if the product was made in-house.
< Answer >
13. In an assembly line of two workstations, the sum of task time is 30 seconds. If the cycle time is 20
seconds, the efficiency of balance is
(a) 66.67% (b) 70 % (c) 75 % (d) 80 % (e) 85%.
< Answer >
14. Which of the following is false in relation to Demand Chain?
(a) Instead of building and operating their supply chain from manufacturer to market, Demand Chain
leaders are creating alliances with those channel partners who are able to fulfill consumers’ needs
and wants
(b) The players in today’s emerging Demand Chains are different from those in traditional supply
chains
(c) Responsibilities are assumed by the Demand Chain as a whole
(d) In a Demand Chain, products don’t necessarily originate from manufacturers
(e) The best scenario exists when every member of the Demand Chain monitors the consumer market.
< Answer >
15. Which of the following is not an advantage of job specialization?
(a) Improvement in work environment for the workers
(b) Simpler work instructions and easy productions control because of consistence in work assignment
(c) Scope for higher degree of mechanization or automation
(d) Ease of supervision and training of workers
(e) Ease in recruiting new workers because fewer skills are required.
< Answer >
3
16. The Average Cycle time in an assembly line is 2.5 minutes and the performance rating of worker is 95
percent, then Normal time is given by
(a) 2.175 min (b) 2.245 min (c) 2.375 min
(d) 2.450 min (e) 2.631 min.
< Answer >
17. Which of the following does not constitute uses of Predetermined Motion Time Studies (PMTS)?
(a) Developing Standards (b) Control and Auditing
(c) Benchmarking (d) Performance Evaluation
(e) Motivating employees.
< Answer >
18. Which of the following is not a feature of Just-in-Time (JIT) purchasing system?
(a) Reduction in production cycle time (b) Improved quality
(c) More responsiveness to customer needs (d) Production improvements
(e) Increased capital requirements.
< Answer >
19. Which of the following are the main reports used in inventory and production control?
(a) Planned Orders (b) Primary reports
(c) Secondary reports (d) Performance reports
(e) Planning reports.
< Answer >
20. Hybrid layout is commonly used to manufacture which of the following products?
(a) Aircraft (b) Car
(c) Television (d) Paper (e) Beer.
< Answer >
21. Which of the following is not a correct assumption of the Economic Order Quantity (EOQ) model
developed by F.W. Harris?
(a) Economies of scale are involved in the purchase of materials
(b) Lead-time for material delivery is known with certainty and remains constant
(c) The cost of executing an order is fixed and is independent of the quantity ordered
(d) Demand for a product is constant and uniform throughout the period
(e) Partial execution of the purchase orders is not possible.
< Answer >
22. Fixed-sequence robots are most useful for which of the following production systems?
(a) Product focused (b) Process focused (c) Job-shop
(d) Intermittent system (e) Production system which uses Functional layout.
< Answer >
23. Lakhan Company Limited wants to forecast the demand of its lawnmowers for the month of July. Actual
and forecasted demand for last five months is as follows:
(in units)
Month Feb Mar Apr May Jun
Forecast 110 120 145 155 180
Actual 80 106 133 162 170
The Mean Absolute Percentage Error (MAPE) of the above data is
(a) 12.98 % (b) 13.98 % (c) 14.98 % (d) 15.98 % (e) 16.98 %.
< Answer >
24. Which of the following is not true with respect to Gantt Charts?
(a) They are simple bar charts used to schedule operations
(b) Their purpose is to provide ease and clarity in communicating the important job shop information
to managers
(c) They are basically of two types: Workload charts and Scheduling charts
(d) They help managers to identify idleness of equipment so as to make the best use of the available
facilities effectively
(e) They also help managers to identify hurdles like production breakdown and human performance.
< Answer >
4
25. Which of the following is not true with respect to Project Crashing?
(a) The process of reducing the time of the project by reducing some of the activity times is called
crashing
(b) Subcontracting, using the services of overtime labour and adding an extra shift are some of the
general approaches for crashing the project time
(c) As the Project Crashing approaches are expensive, managers need to make an analysis of time-cost
tradeoffs that reduce the project duration with a minimum increase in cost
(d) For this purpose, we need to find out Normal Cost, Normal Time, Crash Cost and Crash Time
(e) We select the critical activity that has the minimum completion time.
< Answer >
26. Which of the following is not true regarding Acceptance Plans used in quality control?
(a) They help to decide whether lots of raw materials, purchased parts and finished goods meet
prescribed quality standards
(b) On the basis of Acceptance Plans, operations managers can either accept or reject a lot
(c) Acceptance Plans have large sample sizes
(d) Acceptance Plans protect an organization by limiting the percentage of defective products that are
shipped to customers
(e) Average Outgoing Quality Curves and Operating Characteristic Curves are two important concepts
of Acceptance Plans.
< Answer >
27. Companies prefer to choose Asian countries for low-labor-cost services such as electronics assembly,
textile making and ITES. Which of the following strategic advantage they are trying to derive by
adopting this policy?
I. Comparative advantage.
II. Economies of scale.
III. Proprietary product technology.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (I) and (II) above
(e) Both (II) and (III) above.
< Answer >
28. Which of the following statements is not true regarding Product Life Cycle?
(a) The first stage in the life cycle of a product is Introduction stage
(b) In the Introduction stage, sales begin as a result of intense promotion and other marketing efforts,
and profits are either less or negative
(c) In the growth stage, there is a high growth rate in the sales volume and organizations emphasize on
production capacity expansion
(d) In the maturity stage, the growth rate in sales decreases but sales continue to be either constant or
increase slowly
(e) The activities in the Operations Department that are related to the product development and design
are more intense in the later stages of the Product Life Cycle.
< Answer >
29. A tractor manufacturing company uses infrared imaging to examine the problem areas identified without
dismantling the machine, so that the extent of damage can be determined before stopping the machine.
This is an example of
(a) Remedial Maintenance (b) Predictive Maintenance
(c) Centralized Maintenance (d) Decentralized Maintenance
(e) Contract Maintenance.
< Answer >
30. Which of the following is not true about Business Process Re-engineering (BPR)?
(a) It is the fundamental rethinking and radical redesign of business processes to achieve dramatic
improvement in critical, contemporary measures of performance such as cost, quality, service and
speed
(b) It revolves around Information Technology (IT) and continuous change
(c) It involves constant refinement of an organization’s changing needs
(d) BPR came to replace the outdated and overly simplistic views implied by downsizing
(e) BPR makes companies more employee-focused.
< Answer >
END OF SECTION A
5
Section B : Problems/Caselets(50 Marks)
• This section consists of questions with serial number 1 – 6.
• Answer all questions.
• Marks are indicated against each question.
• Detailed workings/explanaitons should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.
1. Vivek Food Products Ltd. has four units of production at four different locations, namely P1, P2, P3 and P4. The
company maintains four different stock yards in different parts of the country namely S1, S2, S3 and S4. The
transport cost per ton of product from each plant to each stockyard is as given below:
The monthly capacities at the plants are:
P1 = 120 tons P2 = 200 tons P3 = 85 tons P4 = 95 tons
The monthly average demands from different stock yards are:
S1 = 125 tons S2 = 160 tons S3 = 140 tons S4 = 75 tons
You are required to determine how much quantity should be transported from each plant to each stockyard per
month to minimize transportation costs, using
a. North – West corner method.
b. Vogel’s approximation method.
(2 + 6 = 8 marks) < Answer >
2. Swaraj Switchgears (P) Ltd. requires 2000 power springs every year. The cost per unit of this item is Rs.200. The
holding cost associated with this item is 20%. Each order costs Rs.400 to the company.
The following three strategies are available for the procurement:
i. Place four orders of equal size every year.
ii. Place the order for 1000 units at a time and avail a discount of 10% on the cost of items.
iii. Follow EOQ policy.
You are required to find the best strategy out of the three stated above. Justify your recommendation.
(8 marks) < Answer >
3. There are five jobs which have been assigned letters P, Q, R, S and T in the order they arrived on the shop floor
i.e., job P arrived first, job Q second and so on. The time remaining (number of days until due) and work
remaining (number of days) are shown in the following table:
Job No. of days until due No. of days of work remaining
P 9 7
Q 3 6
R 12 8
S 7 4
T 5 3
You are required to sequence the given jobs by using the following priority rules:
6
a. First in, first serve.
b. Earliest due date.
c. Shortest processing time.
d. Longest processing time.
e. Critical ratio.
(1 + 1 + 1 + 1 + 2 = 6 marks) < Answer >
4. Lalitha Machine Works wishes to assign a set of jobs to a set of machines. The processing times (in minutes) of
four jobs 1,2,3,4 which are assigned to machines A,B,C,D are given below:
Jobs Machines
A B C D
1 19 10 8 7
2 17 8 7 12
3 10 5 6 9
4 15 9 5 10
You are required to
a. Determine the optimum processing sequence using Johnson’s Rule.
b. Find the total elapsed time.
(5 + 3 = 8 marks) < Answer >
Caselet
Read the following caselet carefully and answer the following questions:
5. As a Consultant to M&M Ltd., how will you implement BPR? Discuss the various steps that you would have
taken in this regard.
(10 marks) < Answer >
6. What do you think would have been the possible benefits to M&M due to implementation of BPR? What types
of organizational resistances do you expect in general in the process of implementing BPR and how would you
propose to tackle them?
(10 marks) < Answer >
Mahindra & Mahindra – Implementing BPR
Background Note
Mahindra & Mahindra Ltd. (M & M), is the flagship company of the Mahindra group, one of the top ten industrial
houses in India. The company started in 1945, when two brothers, J C Mahindra and K C Mahindra, decided a
business of general-purpose utility vehicles. The brothers formed a company, Mahindra & Mohammed Ltd., in
association with their friend Ghulam Mohammed. In October 1947, the first batch of 75 jeeps was released for the
Indian market. In 1948, the company was renamed Mahindra & Mahindra Ltd. Over the next few decades, the group
promoted many companies and diversified its business into hotels, financial services, auto components, information
technology, infrastructure development and trading to name a few.
M & M’s core activities were automotive and tractors and they were autonomous business units. The two main
operating divisions of the company were the automotive division, which manufactured UVs and LCVs, and the farm
equipment division, which made tractors and farm implements. The company employed over 17,000 people and had
six state-of-the-art manufacturing facilities spread over 500,000 square metres. The plants were situated at Kandivili
(MUVs and Tractors), Nasik (MUVs), Zaheerabad (LCVs, Voyager Cars, Three-wheelers), Igatpuri (Engines) and
Nagpur (Implements and Tractors). The Kandivili and Nagpur plants were the production hubs for the farm equipment
division. The division was a successful exporter to many countries such as U.S.A., South Africa, Sri Lanka,
Bangladesh, Nepal, Zimbabwe and several European countries.
M & M’s Operations
M & M used batch manufacturing, in which parts were accumulated and processed together repeatedly for
manufacturing items of a similar nature. They also used traditional form of product development which was
product/function centric – (i.e., R & D, manufacturing and other departments worked in isolation at the development
stage and came together only at the assembly stage).
7
M & M’s Problem Plants
In the mid-1990s, M & M was facing serious problems at its Igatpuri and Kandivili plants in Maharashtra. The plants
were suffering from manufacturing inefficiencies, poor productivity, long production cycle, and sub-optimal output.
The reason behind this was highly under-productive, militantly unionized, and bloated workforce. The company had
over the years been rather lenient towards running the plants and the management had frequently crumbled under the
pressure of union demands.
The work culture was also reportedly very unhealthy and corruption was widespread in various departments. Alarmed
at the plants’ dismal conditions, Chairman Keshub Mahindra tried to address the problem by sacking people who
allegedly indulged in corrupt practices. M & M also tried to implement various Voluntary Retirement Schemes (VRS),
but the unions refused to cooperate and the company was unable to reduce the labor force.
During this period, M & M was in the process of considering the implementation of a Business Process Reengineering
(BPR) program throughout the organization including the manufacturing units. Due to the problems at the Igatpuri and
Kandivili plants, M & M decided to implement the program speedily at its manufacturing units. The program,
developed with the help of the UK-based Lucas Engineering Systems, was first implemented on an experimental basis
at the engine plant in Igatpuri. Simultaneously, an exercise was initiated to assess the potential benefits of
implementing BPR and its effect on the unions.
M & M’s management was not surprised to learn that the unions expressed extreme displeasure at the decision to
implement BPR and soon went on a strike. However, this time around, the management made it clear that it would not
succumb to union demands. Soon, the workers were surprised to see that the company’s senior staff come down to the
plant and started working in their places. With both the parties refusing to work out an agreement, observers began
casting doubts on the future of the company’s grand plans of reaping the benefits of BPR.
END OF SECTION B
Section C : Applied Theory (20 Marks)
• This section consists of questions with serial number 7 - 9.
• Answer all questions.
• Marks are indicated against each question.
• Do not spend more than 25 -30 minutes on section C.
7. A company producing steel is facing wide fluctuations in demand for the last six months. The production is also
getting hampered due to non-availability of required resources such as labor, plant capacity and raw materials.
As Operations Manager of the company, briefly describe the various strategies you will undertake to counter the
above problems.
(8 marks) < Answer >
8. A renowned automobile manufacturing company has been receiving lots of complaints from the customers
regarding defective doors and frequent engine problems in their cars over the last six months. The company has
finally decided to go for Total Quality Management (TQM) as a remedial step to solve the problems of defects
and achieve world class quality in its products.
Describe in detail the concept of TQM and outline the various tools that shape the TQM philosophy.
(8 marks) < Answer >
9. V-mart a leading retail chain has been facing lot of problem regarding it’s supplies and facing occasional stock
outs in its food items and provisions section. It has studied its past data and has asked you to help them improve
their supply chain. What business drivers will you select to improve its supply chain?
(4 marks) < Answer >
END OF SECTION C
END OF QUESTION PAPER
8
Suggested Answers
Operations Management (MB241) : July 2006
Section A : Basic Concepts
1. Answer : (d)
Reason: Automated systems are less customizable in terms of the variety of products that can be
manufactured when compared with manually operated systems. So, there is less flexibility and
hence option (d) is not an advantage that would be offered by automation.
Options (a), (b), (c) and (e) are all advantages of automation.
< TOP >
2. Answer : (c)
Reason: The organization should use Heuristic Model, as such a model is based on historical aggregate
planning data available with it. Hence option (c) is the correct answer
< TOP >
3. Answer : (d)
Reason: Conveyors are an example of fixed path materials handling equipment. A fixed path materials
handling equipment moves in a fixed path. Hence option (d) is the correct answer.
Options (a), (b), (c) and (e) are all examples of variable path materials handling equipment.
< TOP >
4. Answer : (c)
Reason: An MRP system is used to manage dependent demand inventories and schedule production
activities. However, the time required for planning and implementing an MRP system is
generally very long, because of the complexities involved.
Hence, from above discussion we can infer that option (c) is not an advantage of an MRP
system.
Options (a), (b), (d) and (e) are all advantages of an MRP system..
< TOP >
5. Answer : (b)
Reason: Conformance is the quality dimension which refers to the degree to which a product is
manufactured to the agreed specification. Hence option (b) is the correct answer.
< TOP >
6. Answer : (e)
Reason: (a) This is a true statement about Constrained Optimization Model (COM). An optimization
model is so informative that it reduces the feasible solutions for an otherwise complex
problem to a manageable number. It also clarifies the situation for the decision-maker,
enabling him to evaluate the alternatives.
(b) This is a true statement for COM. Optimization models make the decision-making
process more objective. They help resolve the disagreement of conflicting constraints and
help the decision-maker to obtain an acceptable solution.
(c) This is a true statement for COM. Optimization models enable the decision0maker to
solve practical problems mathematically, or by using a computer, which is otherwise not
possible.
(d) This is a true statement for COM. Optimization models also have inherent drawbacks.
They can sometimes result in poor decisions. Only an experienced and skilled modeler
can formulate a practical problem into an optimization model. Omission of any of the
decision variables or constraints could result in a disastrous situation wherein the solution
obtained is far from being optimal.
(e) This is not true for COM. The solution obtained for the model is not always the
optimal solution for the real problem underlying the model. This is because models
evaluate the solutions only with respect to a few quantifiable criteria. Non quantifiable
criteria like worker motivation level that are not taken into account while evaluating the
alternatives often affect the effectiveness of the solution arrived at through a model.
< TOP >
9
7. Answer: (a)
Reason :
Sales=11,25,000
In units=11,25,000/45=25,000
Sales 11,25,000
Variable cost(25000X40) 10,00,000
Contribution 1,25,000
Fixed cost 1,00,000
Profit 25,000
< TOP >
8. Answer : (c)
Reason: Work Sampling is a technique of analyzing work by taking a number of observations,
usually, at random, to see the relative frequency with which various elemental activities take
place. It is less costly, and is particularly useful to observe lengthy work cycles. It is an
economical way to observe many workers performing a single operation that is widespread in
the organization. It is usually used to measure the performance of workers involved in doing
indirect labour jobs.
In this case, nurses perform similar types of work and it is an indirect labour job. So, Work
Sampling technique will be the most appropriate to use by the top management.
Hence, from above discussion, we can infer that option (c) is correct.
Option (a) is incorrect. Time Study involves a process of timing a worker as the job is done,
summing up the times for the necessary elements of the job, incorporating a time allowance
for personal and rest breaks, and estimating the total time that is required to perform the job. It
is not applicable here.
Option (b) is incorrect. Predetermined Motion Times is a technique of setting work standards
that uses the recorded data on standard time for each of the basic motions associated with
performing a task and sums them up to determine the time required to perform the whole task.
It is not applicable here.
Option (d) is incorrect. Standard Data is a technique in which standards for any new common
tasks are determined based on the standards previously set for old common tasks. A database
of work element durations with information obtained through previous studies is used as
standard data. It is not applicable here.
Option (e) is incorrect. Historical Analysis makes use of historical data to set work standards.
In this technique, the output of a particular worker or department, over a specific period of
time, is divided with the number of work hours expended to arrive at the normal time
(assuming that the performance was consistent over the period of time). It is not applicable
here.
< TOP >
9. Answer : (c)
Reason: Point Rating technique is based on the ranking of various weighted factors that influence the
choice of location. Here, evaluation should not only be quantitative, rather it should be more
qualitative as the information required to make the decisions is often incomplete, and the
prediction of the future conditions difficult.
Hence, from above discussion, we can infer that option (c) is not true in case of Point Rating
technique.
Option (a) is true because it is the definition of Point Rating technique.
Option (b) is true because locations are ranked by the appropriate weightages given to each
factor.
Option (d) is true because implementation of this type of system requires careful judgement.
Option (e) is true because location with highest score is considered superior.
< TOP >
10. Answer : (d)
Reason: FJuly = α DJune + (1 – α) FJune
= 0.1 × 1000 + (1 – 0.1)900
= 100 + 810 = 910 units.
< TOP >
10
11. Answer : (d)
Reason: The functions of Master Production Schedule are translate aggregate plans, evaluate
alternative schedules, identify material requirements, generate capacity requirements and
effectively utilise the capacity. Forecasting the aggregate demand is not a function of MPS.
After forecasting aggregate demand MPS is prepared.
< TOP >
12. Answer : (c)
Reason: A Make-or-Buy analysis is used to find out whether it is feasible to manufacture parts inhouse
at a lower cost or procure them from external vendors more cheaply. Lead time has to
be considered before arriving at the Make-or-Buy decision.
Hence, from above discussion, we can infer that option (c) is not correct regarding Make-or-
Buy analysis.
Option (a) is correct, as purchase managers, with the assistance of production engineers,
generally do a Make-or-Buy analysis for materials.
Option (b) is correct, as it is made based on the break-even analysis.
Option (d) is correct, as Break-even demand is the demand at which the total cost of making a
product is equal to the total cost of buying the product.
Option (e) is correct, as it is the definition of Make-or-Buy analysis.
< TOP >
13. Answer : (c)
Reason: Efficiency =
T
Na × C
Where T = Sum of task times
Na = Actual number of workstations
C= Cycle time
Efficiency =
30
2 20
30
0.75 or 75%.
× 40
= =
< TOP >
14. Answer : (b)
Reason: Demand Chain focuses on the end-user. This focus on the end-user is fueling a paradigm shift
from supply to demand, causing companies to reexamine their roles in the supply chain.
Moreover, the players in today’s emerging demand chains are the same as those in traditional
supply chains.
Hence, from above discussion, we can infer that option (b) is false in relation to Demand
Chain.
Option (a) is true because instead of building and operating their supply chain from
manufacturer to market, Demand Chain leaders are creating alliances with those channel
partners best able to fulfill consumers’ needs and wants.
Option (c) is true because responsibilities are assumed by the Demand Chain as a whole.
Option (d) is true because in a Demand Chain, products don’t necessarily originate from
manufacturers; rather they can be developed at any point and by any player in the Chain,
based upon consumer information gathered by any entity and shared with all the partners.
Option (e) is true because the best scenario exists when every member of the Demand Chain
monitors the consumer market.
< TOP >
15. Answer : (a)
Reason: Improvement in work environment for workers is an advantage of automation. The other
alternatives are advantages of job specifications.
< TOP >
16. Answer : (c)
Reason: Normal time = Average Cycle time x Performance rating
= 2.5 x 0.95 = 2.375 min
< TOP >
17. Answer : (e)
Reason: Motivating employees is not a use of PMTS. The uses of PMTS are developing standards,
control and auditing, benchmarking and performance evaluation.
< TOP >
11
18. Answer : (e)
Reason: There shall be reduced capital investment because of reduced investment in inventory and
space requirements. The features of JIT are increased utilisation of machinery and equipment,
reduced investment in inventory, improvement in the quality and product or service, reduction
in space requirement of the firm, reduction in production cycle time, zero inventory storage
and maintenance costs, closer relationship with suppliers, reduction in formal paper work,
higher involvement of employees as they are responsible for the quality of goods that they
produce.
< TOP >
19. Answer : (b)
Reason: Primary reports are the main reports that are used in inventory and production control.
(a) Planned orders – It is a simple report that defines the quantity of inventory required in
the specific time period. It includes information about all inventory requirements during
the planning period.
(c) Secondary reports – are optional reports that assist operations managers in assessing the
performance of the inventory management system.
(d) Performance reports – inform about the performance of the MRP system.
(e) Planning reports – contain information about material requirements such as inventory
forecasts, purchase commitment report and long range material requirement planning
information.
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20. Answer : (c)
Reason : Hybrid layout is a combination of different types of layouts. For example, a plant may have
basically adopted a process layout, but one section of it could be using a product layout. e.g.
television.
Hence, from above discussion, we can infer that option (c) is correct.
Option (a) is incorrect. Aircraft manufacturing makes use of a fixed position layout.
Option (b) is incorrect. Car manufacturing makes use of a product layout.
Option (d) is incorrect. Paper manufacturing is an example of process manufacturing.
Option (e) is incorrect. Beer manufacturing is an example of process manufacturing.
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21. Answer : (a)
Reason : As per the Economic Order Quantity (EOQ) model developed by F.W.Harris, the cost of an
item is independent of the order quantity i.e., no economies of scale are involved in the
purchase of materials.
Hence, from above discussion, we can infer that option (a) is not a correct assumption of the
Economic Order Quantity (EOQ) model developed by F.W. Harris.
Options (b), (c), (d) and (e) are all correct assumptions of the Economic Order Quantity
(EOQ) model.
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22. Answer : (a)
Reason : Product Focussed Design is mostly used in production departments that are organized
according to the type of product or service being produced. A narrow range of activities is
performed repeatedly on only a few product designs.
Fixed sequence robots perform a sequence of operations according to a given set of
procedures. These robots are not very flexible and they lack the versatility to change their
work sequence. Hence they are used to perform a limited or fixed number of activities and are
ideal for Product Focussed production system.
Hence, from above discussion, we can infer that option (a) is correct.
Option (b) is incorrect. In Process Focussed Design, similar equipment or functions are
grouped together. It is usually used to produce small quantities (or batches) of different items
on relatively general-purpose machinery. It requires flexible robots like variable sequence
robots.
Option © is incorrect. Job-shop is another name for Process Focussed Design, which is not
applicable here.
Option (d) is incorrect. Intermittent system is another name for Process Focussed Design,
which is not applicable here.
Option (e) is incorrect. Functional layout is another name for Process Focussed Design, which
is not applicable here.
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12
23. Answer : (b)
Reason : MAPE =
100
n
⎛ ⎞
⎜ ⎟
⎝ ⎠.
n t t
t 1 t
A F
A
−
= Σ
.
Month Forecast
(Ft) Actual (At) At–Ft
t t
t
A F
A
− t t
t
A F
A
−
Feb 110 80 –30 –0.375 0.375
Mar 120 106 –14 –0.132 0.132
Apr 145 133 –12 –0.090 0.090
May 155 162 +7 +0.043 0.043
Jun 180 170 –10 –0.059 0.059
Total 0.699
∴MAPE =
100
5 × 0.699
= 13.98 %.
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24. Answer : (e)
Reason : Gantt Charts are simple bar charts used to schedule operations. However, they do not account
for hurdles like production breakdown and human performance.
Hence, from above discussion, we can infer that option (e) is not true with respect to Gantt
Charts.
Option (a) is true because it is the definition of Gantt Charts.
Option (b) is true because their purpose is to provide ease and clarity in communicating the
important job shop information to managers.
Option © is true because they are basically of two types: Workload charts and Scheduling
charts.
Option (d) is true because they help managers to identify idleness of equipment so as to make
the best use of the available facilities effectively.
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25. Answer : (e)
Reason : Project Crashing refers to the process of reducing the time of the project by reducing some of
the activity times. We select the critical activity that has the least per unit crash cost and is not
at its minimum completion time.
Hence, from above discussion, we can infer that option (e) is not true with respect to Project
Crashing.
Option (a) is true, as it is the definition of Project Crashing.
Option (b) is true. Subcontracting, using the services of overtime labour, adding an extra shift
are some of the general approaches for Project Crashing.
Option © is true. Managers need to make an analysis of time-cost tradeoffs that reduce the
project duration with a minimum increase in cost, since Project Crashing approaches are
expensive.
Option (d) is true. We need to find out Normal Cost, Normal Time, Crash Cost and Crash
Time for the purpose of Project Crashing.Option (d) is incorrect. Assembly line is another
name for Product Focused Design, where Fixed-sequence robots are more appropriate.
Option (e) is incorrect. Line flow is another name for Product Focused Design, where Fixedsequence
robots are more appropriate.
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26. Answer : (c)
Reason : Acceptance Plans help to decide whether lots of raw materials, purchased parts and finished
goods meet prescribed quality standards.
Acceptance Plans do not have large sample sizes because their inspection costs are higher.
Hence, from above discussion, we can infer that option © is not true regarding Acceptance
Plans used in quality control.
Option (a) is true, as it is the definition of Acceptance Plans.
Option (b) is true. Operations managers can either accept or reject a lot, on the basis of
Acceptance Plans.
Option (d) is true. Acceptance Plans protect an organization by limiting the percentage of
defective products that are shipped to customers.
Option (e) is true. Average Outgoing Quality Curves and Operating Characteristic Curves are
two important concepts of Acceptance Plans.
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27. Answer : (a)
Reason : (a) This is the right answer. Organizations generally globalize their operations for either
market seeking or resource seeking reasons. That is, organizations will establish their
units where they can derive comparative advantages. When a country or countries have
significant advantages in factor cost or quality of manufactured product, these countries
will be the sites of production and exports will flow to other parts of the world. Global
organizations generally prefer to locate their production sites in those countries where
they can access abundant natural resources or low labor cost resources, in order to serve
their customers in the industrialized countries better. For instance, companies prefer
countries in the middle east or Venezuela for processing oil, Latin America for
processing tropical fruits, and Asian countries for low-labor-cost services such as
electronics assembly, textile making and ITES.
(b) This is the wrong answer. By globalizing their activities, organizations not only derive
global experience, but also obtain the benefits of economies of scale in their production
and marketing activities. If there are economies of scale in production, organizations can
achieve a cost advantage through centralized production and global competition. In such
cases, cumulative volume per model is greater if the model is sold in many national
markets, leading to a cost advantage for the global competitors. Toyota and Sony are
some of the organizations that have adopted such policy to derive this benefit. Global
organization can obtain economies of scale in purchasing and marketing functions also.
(c) This is the wrong answer. Globalization can result in many advantages for firms that
have the ability to apply proprietary technology in several national markets. Intel’s
dominance in the microprocessor markets for personal computers in the early 1990s is
the result of such an advantage. The ability is particularly important for organizations
manufacturing products like computers, semiconductors, computer chips, aircrafts and
turbines wherein investments in research are large relative to the sales of individual local
products. In these industries, minor advances in technology are so costly that firms
require global sales to recoup them.
(d) This is the wrong answer. Although the sources of global advantage are different, they
often occur in combination, and there can be interactions among them. But in the case of
the electronics assembly, textile and IT enabled services, it is the comparative advantage
in terms of low wage rate, cheap skilled man power, low rents and overall low operating
cost is the reason that these companies are opening their offshore plants or offices in
Asian countries.
(e) This is the wrong answer. It is also wrong, as there is no application of proprietary
technology and economies of scale working in combination in this case. It is only the
comparative advantage that is attracting these companies to Asian countries.
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28. Answer : (e)
Reason : The activities in the operations department that are related to the product development and
design are more intense in the initial phases of the Product Life Cycle. The intensity of these
activities diminishes as the product moves through the stages and shifts towards maintaining
the market share and improving the quality in production.
Hence, from above discussion, we can infer that option (e) is not true regarding Product Life
Cycle.
Option (a) is correct because the first stage in the life cycle of a product is Introduction stage.
Option (b) is correct because in the Introduction stage, sales begin as a result of intense
promotion and other marketing efforts, and profits are either less or negative.
Option (c) is correct because in the growth stage, there is a high growth rate in the sales
volume and organizations emphasize on production capacity expansion.
Option (d) is correct because in the maturity stage, the growth rate in sales decreases but sales
continue to be either constant or increase slowly.
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14
29. Answer : (b)
Reason : The set of Irregular Preventive Maintenance activities, which detect problems while the
equipment is still performing at satisfactory levels and rectify the problems when the
equipment is not scheduled to be used are referred to as Predictive Maintenance activities.
Newly developed sophisticated technologies are used in this type of Maintenance.
Hence, from above discussion, we can infer that option (b) is correct.
Option (a) is incorrect. Remedial Maintenance includes activities that restore facilities and
equipment to an acceptable working condition after a breakdown or malfunction has occurred
or the normal operations hindered. So, it is not applicable here.
Option (c) is incorrect. In Centralized Maintenance, there is one large maintenance department
for the whole company. So, it is not applicable here.
Option (d) is incorrect. In Decentralized Maintenance, there are small maintenance
departments for each part of the company. Such departments may be justified if each part of
the company needs a different special skill, special equipment, or very rapid response. So, it is
not applicable here.
Option (e) is incorrect. Contract Maintenance involves giving maintenance work to outsiders
on a contract basis. Occasionally, highly specialized or seasonal maintenance work may be
contracted. So, it is not applicable here.
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30. Answer : (e)
Reason : Dr. Michael Hammer defines BPR as “the fundamental rethinking and radical redesign of
business processes to achieve dramatic improvement in critical, contemporary measures of
performance such as cost, quality, service and speed.”
BPR makes companies more customer-focused and responsive to changes in the market.
< TOP >
Section B : Problems/Caselets
1. a. North – West Corner Method.
S1 S2 S3 S4 Supply
P 8 14 7 10 1 120 120
P 9 6 4 7 2 5 160 35 200
P 6 8 12 5 3 85 85
P 12 4 9 3 4 20 75 95
Demand 125 160 140 75 500
Total cost = 120 × 8 + 5 × 9 + 160 × 6 + 35 × 4 + 85 × 12 + 20 × 9 + 75 × 3
= Rs.3,530 thousand or Rs.35.3 lakhs.
b. Vogel’s Approximation Method:
Tableu 1
S1 S2 S3 S4 Supply Row
penalty
P 8 14 7 10 1 120 1
P 9 6 4 7 2 140 200 2
P 6 8 12 5 3 85 1
P 12 4 9 3 4 95 1
Demand 125 160 140 75 500
Column
Penalty
2 2 3 2
Tableu 2
15
S1 S2 S4 Supply Row
penalty
P 8 14 10 1 120 2
P 9 6 7 2 60 1
P 6 8 5 3 85 1
P 12 4 3 4 75 95 1
Demand 125 160 75 360
Column
Penalty 2 2 2
Tableu 3
S1 S2 Supply Row penalty
P1 8 14 120 6
9 6
P2 60 3
P 6 8 3 85 2
P 12 4 4 20 20 8
Demand 125 160 285
Column
Penalty 2 2
Tableu 4
S1 S2 Supply Row
penalty
P 8 14 1 120 120 6
P 9 6 2 60 3
P 6 8 3 85 2
Demand 125 140 265
Column
Penalty
2 2
S1 S2 Supply Row
Penalty
P 9 6 60 2 60 3
P 6 8 85 3 5 80 2
Demand 5 140 145
Penalty 3 2
Final Allocation Matrix
S1 S2 S3 S4 Supply
P 8 14 7 10 1 120 120
P 9 6 4 7 2 60 140 200
P 6 8 12 5 3 5 80 85
P4
12 4 9 3 95
16
20 75
Demand 125 160 140 75 500
Total cost = 120 × 8 + 60 × 6 + 140 × 4 + 5 × 6 + 80 × 8 + 20 × 4 + 75 × 3
= Rs.2,855 thousand or Rs.28.55 lakhs.
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2. Annual demand, D = 2000 units
Ordering cost, Co = Rs.400 per order
Cost per unit, C = Rs.200
Inventory carrying cost, Cn = 200 × 100
20
= Rs.40 per unit.
Strategy I : Four orders of equal size i.e. each order would be of 4
2000
= 500 units.
∴Total cost = Ordering cost + Inventory carrying cost + Cost of items
= 4 × 400 + 2
1
× 500 × 40 + 2000 × 200
= 1600 + 10,000 + 4,00,000
= 4,11,600
Strategy II : Here order size = 1000 units
∴Ordering cost = 2 × 400 = Rs.800
Inventory carrying cost =
1
2 × 1000 × 200 × (1.00 – 0.10) × 0.20 = Rs.18,000
∴Total cost = 800 + 18,000 + 3,60,000
= 3,78,800
Strategy III : EOQ = n
o
C
2DC
= 40
2× 2000× 400
= 40000 = 200
∴ Ordering cost = 400 × 200
2000
= Rs.4,000
Inventory carrying cost = 2
1
× 200 × 0.20 × 200 = Rs.4,000
Total cost = 4,000 + 4,000 + 4,00,000
= 4,08,000
From the above calculation that total minimum cost is Rs.3,78,800 which relates to strategy II. Hence it is
recommended that the company should place orders for 1000 units at a time.
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3. (The numerical values included in brackets are for reference.)
Rank
First in,
First
Serve
Earliest due
date
Shortest
processing
time
Longest
processing
time
Critical
Ratio
1st P Q(3) T(3) R (8) Q (0.5)
2nd Q T(5) S (4) P(7) P (1.28)
3rd R S(7) Q (6) Q (6) R (1.50)
4th S P(9) P (7) S(4) T (1.67)
5th T R(12) R (8) T (3) S (1.75)
Critical ratio of P =
9
7 = 1.28
Critical ratio of Q =
3
6 = 0.5.
Critical ratio of R =
12
8 = 1.5.
Critical ratio of S =
7
4 = 1.75
17
Critical ratio of T =
5
3 = 1.67.
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4. Here, minimum time on machine A = 10 minutes.
Maximum times on machines B and C are 10 minutes and 8 minutes respectively.
Since the minimum time on machine A is equal to and less than the maximum times on machines B and C
respectively, the problem can be proceeded further.
Now, we assume two fictitious machines E and F, whose processing times are given below.
Jobs E = A1 + A2 + A3 F = A2 + A3 + A4
1 37 25
2 32 27
3 21 20
4 29 24
a. The optimum processing sequence is as under:
2 1 4 3
b. The calculation of total elapsed time is shown below.
Jobs A B C D
2 0-17 17-25 25-32 32-44
1 17-36 36-46 46-54 54-61
4 36-51 51-60 60-65 65-75
3 51-61 61-66 66-72 72-81
Therefore, the total elapsed time is 81 minutes.
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5. As a Consultant to the company, I would have taken the following steps to implement BPR:
i. State a Case for Action:
The need for change should be effectively communicated to company employees through educational and
communication campaigns. Two key messages that are to be delivered are : (1) a need for action and (2) a
vision statement
ii. Identify the Process:
All major processes in an organization should be initially identified. However, not all major processes
should be reengineered at the same time. The following questions define the criteria for selecting processes
for reengineering:
• Which processes are currently most problematic?
• Which processes are critical to accomplishing company strategy and have the greatest impact on the
company’s customer?
• Which processes are most likely to be successfully redesigned?
• What is the project scope, and what are the costs involved?
• What is the strength of the reengineering team, and the commitment of process owners and sponsors?
• Can continuous improvement deliver the required improvements?
• Is the process antiquated or is the technology outdated?
Responses to these questions should be weighted in accordance with the company’s need for improvement.
The selected process should have a manageable reengineering project scope with well-defined process
boundaries.
iii. Evaluate Enablers:
Information technology and human/organizational issues act as enablers of the reengineering process.
Technology evaluation has now become a core competency required of all companies. The company
should develop the ability to evaluate current and emerging information technology, and identify creative
18
applications to redesign the existing process.
The current organizational culture should also be evaluated in light of the impending change to be brought
about by reengineering.
iv. Understanding the Current Process:
The current process must be diagnosed as a means to understand it and its relationship to other processes.
Process evaluation techniques such as Assembly Charts, Process Charts and Quality Function Deployment
may be used. As the purpose is not to fix the old process but to create a new, radically better process, there
is no need for detailed time and motion studies.
v. Create a New Process Design:
Process redesign requires beginning with a clean sheet of paper. Reengineers should suspend current rules,
procedures and values so as to create new process designs.
The first emphasis in reengineering a process is to eliminate all waste work. Next, the focus should be on
elimination of non-value-adding work.
vi. Implement the Reengineered Process:
Leadership is critical to the entire reengineering effort. A team leader should be there for proper
coordination. Strong and consistent top management sponsorship is necessary throughout the process.
Support from line managers is also crucial. Employees should be trained in additional skills needed to
perform in the new environment. The reengineered process design forms the basis for a pilot project that is
followed by phased introduction.
While going about BPR, I would like to keep in mind the following principles of reengineering laid down
by Michael Hammer:
1. Organize around outcomes, not tasks.
2. Have those who use the output of the process perform the process.
3. Have those who collect the information process it.
4. Treat geographically dispersed resources as though they were centralized.
5. Link parallel activities instead of integrating their results.
6. Put the decision point where the work is performed, and build control into the process.
7. Capture information once – at the source.
Keeping in mind all the above points, I would have liked to propose the following major changes:
• M & M should adopt a Cellular Layout in which dissimilar machines are grouped into work centers(or
cells) to work on products that have similar shapes and processing requirements.
• Parallel activities should be linked at the development stage itself. Teams should be formed from various
functional departments and they should interact regularly for the entire production process.
• Information Technology should be used to seamlessly integrate all business functions and processes with
each other. Proper IT systems should be installed at M & M’s various plants and they should all be
integrated with a centralized database. A suitable ERP package should be used for the purpose.
< TOP >
6. The possible benefits that would have accrued from implementing BPR in M & M are as follows:
• Reduced working capital levels
• Reduced or eliminated overtime
• Better relationship with the workers at the plants
• Better inventory control
• Better sourcing
• Better order distribution across plants
• Online availability of data
• Transparent access to data
• Process transparency
• Seamless integration among various departments and plants as well as in the supply chain
• Upgradation of manufacturing systems to international standards
Organizational resistances may be in the form of:
• Organizational Inertia
• Corporate Culture
19
• Front-line Resistance
• Management Resistance
Following steps can be taken to tackle organizational resistances:
i. Constant and Diverse Communication:
It involves explaining the need for and the logic of change to individuals. It involves providing adequate
information and making sure that the change is clearly communicated to those it will affect.
Communication can be achieved through face-to-face discussions, formal group presentations, or special
reports or publications.
ii. Training of Employees:
Employees should be properly trained on the new process and systems to be used.
iii. Participation and Involvement:
Resistance tends to be less pronounced when the individuals who will be affected by the change are allowed
to participate in planning and implementing it. Personal involvement through participation tends to defuse
both rational and irrational fears about a change.
iv. Facilitation and Support:
When fear and anxiety are responsible for resistance to doing things in a new and different way,
encouragement and support from the management in the form of special training, job-stress counseling and
compensatory time-off can be helpful.
v. Negotiation and Agreement:
Negotiation can be a particularly important strategy when one group perceives that it will be hurt by the
change and is in a position to cause the change effort to fail. In this method, management neutralizes
potential or actual resistance by exchanging something of value for cooperation.
< TOP >
Section C: Applied Theory
7. The fluctuations in demand and uncertainties in production activities can be accommodated by performing
several adjustments, such as varying work force size, work force utilization, inventory size, back orders, sub
contracting and plant capacity. If only one of these strategies is implemented without using others, then it is
called a pure strategy. But, normally a combination of two or more strategies is used and is better than just one.
Some of the pure strategies are:
• Varying the workforce size in response to the output requirements
• Varying the utilization of the workforce
• Varying the size of inventory
• Back orders, sub contracting and plant capacity.
The advantages and disadvantages of each of these strategies are discussed below:
Varying the workforce size in response to the output requirements: This strategy suggests that a firm might
simply vary the size of the workforce by hiring and laying off employees in direct proportion of demand. The
management can estimate the average productivity per employee and determine the number of employees needed
to meet each month’s output requirement. The employees are laid off when the monthly output declines and can
be hired when there is increase in the monthly output level.
This strategy, however, has many disadvantages. The varying employment level results in very high hiring and
lay off costs. It also involves indirect costs of training new employees and affects the employee morale during
the periods of layoff. Adding to the above disadvantages, the skilled workers may not be readily available when
they are needed and even the community may bear a negative impression towards such organizations. Finally,
the firms having agreements with unions in regard to the wages, hiring and layoffs cannot implement this
strategy.
Varying the utilization of the workforce: This strategy is to maintain a stable work force and vary the
utilization of the workforce in accordance to the demand or required monthly output. When the demand is lean,
the workforce is scheduled to produce only the output forecasts, resulting in some idle work hours and while the
demand is strong or high, the same work force is scheduled with overtime operations. So, the workforce is
overutilized when the demand is high and underutilized when the demand is less.
Although this strategy avoids the hiring and layoff costs associated with the earlier strategy of varying the
workforce size, it incurs overtime cost which is very expensive. The legal and behavioral limits on overtime are
some of the other disadvantages. The employees tend to become inefficient and are prone to job-related
accidents, if they are asked to do a lot of overtime. On the other hand, too much of idle time results in
20
opportunity costs and affects the employee morale.
Varying the size of inventory: This strategy would be to have a constant workforce and level production but
carry sufficiently large amounts of inventory to absorb all demand fluctuations. When the demand is low, the
constant rate of production results in accumulated inventories. When the demand is higher than the capacity, it
will be met by supplying goods from already accumulated inventories. This planning strategy results in
fluctuating inventory levels throughout the planning horizon.
Stable employment, no idle time and no overtime are some of the advantages of this strategy. The disadvantages
are that inventory carrying cost, materials handling cost, storage space requirements, risk of damage and
obsolescence increase with larger inventories.
Back orders, sub contracting and plant capacity: The other pure strategies are back-orders, sub contracting
and plant capacity. A back-order strategy assumes that customers are willing to wait for delivery and this
effectively smooths out production. But, this strategy may sometimes result in stockout costs where customers
may not wait till the product is delivered and switch off to some other company’s product.
The subcontracting strategy allows level production and gives away the additional required output to the
subcontractors. Apart from the above discussed strategies, adjusting plant capacity by varying toolings and
equipment capacities over both short term and long run is one more pure strategy to absorb demand fluctuations.
< TOP >
8. TQM (Total Quality Management) is not a tool or a product. It is a philosophy that seeks organization-wide
improvement by involving every individual in the organization. It is a deviation from the traditional quality
control methods found in organizations because it preaches that ensuring quality is the responsibility of everyone
in the organization. In this type of philosophy, quality is not restricted to only manufacturing department; rather
it is the responsibility of all other departments in the organization like purchasing department, marketing
department, finance department etc. The traditional systems however, restricted quality only to quality personnel
and manufacturing departments. Ensuring quality was narrowly focused on products meeting the set
specifications. Thus any quality related problem was attributable to the manufacturing department. This narrow
view did not take into consideration the fact that the performance of the manufacturing department is dependent
upon the services rendered to it by other departments. For example, if the purchasing department did not properly
evaluate the raw material supplier, the final quality of the product would be affected adversely. Moreover, delays
in processing documents within the company often result in delay in delivery to the consumers. This has a
negative impact on the image of the company.
The TQM philosophy seeks to remove these discrepancies by making quality control the responsibility of
everyone in the organization. The entire organization is directed toward servicing the customer most effectively.
TQM divides customers into two categories: external customers who consume final goods and services offered
by the company, and internal customers, the employees in the organization. The TQM philosophy believes that
each department should treat the interfacing department as its customers.
A number of tools and techniques are used to give shape to TQM philosophy. The main focus of these tools is on
team building and empowering employees. Some of these tools are:
• Kaizen or continuous improvement in process, skill sets, systems and operations.
• Development of grass root employees through initiatives like Quality Circles.
• Improvement in inter-department coordination and functioning by initiatives like QITs (Quality
Improvement Teams).
• Preventive maintenance of machinery and other capital equipment by initiatives like Total Productivity
Management.
< TOP >
9. Business Drivers in Supply Chain Management:
Supply chain management has become one of the key areas that organizations are focusing on to reduce costs
and improve the efficiency of the production process. Four key drivers of supply chain performance are
inventory, transportation, facilities and information. They help determine not only the responsiveness and
effectiveness, but also the strategic fit of the supply chain.
Inventory
Inventory includes raw materials, work-in-progress and finished goods in the supply chain. Inventory decisions
have considerable influence on the supply chain management system. Inventory exists in organizations due to a
mismatch between demand and supply. Inventory is also maintained to increase the responsiveness of
organizations to sudden increases in customer demand. As inventory is a major source of cost in the supply
chain, organizations need to decide how much inventory they need to store at each level of the supply chain. A
manufacturer will be more responsive to customer demand if he has the stock with him that will allow him to
meet his demand. But, on the other hand, if the manufacturer has large stockpile of inventory, the holding cost
21
will increase. So, the objective of the supply chain management should be to reduce the inventory cost without
compromising the responsiveness of the organization.
Transportatiwon
Organizations use transportation to move components and products between the different stages of the supply
chain. Transportation decisions are made on the mode of transportation and route to use in the transfer of
products from one point to another. However, there is always a trade-off between responsiveness and efficiency.
If an organization uses air transport to transfer its products or components, its responsiveness increases
significantly, but its cost efficiency decreases because of high air transport costs. Similarly, if an organization
uses land or sea transport, its cost efficiency increases but its responsiveness decreases. Key components in
transportation decisions are: selecting the mode of transportation, route and network. Another decision to
consider is, should the organization have transportation infrastructure of their own or should they outsource the
transportation requirements.
Facilities
Facilities are the locations in the supply chain where the raw materials and finished goods are stored, and where
work-in-progress materials are assembled or fabricated and from which finished goods are distributed. Facility’s
capacity and location has significant affect on the performance of the supply chain. More facilities close to
customer may improve the supply chain effectiveness but cost of maintenance of so many facilities will be high.
On the other hand, organizations can have fewer warehouses that cater to different markets. This would reduce
the maintenance cost but their responsiveness would be adversely affected.
Information
Sometimes, the value of information as a supply chain driver is undermined due to its abstract quality. However,
in reality, it is one of the key drivers affecting the performance of the supply chain. As the supply chain is made
up of various entities, proper coordination is the key to improving the efficiency of the supply chain system. The
flow of information also affects the performance of other drivers. With proper information, organizations can
predict the quantity to produce, when it is needed and where it is needed. This makes the supply chain more
effective and responsive to market demand.
< TOP >
< TOP OF THE DOCUMENT >
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