Operations Management

Part A
Discuss the changing philosophy of operations management. What are
the new trends in operations management
ANSWER.
(1) Operations management has two important components namely:
A . Operations systems and procedures
B . Philosophy.
The performance of the organization is greatly influenced by the
philosophy or mental framework of the people involved. management
philosophy influences the decision making and thought process in the
organization. It provides a working environment and work culture & which
makes all the difference to the organization. Operations management is
concerned with all these aspects rather than must producing goods and
services.
In todays operations management & the focus has shifted from the earlier
concept of large scale production and cost reduction to new methodologies&
new approaches& new tools& system(s simplification& continuous
improvements & total quality management and just in time manufacturing.
The operations management are not limiting their options to the new
technologies development & automation and computerization & but are
looking beyond with new approaches and perspectives.
The following are factors affecting Operations Management:
1. Reality of global competition
2. Quality& customer service and cost challenges
3. Rapid expansion of advanced technologies
4.Continued growth of the service sector
5. Scarcity of operations resources

6. Social responsi!ility issues.

Operations management has undergone lots of changes in its concept &

structure and implementation.The three terminologies are interrelated.
1. Manufacturing management
2. Production management
3. Modern operations management
The concept of manufacturing management is more than a century old.
Subdivision of work and specialization of workforce was the focus of
manufacturing management.
Production management became popular in 1930s. A scientific approach &
techniques of doing work or use of techniques in decision making became
the focus of production management. industrial engineering applications&
work measurement& method study & incentive schemes were used to
improve efficiency in operations.
In modern operations management & the focus is on product quality ,
customer satisfaction , technological innovation , collective performance of
management and use of models in better decision making.

New trends in the operations management can be summarized as

under:
1. Global market Place: Globalization of business has compelled many
manufacturing firms to have operations in many countries where they have
certain economic advantages. This has resulted in a step increase in the
level of competition among manufacturing firms throughout the world.
2. Production/Operations Strategy: More and more firms are recognizing the
importance of production/operations strategy for the overall success of their
business and the necessity for relating it to their overall business strategy.
3. Total Quality management (TQM): TQM approach has been adopted by
many firms to achieve customer satisfaction by a never ending quest for
improving the quality of goods and services.

4. Flexibility: The ability to adapt quickly to changes in volume of demand &

in the product mix demanded, and in product design or in delivery schedules,
has become a major competitive strategy and a competitive advantage to
the firms. This is sometimes called as agile manufacturing.
5. Cycle time reduction: Reduction of manufacturing cycle time and speed
to market for a new product provides competitive edge to a firm over other
firms. When companies can provide products at the same price and quality,
quicker delivery (short lead times) provide one firm competitive edge over
the other.

6. Technology: Advances in technology have led to a vast array of new

products& new processes and new materials and components. Automation,
computerization, information and communication technologies have
revolutionized the way companies operate.
7. Work involvement (Workers are not costs, they are assets) : The
recent trend is to assign responsibility for decision making and problem solving
to the lower levels in the organization. This is known as employees involvement
and empowerment. Examples of worker involvement are quality circles and use
of work teams or quality improvement teams.
8. Business process Re-engineering: This involves drastic measures or
break through improvements to improve the performance of a firm. It involves
the concept of clean slate approach or starting from scratch in redesigning the
business processes.
9. Environmental issues: Todays production managers are concerned
more and more with pollution control and waste disposal which are key issues
in protection of environment and social responsibility.
10. Corporate Downsizing (Or right sizing) Down sizing or right sizing
has been forced on firms to shed their obesity. This has become necessary due
to competition& lowering productivity, need for improved profit and for higher
dividend payments to shareholders.
11. Supply chain management: Management of supply chain from
suppliers to final customers reduces the cost of transportation& warehousing
and distribution throughout the supply chain.
12. Lean production: Production systems have become lean production
systems which use minimal amounts of resources to produce a high volume of
high quality goods with some variety. These systems use flexible manufacturing

systems and multi skilled workforce to have advantages of both mass

production and job production.
2. What is the difference in strategy in developing an initial layout for
a new facility as compared to the strategy in improving the layout of an
existing facility?
ANSWER
Facility layout is the way a facility is arranged in order to maximize
processes that are not only efficient but also effective towards overall
organizational goal.

3. Discuss the various factors to be considered to decide the

location of a cement plant? How do the factors differ in case of a nuclear
plant?

ANSWER
Plant location refers to the choice of region and the selection of a particular site
for setting up a business or factory. But the choice is made only after
considering cost and benefits of different alternative sites. It is a strategic
decision that cannot be changed once taken. If at all changed only at
considerable loss, the location should be selected as per its own requirements
and circumstances. Each individual plant is a case on its itself.
Businessman should try to make an attempt for optimum or ideal location.
Examples of plant location in the case of India include, most textile mills are
found in or near Mumbai and Ahmedabad because of the humidity conditions
that prevail there. Another is sites for nuclear power plants to be located in
different parts of the country largely depend upon environmental, safety, socioeconomic and also the engineering factors affecting the construction and
operation of such plants. Lastly, steel plants are generally located near the
Jharkhand, Bengal, Chhattisgarh and Orissa regions. This choice of site is
mainly because of more economical transport of the finished goods as
compared to basic raw materials.

Factors governing cement plant location

1. Regional factors: These factors include proximity of the plant to the
market and also to the sources of the raw materials. They also include
infrastructural facilities, transportation facilities, and availability of skilled
workers, legislation, the taxation and also the work attitude of the workers.
Robinson was the one who has very clearly and efficiently justified
industrial location concerns using pure materials nearer to the markets or the
consumption centers. According to Robinson, the place of production is likely to
be at the place of consumption where the final product is more expensive to
carry because it is more bulky, more fragile or more perishable than is raw
materials.
2. Community factors: These involve accommodation, education,
entertainment and transport facilities. It also includes attitude of the community,
supporting industries and services, suitability of the land etc.

4. Write short notes on:

(a) Capacity requirement plans
Capacity requirement planning (RCP) is an accounting method used to
determine the available production capacity of a company.
Capacity
requirement planning first assesses the schedule of production that has been
planned upon the company. Then it analyses the companys actual production
capacity and weighs the two against each other to see if the schedule can be
completed with the current production capacity.
(b) Rough cut capacity plans
Rough cut capacity planning (RCCP) is the process of converting the
master production schedule into requirements for key resources such as direct
labor and machine time. RCCP is considered as a long term capacity planning
tool that marketing and production use to balance required and available
capacity. As a planning technique, RCCP does not consider scheduled receipts
or on hand inventory quantities when calculating capacity requirements.

(c) Resource requirement plans

Resource requirement plans (RRP), is there to plan the requirements of
productive resurces including machine, workers, fund based on the production
plan. RRP calculates the requirements of each resource by period, referring to
the product load profile, based on the planned production by month. Using the
RRP, the production plan, capacity plan and financial plan are reviewed.

5. Actual demand differs from forecasted demand. How to adjust the

aggregate plan to meet this situation?

Forecasted demand is the estimated quantity of a product or service that

consumers will purchase. Demand forecasting may be used in making pricing
decisions, in assessing future capacity requirements, or in making decisions on
whether to enter a new market. Actual Demand evidenced by customers'
orders and/or allocation of inventory. Aggregate planning is the process of
developing, analyzing, and maintaining a preliminary, approximate schedule of
the overall operations of an organization.
When actual demand differs from forecasted demand aggregate plan the
firm must decide whether to increase or decrease capacity to meet demand or
increase or decrease demand to meet capacity. In order to accomplish this, a
number of options are available.
Options for situations in which demand needs to be increased in order to
match capacity include:
1. Pricing. Varying pricing to increase demand in periods when demand
is less than peak. For example, matinee prices for movie theaters, off-season
rates for hotels, weekend rates for telephone service, and pricing for items that
experience seasonal demand.
2. Promotion. Advertising, direct marketing, and other forms of promotion
are used to shift demand.
3. Back ordering. By postponing delivery on current orders demand is
shifted to period when capacity is not fully utilized. This is really just a form of
smoothing demand. Service industries are able to smooth demand by taking
reservations or by making appointments in an attempt to avoid walk-in
customers. Some refer to this as "partitioning" demand.
4. New demand creation. A new, but complementary demand is created
for a product or service. When restaurant customers have to wait, they are
frequently diverted into a complementary (but not complimentary) service, the
bar. Other examples include the addition of video arcades within movie
theaters, and the expansion of services at convenience stores.

Options which can be used to increase or decrease capacity to match current

demand include:
1. Hire/lay off. By hiring additional workers as needed or by laying off
workers not currently required to meet demand, firms can maintain a balance
between capacity and demand.
2. Overtime. By asking or requiring workers to work extra hours a day or
an extra day per week, firms can create a temporary increase in capacity
without the added expense of hiring additional workers.
3. Part-time or casual labor. By utilizing temporary workers or casual
labor (workers who are considered permanent but only work when needed, on
an on-call basis, and typically without the benefits given to full-time workers).
4. Inventory. Finished-goods inventory can be built up in periods of slack
demand and then used to fill demand during periods of high demand. In this
way no new workers have to be hired, no temporary or casual labor is needed,
and no overtime is incurred.
5. Subcontracting. Frequently firms choose to allow another
manufacturer or service provider to provide the product or service to the
subcontracting firm's customers. By subcontracting work to an alternative
source, additional capacity is temporarily obtained.
6. Cross-training. Cross-trained employees may be able to perform
tasks in several operations, creating some flexibility when scheduling capacity.
7. Other methods. While varying workforce size and utilization, inventory
buildup/backlogging, and subcontracting are well-known alternatives, there are
other, more novel ways that find use in industry. Among these options are
sharing employees with counter-cyclical companies and attempting to find
interesting and meaningful projects for employees to do during slack times.

Part B
1A .Why is materials planning needed?
Material planning is needed because it forces the planner to determine the
total material required during the year, to examine its required specifications

and fixing of acceptable limits of the materials i.e at what limit a material is to be
rejected and at what stage a material can be accepted

1B. Discuss the various aspects of materials planning.

Success of an operation department of any organization is dependent
upon an efficient production plan. One of the key essential of a production plan
is material and manufacturing planning system. Material requirement planning
plays a pivotal role in assembly-line production. Material requirement planning
is a system based approach, which organizes all required production material.
Material requirement planning is an information system for production
planning based on inventory management. The basic components of material
planning are:
Material planning provides information that all the required raw material
and products are available for production.
Material planning ensures that inventory level are maintained at its
minimum levels. But also ensures that material and product are available
whenever production is scheduled, therefore, helping in matching demand and
supply.
Material planning provides information of production planning and
scheduling but also provides information around dispatch and stocking.

Objective of Material Requirement Planning

Material requirement planning is processed which production planning
and inventory control system, and its three objectives are as follows:
Primary objective is to ensure that material and components are
available for production, and final products are ready for dispatch.
Another primary objective is not only to maintain minimum inventory
but also ensure right quantity of material is available at the right time to produce
right quantity of final products.
Another primary objective is to ensure planning of all manufacturing
processes, this scheduling of different job works as to minimize or remove any
kind of idle time for machine and workers.

Advantages and Disadvantages of Material Resource Planning

As with every system based process, material resource planning also has
its advantages and disadvantages, and they are as follows:
Advantages of Material Resource Planning
It helps in maintain minimum inventory levels.
With minimum inventory levels, material planning also reduces
associated costs.
Material tracking becomes easy and ensures that economic order
quantity is achieved for all lot orders.

Material planning smoothens capacity utilization and allocates correct

time to products as per demand forecast.

Disadvantages of Material Resource Planning

Material planning is highly dependent on inputs it receives from other
systems or department. If input information is not correct than output for
material planning will also be incorrect.
Material planning requires maintenance of robust database with all
information pertaining inventory records, production schedule, etc. without
which output again would be incorrect.
Material planning system requires proper training for end users, as to
get maximum out of the system.
Material resource planning system requires substantial investment of
time and capital.

Material Resource Planning - Inter dependency of Business Function

Material planning not only benefits operation department but is also
beneficial to the other department of organization. They are as follows:
Material planning is useful in determining cash flow requirement based
on material requirements and final dispatch schedules.
It helps procurement team in scheduling purchase of necessary
material.
It helps the sales team in determining delivery dates for final products.

Implementation of Material Resource Planning

Implementation and success of material resource planning dependent on
following factors:

Acceptability of by top management about advantages and benefits

Proper training and participation of all workers and personnel
Precision and accuracy of input data for accurate and reliable results

1C. Which other departments contribute to materials planning and in

what way?
(i)
Production department: This department acts in regards to the
flow of materials, selection of supplier etc.
(ii)
Marketing department: This section converts the sales forecasts
into the production schedule and giving delivery dates to customers etc.
(iii)
Finance department: The department maintains the level of
stock, locking up funds into inventory, tapping cash discount and quantity
discounting, pledging or hypothecating the materials for working capital needs
etc.

(iv)
Engineering department: for the specification of materials,
quality requirements, product research
(v) Personnel department: for planning the materials, management
department, vendor relationships, advertising, public relations etc.
(vi)
Top management: as an important profit center, top
management has a great concern for materials management

1. What do you understand by the term corrective maintenance?

(a) Corrective maintenance is a maintenance task or operation done in
order to identify, isolate or separate and rectify a particular fault. This is
performed inorder to restore the failed machine, equipment or system
to an operational condition.
(b) In what way is corrective maintenance different from preventive
maintenance and
predictive maintenance? Support your answer with
examples.
Preventive maintenance is a concept that aims at preventing the
breakdown of a machine.
1. Corrective maintenance is based on corrective action taken after
the checks under preventive maintenance. For example, if the bearing of
a pump is running dry or the shaft of the pump is bent. If it is established
that the bearing is starved of the lubricant and running dry, and these
problems are resolved by misalignment of the driven shaft and tightening
the nuts and bolts. This is corrective maintenance.
Preventive
maintenance is based on checklists planned in advance. Predictive
maintenance is based on the measurement of certain parameters
representing some characteristics. For example velocity and acceleration
are measured for study of the type and severity of vibrations.
2. Schedule of checks is decided based on past experience.
Checks are carried out at laid down frequency say once in each shift, in a
day, in a week, in a fortnight, in a month, once in three months or once in
six months. Predictive maintenance do not have a fixed frequency. The
frequency of checks is adjusted based on the condition of the machine.
For example, if the condition of a ball bearing is good, there is no need to
carry out the predictive maintenance till the safe period projected by the
earliest test. On the other hand if the condition of the bearing is not good,
the measurement of the concerned parameter is carried out more
frequently and the frequency is increased as the condition of the bearing
deteriorates.

3. What do you understand by Total quality Management?

(a)Total quality management is a management system for a customer
focused organization that involves all employees in continual improvement of
all aspects of the organization. TQM uses strategy, data, and effective
communication to integrate the quality principles into the culture and activities
of the organization.
(b) Discuss the objectives of total quality management.
The goals and objectives a company defines under a quality management
system have to be clear, achievable and measurable. A clear goal is one that
addresses a specific objective from the company's strategic plan. It includes
details of what employees have to do to achieve it. To let employees determine
when the company has reached its goal, the goal has measurable
characteristics that indicate how much progress is required and when the
company has fulfilled its objectives.
1. Quality
One of the key goals of any quality management system is to improve quality.
Quality in such a system has three components. High quality means high
accuracy, compliance with applicable standards, and high customer
satisfaction. The objective of the system is to measure each component and
achieve improvements. Product testing can measure accuracy and compliance
with standards while functional testing can show whether the products meet
customer expectations. Test scores yield information about problems and
indicate areas where there is room for improvement.

2. Culture
An important component of quality management systems is influencing the
culture of the organization. A quality-oriented company culture values the
characteristics of quality that the system measures and strives for continuous
improvement. Such a culture orients itself toward the customers and fulfilling
their needs. When there are problems with quality, employees are ready to take
responsibility for possible mistakes and focus on avoiding them in the future.
This orientation is a key factor in improving the test results that measure quality.
3. Training

Quality management systems detail the skills, training and qualifications that
are prerequisites for carrying out specific tasks. When problems arise despite
the skill of employees, additional training may be required. When employees
don't achieve the quality goals the company sets for them, the test results often
indicate the sources of problems and the kind of training that will improve
performance. If a company can measure the quality of its products and cultivate
a quality-centered culture, employees are motivated to take the appropriate
training so they can achieve the company's quality goals
Finally, the main objective of TQM may put the customer at the center of every
activity and consider the process as customer driven, but all other factors which
do not involve the customers have to be taken into consideration for the
successful implementation of TQM.

(C).In what way the approach to Total Quality Management has changed
over the last ten years?

1. In terms of its philosophy and management

Total Quality Management is an approach to management that was established
or originated in the 1950's.
Whilst the number of companies today who are openly practicing major
programs under the banner of Total Quality Management has declined from the
late 80's and early 90's, it's philosophy and management tools it utilizes are just
as evident. To many companies, it has become the way they manage and not
"an external program" which was one of the objectives and measure of its
success.
2. Program development tool for companies
Likewise, companies recognizing the need to improve their business
performance are customizing Total Quality Management principles and
practices to suit their own particular needs and circumstances and building their
own internal programs. This has avoided the potential dangers of the "grand
program" and jargon that can alienate the employees. Alongside this is the
success of 6 Sigma programs which bear close similarity in terms of their
objectives, people involvement and the tools and techniques used. In fact,
some believe 6 Sigma to be a form of Total Quality Management.
3. Used in conjunction with other company/business techniques
The principles of Total Quality Management are as relevant to work process
management today as they have ever been, particularly when considered
alongside learning's from other techniques such as lean manufacturing. It is

essential that programs are structured to meet the needs and situations of
individual companies. Whilst some may benefit from a fully integrated program,
others have realized that there are significant payoffs to be gained from a more
modest or tailored approach designed to solve specific problems or achieve
defined, targeted improvements. The scope and scale are up to the client
company to choose.

Case study
Paradise Land Management Company
Paradise Land Management owns and operates hotels and apartment
complexes near a major metropolitan area. They want to expand operations in
the near future, the goal being to increase net earnings before taxes. Two
alternative expansion opportunities are under considerations: the Densmore
complex and the Highgate project. Both projects involve the purchase of land
on which apartment building would be constructed and operated.
The site for the Densmore complex is situated in a respectable, quite,
sparsely populated residential neighborhood. Land for the 70-unit complex
can be purchased for $60,000. Building costs are estimated at $1,680,000.
Annual maintenance costs would amount to $30,000. Apartment units would
rent for $410 per month. Paradise is also conidering constructing a recreation
facility nearby. It would cost $100,000 and would service both Densmore
residents and the residents of the company owned Paradise west, the only
existing apartment complex in the neighborhood. Paradise west, with 120
units renting for $290 per month, has had an average occupancy rate of 84%
for the past three years. The addition of Densmore and the recreation facility
are expected to increase Paradise Wests occupancy rate to 90% (probability
0.6) or 95% (probability 0.4). Densmores occupancy rate is expected to be
90% (probability 0.5), 85% (probability 0.3), or 80% (probability 0.2).
The highgate project calls for 400 units to be constructed on land costing
$220,000 in a high density population neighborhood with many competing
apartments. Building costs would be $4,200,000. Rental revenue per unit
would be $240 per month; anuual operating costs would be $150,000.
Highgates occupancy rate is expected to be 90% (probability 0.2), 80%
(probability 0.5), or 70% (probability 0.3).

What factors should be analyzed in making this capacity decision?

The factors to be considered in making the capacity decision for land
management are
1.
Type
Responding to type, the question that will be asked is what kind of capacity to
be determined? Here Paradise Land Management needs to consider the
prospective size of customers it is targeting to reach out to after the project is
done. The larger the customer base, the higher the likelihood of earning
greater profits.

2.
Quantity
Here, one need to ask how much of the products will be needed? Well, in
choosing their construction site, Paradise Land Management needs to
consider providing enough products for its targeted customers. The quantity of
products should match with their projected number of customers
3.
Time
It is important to know when the product will be needed by your customers.
Therefore the timing for Paradise Land Management Company should be with
respect to peoples needs at the time of supply so as to avoid providing
products/services that are not demanded by their customers which might lead
to losses.
4.
Place
Where the hotel and apartment for paradise land Management Company will
be situated is very crucial because that will determine the choices that
customers will have in making their decision. It doesnt matter if the building
costs for the project at Dens more will be high, so long as the project will yield
high returns after its finished, then this place would be the best place to build
in.

Part C
ASSIGNMENT 3: SOLUTIONS
1E
6A
11C
16III
21A
26D

2C
7A
12D
17B
22D
27C

3B
8D
13D
18A
23D
28D

4IV
9E
14B
19D
24D
29D

5D
10B
15A
20C
25B
30D