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Question Paper Operations Management (MB241): January 2005

Section A : Basic Concepts (30 Marks)

• This section consists of questions with serial number 1 - 30. • Answer all questions. • Each question carries one mark.

1. Which of the following types of layout is commonly used for JIT Manufacturing?

(a) L-shape (b) U-shape (c) Straight line (d) Comb arrangement (e) Dendrite arrangement.

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2. In Bhabha Atomic Research Centre (BARC), workers use robots to shift radioactive materials like Uranium and Plutonium. The most appropriate examples of these types of robots are

(a) Numerical control robots (b) Fixed-sequence robots (c) Variable-sequence robots (d) Physically operated robots (e) Intelligent robots.

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3. Indian Space Research Organization (ISRO), which is involved in space research, manufacturing ofrockets and other related works, may involve which of the following types of Facility Layout?

(a) Service Facility Layout (b) Fixed Position Layout (c) Grouping Technology Layout (d) Product Layout (e) Process Layout.

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4. Which of the following is a system output for Materials Requirement Planning?

(a) Master Production Schedule (b) Change Report (c) Bill of Materials File (d) Inventory Records File (e) Rough-Cut Capacity Plan.

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5. In a big hospital like Seba, the lower-level managers have been arguing for some time that a largeamount of nurses’ hospital time is spent on non-nursing activities. This has resulted in increased hospital costs, because nurses’ wages are the highest single cost in the operation of the hospital. Whichof 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.

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6. Stationery, cleaning materials and lubricants which are used in operation of an organization, form part of

(a) Raw materials (b) Consumables (c) Finished products (d) Work-in-progress (e) Strategic stocks.

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7. Which of the following arguments for “protection” is given to compensate the country for loss inrevenue when price elasticity of import demand is greater than zero?

(a) Home-market argument (b) Employment argument (c) Terms-of-trade argument (d) Keep-money-at-home argument (e) Low-wage argument.

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8. A planning method used to evaluate the feasibility of a master production schedule and to plan forproviding the necessary capacity before the time the execution is scheduled to begin is known as

(a) Rough-cut capacity planning (b) Materials requirement planning (c) Business planning (d) Operations planning (e) Top-down aggregate planning.

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9. Which of the following systems represents the highest level of automation in manufacturing?

(a) Computer Aided Design (b) Computer Aided Manufacturing (c) Computer Integrated Manufacturing (d) Flexible Manufacturing System (e) Automatic Identification System.

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10. When an emergency occurs, Appointment Systems use which of the following for the purpose of < Answer >

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scheduling?

(a) Optimistic time (b) Most likely time (c) Earliest start time (d) Slack time (e) Expected finish time.

11. Which of the following forecasting methods uses quantitative model to forecast the demand?

(a) Delphi method (b) Nominal group technology (c) Historical analogy (d) Exponential smoothing (e) Executive committee consensus.

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12. National Aeronautics Limited takes order to manufacture spares of aircraft engine. It takes order fromIndian commercial airlines and Indian Air Force. What kind of finished good inventory policy theyshould adopt?

(a) Produce to stock (b) Fixed order period (c) Produce to order (d) Economic order quantity (e) Fixed order quantity.

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13. Which of the following models is best applied in situations in which the management has done aggregate output planning on an intuitive basis?

(a) Linear Programming (b) Linear Decision Rule (c) Management Coefficients Model (d) CRAFT (e) Load Distance Model.

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14. Which of the following is the forerunner of the “empowerment of personnel” tactic necessary for totalquality management and is also a form of cross-training necessary for a just-in-time implementation?

(a) Job enlargement (b) Job enrichment (c) Job analysis (d) Job description (e) Job content.

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15. In which of the following work measurement techniques, an analyst is not required to measure workperformance?

(a) Time Study (b) Standard Data (c) Historical Analysis (d) Work Sampling (e) Both (b) and (c) above.

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16. The Municipal Corporation of Hyderabad used the JIT approach to cut the time to record a deed transferby 50 percent. This application of JIT approach is an example of

(a) Organizing problem-solving (b) Clarifying process flows (c) Upgrading housekeeping (d) Upgrading quality (e) Revising equipment and process technologies.

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17. While servicing a car, the mechanics change the lubricant, rotate the tyres, tune up the engine, replacethe key components or overhaul certain systems (if necessary), clean the windows and apply a stickeron the front windscreen that indicates the date of next service. All these activities are aimed at avoidingfailure or unsafe operation of the automobile, and hence come under the scope of

(a) Preventive Maintenance (b) Remedial Maintenance (c) Centralized Maintenance (d) Decentralized Maintenance (e) Contract Maintenance.

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18. Roshni Ltd., a bulb manufacturing company, has earned reputation in the market because of long life ofits bulb filaments. This is an appropriate example of which of the following quality dimensions?

(a) Features (b) Conformance (c) Serviceability (d) Durability (e) Aesthetics.

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19. Variable-sequence robots are most useful for which of the following production systems?

(a) Product focused (b) Process focused (c) Flow-shop (d) Assembly line (e) Line flow.

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20. Which of the following issues falls under the purview of Operational Decision?

(a) Problems of production and process design (b) Identification of manpower requirement (c) Assigning jobs to persons (d) Vendor identification (e) Capacity determination.

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21. Maintenance of a computerized parts classification and coding system is usually required in which ofthe following production systems?

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(a) Product Focussed (b) Process Focussed (c) Discrete Unit Manufacturing (d) Process Manufacturing (e) Cellular Manufacturing.

22. Which of the following is not correct with respect to Computer Search used in aggregate planning?

(a) It is a set of directions that systematically guides a computer in evaluating alternative aggregate plans

(b) The possible combinations of workforce levels and output rates for each period in the planning horizon are explored by the computer

(c) A very systematic search is done with the help of inbuilt specific rules (d) It may not yield the optimal plan sometimes, as all the possible plans are not examined (e) The cost functions should be constant and linear.

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23. The doctor in charge of the surgical department wants the purchase manager to procure some surgicalscissors as early as possible. For this purpose, he has submitted a document containing a clearspecification of required materials, quantity required and probable date of requirement. This documentis referred to as

(a) Purchase order (b) Purchase requisition (c) Request for proposal (d) Request for quotation (e) Request for comments.

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24. Which of the following is not a disadvantage of Job Specialization?

(a) Lower flexibility (b) Lower work satisfaction (c) Reduced scope for workers' improvement (d) Complicated work instructions and difficulty in production control (e) Higher chances of workers getting local muscular fatigue.

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25. Which of the following is built into many ERP packages to provide advanced materials and capacity planning facilities so as to take care of order-winners and qualifiers in a specific situation?

(a) Materials Requirement Planning (b) Manufacturing Resource Planning (c) Intelligent Resource Planning (d) Information Process Reengineering (e) Business Process Reengineering.

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26. Which of the following priority scheduling rules is based on the assumption that the jobs that consumemore processing time are more valuable for the organization?

(a) Earliest due date (b) Shortest processing time (c) Longest processing time (d) First in, first serve (e) Last in, first serve.

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27. Which of the following gives rise to a truly virtual corporation that allows contact with any customer orsupplier at any time?

(a) SCM (b) ESCM (c) CAD (d) CAM (e) CIM.

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28. Which of the following is false for purchasing function?

(a) A small saving in the cost of the material can have a significant impact on the total performance of an organization

(b) Centralized purchasing vests maximum purchasing power with the buyer (c) The primary responsibility of purchase manager includes vendor development, selection of

suppliers and contract negotiation (d) While selecting a vendor the only concern is to select the vendor who has quoted the lowest price (e) Whenever a new item is indented management has to take a make-or-buy decision.

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29. 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.

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30. Hitech Ltd., a company which manufactures personal computers, is planning to set the production targetfor the month of January. Actual and forecasted demand for last four months is as follows:

(in units) Month Sep Oct Nov Dec

Forecast 40 35 45 65 Actual 30 38 37 52

The mean square error (MSE) of the above data is

(a) 80.5 (b) 85.5 (c) 95.5 (d) 85.0 (e) 95.0.

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END OF SECTION A

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Section B : Problems / Caselets (50 Marks)

• This part consists of questions with serial number 1 – 5. • Answer all questions. • Points are indicated against each question. • Detailed workings should form part of your answer. • Do not spend more than 110 - 120 minutes on Section B.

1. The initial feasible solution of a transportation problem is given below. Using the Stepping Stone Method, test whether the solution is optimum. Calculate the optimum solution if the given solution is not optimum.

Warehouse Capacity Factory W1 W2 W3 W4 21 16 25 13 11 F1 11 17 18 14 23 13 F2 6 3 4 32 27 18 41 19 F3 10 9

Requirement 6 10 12 15 43 43

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2. Mehta Enterprises Ltd. (MEL) produces two products coded P25 and P75. Each of these two products undergo three stages of processing. The time required for processing each unit of the two products and the profit contribution per unit are given below:

P25

P75

Available capacity per day (Production hours)

Process I (Production hours) 12 12 420 Process II (Production hours) 3 6 150 Process III (Production hours) 8 4 240 Profit contribution (Rs.) 250 350

You are required to find out, using the simplex method of linear programming, the number of units of each product the company should produce per day in order to maximize daily profit.

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Caselet Read the caselet carefully and answer the following questions:

3. What does an analysis of the company’s external threats, opportunities, and internal strengths and weaknesses suggest?

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4. As Manager of the Quality Control Department of Johannsen Steel Company, what Quality Control measure would you adopt? Explain.

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5. As Maintenance Manager of Johannsen Steel Company, what type of maintenance system would you undertake? Justify your decision in this matter.

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Johannsen Steel Company

Johannsen Steel Company (JSC) was established by three Johannsen brothers in 1928 in Pittsfield, Rhode Island. The brothers began JSC by concentrating on high-quality, high-carbon, high-margin steel wire. Products included "music wire" for instruments such as pianos and violins; copper, tin, and other coated wires; and high tensile-wire for the newly emerging aircraft industry. JSC even pioneered new types of wire.

Throughout the 1930s and 1940s JSC prospered while maintaining its reputation for high-quality products and in-house

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design/construction of its own equipment. In 1946, the last remaining Johannsen brother sold the company to West Virginia Steel for $4 million. For its investment, West Virginia Steel (WVS) obtained three Johannsen steel mills–located in Pittsfield, Rhode Island (500 employees), Akron, Ohio (100 employees), and Los Angeles (16 employees)–and two steel-wire warehouses–one in Chicago (8 employees) and one in Los Angeles (4 employees). WVS kept Johannsen completely intact as a wholly owned subsidiary.

The 1940s and 1950s witnessed increasing JSC sales to the U.S. military and to U.S. automakers and tire makers. JSC also sold wire for use in staples, nails, cables, cookie cutters, steel brushes/wire wheels, and electrical products, leading to a continued climb in sales and profits.

The year 1960 was important for the U.S. steel industry. A 14-week strike caught steel customers off guard. With stocks nearly exhausted, customers throughout the United States turned to the Japanese. They found the quality, price, and even delivery of steel acceptable. No longer was competition from offshore steel makers insignificant.

The combination of offshore competition and a productivity-minded economy drove steel prices down to very competitive levels throughout the 1960s and 70s. Attention in the industry– and in JSC–turned toward cost cutting and sales expansion to maintain profit levels.

Joe Thomas, formerly the sales manager of JSC, became its president in 1978, and he emphasized sales expansion. Indeed, sales grew by nearly 2 million pounds per year through the 1970s and 1980s. The growth in sales revenue paralleled the tonnage sold. However, after-tax profits on sales throughout the late 1980s were never above 2%.

Because profits had been meager since the mid-1970s for both JSC and WVS, the "mother corporation" was spending little on capital investment unless a 40% return on investment (ROI) before taxes could be demonstrated. WVS had other restrictions on its JSC subsidiary. Sixty percent of JSC's total purchase of steel rod (the raw material for steel wire) had to be purchased from WVS, even though it was well acknowledged throughout the industry that WVS's steel rod was the lowest in quality. Also, the smaller size of WVS rod coils (300 lb.), compared to the newest industry sizes from Bethlehem Steel (1500 and 3000 lb.), increased the number of machine setups and production cost.

To use up their quota of WVS steel rods and spread overhead costs over more tonnage (thus reducing allocated overhead per ton), Joe Thomas ordered his sales people to increase sales at least 100 percent per year. And they did. Orders and revenue for the more common grades of steel wire products such as staple wire, stitching wire, tire bead wire, and brush wire continued to increase. The prices of these steel-wire products continued to fall as the Japanese, in particular, manufactured these products with greater efficiency.

JSC maintained its reputation for high quality throughout the 1970s and 80s. It won prestigious NASA and computer-industry contracts and still produced "music wire" and other high-carbon grades. The percentage of these high-quality/high-margin sales to total sales continued to decrease, however.

Wire-drawing machinery now was so sophisticated that JSC no longer designed or produced its own machines. In fact, by the 1980s JSC often purchased used equipment.

Although several new JSC product innovations had appeared every few years, these were not significant. To control costs, the R&D staff had not increased in size or funding for many years. JSC had much of its original equipment (some over 50 years old), which was in good working order. However, equipment and building maintenance costs continued to rise.

The sales salaries were low, with 6% commission paid on all sales generated. To cut costs, sales staff travel was considerably reduced.

In conversation with John Green, JSC's operations manager, Joe Thomas was overheard to say, "I can't understand why our profits are now at zero. Sales are up again. Scrap rates are reasonable (5%). Even our raw material costs per ton shipped are lower. John, if we can just lower our labor cost and maintenance costs per shipped ton and spread our fixed overhead costs over more tonnage, I am sure we can pull ourselves out of this."

END OF SECTION B

Section C : Applied Theory (20 Marks)

• This part consists of questions with serial number 6 - 7. • Answer all questions. • Points are indicated against each question. • Do not spend more than 25 -30 minutes on Part C.

6. K-Mart is a retailer in FMCGs and other such product categories. Previously its business was limited to a single

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store. However, over the years, its business has expanded and it has opened a number of stores in various parts of the city. With the expansion of business, inventory management has become a critical issue. The company gives primary importance to customer service and therefore wants to institute an inventory management system which will keep track of merchandise at any point of time, so that the customer does not have to return disappointed for absence of stock of any item.

As overall in-charge of all the K-Mart stores, which inventory management system will you adopt? Give appropriate reasons in support of your answer.

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7. The process involved in acquiring materials, machinery and equipment is almost similar in various organizations. In this process, the purchase department needs to interact with other departments like production and finance departments, and sellers.

Lay down the general procedure that is involved in the process of purchasing, with a suitable illustration.

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END OF PART C

END OF QUESTION PAPER

Suggested Answers Operations Management (MB241): January 2005

1. Answer : (b) Reason : JIT manufacturing system consists of an integrated set of activities designed to achieve

high-volume production, using minimal inventories of raw and semi-finished materials and finished goods. The principle underlying JIT is that nothing will be produced until it is needed i.e., the materials arrive “Just-In-Time” when they are needed. U-shape layout makes the system more flexible, making it easy to change the production level in response to changes in demand. Hence it is used in JIT manufacturing. Therefore, from above discussion, we can infer that option (b) is correct. Option (a) is incorrect. L-shape layout is commonly used in assembly line. Option (c) is incorrect. Straight line layout is commonly used in assembly line. Option (d) is incorrect. Comb arrangement layout is commonly used in assembly line. Option (e) is incorrect. Dendrite arrangement layout is commonly used in assembly line.

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2. Answer : (d) Reason : Physically operated robot is like a mechanical arm that can be used by an operator to

perform some of his/her tasks. The primary objective of using a physically operated robot is to protect the workers from the hazardous work environment. Hence, the given example is an example of Physically operated robot. Numerical control robots perform a set of operations using numerical data that is fed into them through devices like punched tapes and data cards. Fixed-sequence robots perform a sequence of operations according to a given set of procedures. Variable- sequence robots are an extension to Fixed-sequence robots and are designed to provide an easy change in the sequence of tasks performed. Intelligent robots are capable of perceiving the environmental conditions of the workplace through tactile or visual perception and can make necessary and suitable decisions by using their on-board computers.

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3. Answer : (b) Reason : A Fixed Position Layout is used when the product is bulky, large,heavy or fragile and

remains stationary at one location. Manufacturing and construction firms locate the product in a fixed position and transport workers, materials, machines and sub-contractors to and

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from the product. Examples of such layouts are those designed for ship construction, aircraft manufacturing, rocket manufacturing etc. A Service Facility Layout brings together the customers and the organization’s services. Two extremely different types of layouts of service facilities exist, based on the different degrees of customer contact. At one extreme is that layout which is totally designed around the customer receiving service functions, and the other is that layout which is designed around technology, processing of physical materials, and production efficiency. Banks are examples of layouts designed around customers. Hospitals are examples of layouts that concentrate and focus more on technology or physical materials processing and production efficiency. A Grouping Technology Layout groups dissimilar machines into work centers (or cells) to work on products that have similar shapes and processing requirements. A Product Layout is one in which equipment or work processes are arranged according to the progressive steps by which the product is made. The products or services tend to flow along direct linear paths without backtracking or sidetracking in the product flow route. A Process Layout is one in which similar equipment or functions are grouped together, such as all lathes in one area, all drilling machines in another area and so on. A part being worked on then travels, according to the established sequence of operations, from area to area, where the proper machines are located for each operation. Hospitals make use of this type of layout.

4. Answer : (b) Reason : Many MRP systems yield the following five types of information as

output: 1. Schedule of Planned Order Releases 2. Authorized Order Releases 3. Change Reports 4. Control Reports 5. Planning Reports

Change Reports are originated to revise the Purchase Orders, whenever the Orders are not achieved in time. Master Production Schedule (MPS) is a schedule that shows how many products must be produced according to customer orders and demand forecasts on a weekly basis. It is a more detailed level of planning that disaggregates the product groups into individual products and indicates when they will be produced. Bills of Material File consists of complete list of all end products, the structure(assemblies, subassemblies, parts and raw materials) of products, and the quantity of each item required for each higher-level item in the product hierarchy. Inventory Records File is a computerized file with a complete record of each material held in inventory. It contains all the information on inventory levels – levels at the beginning of the planning horizon and the details of the expected arrivals of inventory during the period. Rough-Cut Capacity Plan examines feasibility of Master Production Schedule (MPS) in terms of capacity. It involves breakdown of an organization’s product mix and then consolidating the capacity requirements of these more detailed plans.

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5. 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 indoing 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

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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.

6. Answer : (b) Reason : Consumables are materials used in operation of an organization, but not forming part of the

finished product e.g., stationery, cleaning materials, lubricants etc. Raw materials include all purchased goods that become part of the finished product. Finished products are the goods which are in stock and ready to be supplied to the customers. Work-in-progress refers to the work in various stages of completion between the processing steps of the production system. Strategic stocks are held for other than strictly operations purposes. Stocks of raw material may be built up because of suspected industrial unrest at the suppliers’ place, of political unrest in the supplying country, and other reasons.

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7. Answer : (c) Reason : Terms-of-trade argument refers to compensation of the country for loss in revenue when

price elasticity of import demand is greater than zero. Hence, from above discussion, we can infer that option (c) is correct. Option (a) is incorrect. Home-market argument refers to encouragement of the home industry to develop. Option (b) is incorrect. Employment argument refers to protection of the level of home employment. Option (d) is incorrect. Keep-money-at-home argument refers to prevention of national wealth from being transferred to other nations in exchange with another nation for goods. Option (e) is incorrect. Low-wage argument refers to protection of the home industry from imports from low-wage countries.

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8. Answer : (a) Reason : (a) This is the right answer. Rough-cut capacity planning (RCCP) is used to evaluate the

feasibility of an MPS and to plan for providing the necessary capacity before the time the execution is scheduled to begin. During this process, the work centers (departments or machines) that are overloaded by MPS are identified. In workstations where the capacity requirement exceeds the capacity availability, the MPS is modified or the available capacity is increased. The new MPS is again evaluated. This iterative process is continued with modifications being made to the master schedule that is good enough for the organization to implement is developed.

(b) This is the wrong answer. Materials requirement planning (MRP) system creates schedules identifying the specific parts and materials required to produce end items, the exact quantity needed, and the dates when orders for these materials should be released and be received or completed within the production cycle.

(c) This is the wrong answer. Many production organizations use a formal process, which is referred to as the business planning process, to address both long and medium range concerns like new product introductions, levels of sales, new process requirements, capital investments, and new distribution strategies. Decisions on these issues are evaluated on the basis of their impact on the profitability of the business, and are

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expressed in financial terms. (d) This is the wrong answer. The operations plan, also referred to as production plan by

manufacturing organizations, includes decisions on the quantity of output for each period in the planning horizon. The plan for the output may be in terms of rupees ofrevenue, tons of output, or units of a fictitious pseudo product that represents the weighted average of all the products in the product line.

(e) This is the wrong answer. Top-down aggregate planning considers a fictitious product that encompasses the average basic characteristics of all the products the organization is planning to include in its capacity. An estimate of the total capacity required for a specific time period in the planning time horizon is calculated by multiplying the number of products to be made in the period with the work hours required to produce a unit of the average product.

9. Answer : (c) Reason : Computer Integrated Manufacturing (CIM) system includes all the engineering

functions of CAD/CAM and the business functions of the firm as well. These business functions include order entry, cost accounting, employee time records and payroll, and customer billing. In an ideal CIM system, computer technology is applied to all the operational and information-processing functions of the company, from customer orders through design and production to product shipment and customer service. The scope of the computer system includes all activities that are concerned with manufacturing. Therefore, we can say that CIM represents the highest level of automation in manufacturing. Hence, from above discussion, we can infer that option (c) is correct. Option (a) is incorrect. Computer Aided Design (CAD) is a set of specialized software and hardware that is used to design products directly on computer terminals. It does not represent the highest level of automation in manufacturing. Option (b) is incorrect. Computer Aided Manufacturing (CAM) is a specialized computer system, which translates the CAD information into instructions for automated machines, so that they perform the necessary production operations. It does not represent the highest level of automation in manufacturing. Option (d) is incorrect. Flexible Manufacturing System (FMS) is a set of automated machines, which are controlled by a central computer to produce a variety of products on the same machinery, by automatically changing the machine settings, as required. It does not represent the highest level of automation in manufacturing. Option (e) is incorrect. Automatic Identification System (AIS) is a system that uses barcodes and other optical characters to represent data. These codes can be read by using scanners. It does not represent the highest level of automation in manufacturing.

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10. Answer : (d) Reason : Slack time refers to the amount of time that an activity can be delayed beyond its Earliest

start time, without delaying the project duration, if that activity and other activities take their estimated durations. It is equivalent to safety stock in a manufacturing organization.

Hence, from above discussion, we can infer that option (d) is correct because slack time is used in Appointment Systems for the purpose of scheduling, when an emergency occurs. Option (a) is incorrect. Optimistic time is the minimum amount of time in which an activity can be completed under extremely favourable circumstances. So, it is not applicable here. Option (b) is incorrect. Most likely time is the activity time that indicates the best guess for activity completion. So, it is not applicable here. Option (c) is incorrect. Earliest start time is the minimum amount of time that should be consumed before beginning an activity. So, it is not applicable here. Option (e) is incorrect. Expected finish time indicates the amount of time expected to be taken once an activity starts. So, it is not applicable here.

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11. Answer : (d) Reason : (a) This a wrong answer. Delphi method is an interactive learning process that involves a

group of experts responding to a questionnaire. The results obtained are compiled to formulate a new questionnaire, which is again submitted to the group. This uses qualitative model to forecast the demand.

(b) This is the wrong answer. In Nominal group technology, a panel of experts working together in a meeting arrives at a consensus through discussion and ranking of ideas.

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This technique also uses qualitative model. (c) This is a wrong answer. Historical analogy makes analogies to the past in a

judgmental manner by tying what is being forecasted to similar item. This is important in planning for new products. This method also comes under qualitative models.

(d) This is the correct answer. Exponential smoothing allows for varying weighting of old demands, i.e., recent data points are weighted more, with weighting declining exponentially as data becomes older. This method follows a quantitative model.

(e) This a wrong answer. Executive committee consensus is a method where a committee comprised of executives from various organizational departments develops a forecast by using the observations and findings of staff analysis.

12. Answer : (c) Reason : (a) This is a wrong option. In produce to stock policy, products are produced well in

advance and are stored in warehouses, from where they will be dispatched as per customer orders. This policy is suitable for organizations manufacturing products, parts or components, which have seasonal demand (like refrigerators and air coolers) or those, which have general applications (like bolts and nuts).

(b) This is a wrong option. This is an inventory system which determines the reorder point and reorder quantity. In fixed order period system, managers review the inventory levels periodically and orders are placed for materials in sufficient quantities.

(c) This is the right answer. Produce to order policy allows production to start only after the company receives customer orders and halts production until another order is received. This policy is suitable for organizations that produce products, parts or components of high value (like spares of an aircraft engine) or those that are meant exclusively for specific purpose (like dyes, castings, etc.).

(d) This is the wrong option. Economic order quantity is a reorder quantity calculated to minimize the total cost of inventory including ordering cost, holding cost and purchase cost. This model makes several assumptions to arrive at the economic quantity. This is not applicable in this case.

(e) This is the wrong answer. Fixed order quantity a system assumes a perpetual inventory accounting system in which the inventory records are updated every time the materials are added to or removed from inventory. This is not applicable in this case.

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13. Answer : (c) Reason : Management Coefficients Model is a set of equations that represent historical patterns of a

company’s aggregate planning decisions. This process involves securing records of past workforce, production and inventory decisions and analyzing these decisions using multiple regression techniques to find the regression equations that best fit the historical data. It is usually applied in situations in which the management has done aggregate output planning on an intuitive basis.

Hence, from above discussion, we can infer that option (c) is correct. Option (a) is incorrect. Linear Programming is used to allocate scarce resources to strategic

alternatives when the costs of various resources are linear functions of their quantities. It is a quantitative technique and is not applicable here.

Option (b) is incorrect. Linear Decision Rule makes use of a pair of linear equations that recommend the appropriate production rate and workforce size for the upcoming period based on the demand estimate for the intermediate planning horizon. It is not applicable here.

Option (d) is incorrect. CRAFT (Computerized Relative Allocation of Facilities Technique) is a computerized layout program that finds a satisfactory layout by evaluating thousands of alternative layouts extremely quickly. It is not applicable here.

Option (e) is incorrect. Load Distance Model is one of the most commonly used models to minimize material flow. In this model, the number of loads moved between each pair of process centers over a period of time and the distance between them are considered. It is a quantitative technique and is not applicable here.

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14. Answer : (b) Reason : In Job Enrichment, not only the variety of jobs is increased with Job Enlargement, but

psychological growth and enrichment of the worker are also taken care of. Job Enrichment is accomplished by making the individual more accountable for his or her own work, removing unneeded management controls, granting workers sufficient authority and freedom to carry

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out their responsibility and enabling the worker develop a high level of expertise by assigning special tasks. It is the forerunner of the “empowerment of personnel” tactic necessary for total quality management and is also a form of cross-training necessary for a just-in-time implementation.

Hence, from above discussion, we can infer that option (b) is correct. Option (a) is incorrect. Job enlargement means increasing the complexity of the job with

different work tasks. So, it is not applicable here. Option (c) is incorrect. Job Analysis investigates the job content, the physical circumstances

in which the job is done and the qualifications that are necessary to carry out the job responsibilities. So, it is not applicable here.

Option (d) is incorrect. Job description is the document in which the details of the basic task associated with a particular job are written. So, it is not applicable here.

Option (e) is incorrect. Job Content is the central aspect of job design that defines the set of activities that are to be performed on the job. So, it is not applicable here.

15. Answer : (e) Reason : 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. In this technique, the management can get rid of the costs and interruption involved in having an analyst approaching a worker, convincing him on time study, and studying a job.

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). Here, an analyst is not required as this method is very simple and involves mere application of statistical tools and quantitative techniques.

Hence, from above discussion, we can infer that option (e) is correct, as an analyst is not required to measure work performance in both Standard Data and Historical Analysis techniques.

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. In this technique, a competent analyst is required.

Option (b) is incorrect. An analyst is not required in both Standard Data and Historical Analysis techniques.

Option (c) is incorrect. An analyst is not required in both Standard Data and Historical Analysis techniques. Option (d) is incorrect. 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. This technique does not require extensive training to perform and can be performed simultaneously on several workers. In this technique, a competent analyst is required.

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16. Answer : (b) Reason : The given example is that of clarification of process flows using JIT approach as time to

record a deed transfer is a process.

Hence, from above discussion, we can infer that option (b) is correct.

Option (a) is incorrect. Organizing problem-solving involves using quality circles to implement new service practices. So, it is not applicable here.

Option (c) is incorrect. Upgrading housekeeping involves keeping only the necessary items in a work area, in a clean and constant state of readiness. So, it is not applicable here.

Option (d) is incorrect. Upgrading quality means improving quality so as to develop reliable process capabilities. So, it is not applicable here.

Option (e) is incorrect. Revising equipment and process technologies involves evaluation of the equipment and processes for their ability to meet the process requirements, to process consistently within tolerance and to fit the scale and capacity of the work group. So, it is not applicable here.

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17. Answer : (a) Reason : Preventive Maintenance includes maintenance activities performed to keep the equipment in

working condition before it breaks down. It includes regular inspection of equipment and facilities to assess their working condition and take corrective action, whenever necessary. The corrective actions generally include tasks like machine adjustments, lubrication, cleaning, replacement of parts and painting.

Hence, from above discussion, we can infer that option (a) is correct.

Option (b) 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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18. Answer : (d) Reason : Durability relates to the expected operations life of a product.

Hence, from above discussion, we can infer that option (d) is correct.

Option (a) is incorrect. The wider the variety of products and/or variations a company can offer its customers, the higher the perceived quality of those products because customers perceive customization as a dimension of quality. However, it is not applicable here.

Option (b) is incorrect. Conformance reflects how well the product and its individual components meet the established standards. So, it is not applicable here. Option (c) is incorrect. Serviceability is concerned with how readily a product can be repaired and the speed, competence and courtesy associated with that repair. So, it is not applicable here.

Option (e) is incorrect. Aesthetics is an area where there is high degree of individual judgement. In terms of aesthetics, good quality to one group of customers may be perceived as poor quality to another group. So, it is not applicable here.

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19. Answer : (b) Reason : In Process Focused 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 has the flexibility to produce a wide spectrum of products in small batch sizes.

Variable-sequence robots are an extension to Fixed-sequence robots and are designed to provide an easy change in the sequence of tasks performed. So, they are useful in Process Focused production system. Hence, from above discussion, we can infer that option (b) is correct. Option (a) is incorrect. Product Focused Design is mostly used in production departments that are organized according to the type of product or service being produced. It is used to produce one or two products in very high volumes. Here, Fixed-sequence robots, which perform a sequence of operations according to a given set of procedures, are more appropriate. Option (c) is incorrect. Flow-shop is another name for Product Focused Design, where Fixed-sequence robots are more appropriate.

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 Fixed-sequence robots are more appropriate.

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20. Answer : (c) Reason : Operational Decisions are short-term decisions which are routinely taken and generally have

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a time frame of less than a week. They address the problems at the grass-roots level such as scheduling the weekly production, assigning jobs to persons etc. Hence, from above discussion, we can infer that option (c) is correct. Options (a), and (e) are incorrect because they fall under the purview of Strategic Decision. Options (b) and (d) are incorrect because they fall under the purview of Tactical Decision.

21. Answer : (e) Reason : In Cellular Manufacturing, total production area is divided into cells, each cell consisting of

a group of dissimilar machines which work on products that have similar shapes and processing requirements. Parts are grouped into families that follow a common sequence of steps. This requires maintenance of a computerized parts classification and coding system. Hence, from above discussion, we can infer that option (e) is correct. Option (a) is incorrect. Product Focussed Design is mostly used in production departments that are organized according to the type of product or service being produced. Equipment or work processes are arranged according to the progressive steps by which the product is made. Hence, it is not applicable in this case. 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, which is less expensive. Hence, it is not applicable in this case. Option (c) is incorrect. Discrete Unit Manufacturing refers to the production of distinct products like radio or television sets. It is not applicable in this case. Option (d) is incorrect. Process Manufacturing involves the movement of materials such as screening, storing, mixing etc. It is not applicable in this case.

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22. Answer : (e) Reason : Computer Search is a set of directions that systematically guides a computer in evaluating a

set of alternative aggregate plans. It is used by many managers to find the optimal aggregate plan. It is a very flexible model and the cost functions need not be constant and linear. Hence, from above discussion, we can infer that option (e) is not correct with respect to Computer Search used in aggregate planning. Option (a) is correct because it is the definition of Computer Search. Option (b) is correct because the possible combinations of workforce levels and output rates for each period in the planning horizon are explored by the computer. Option (c) is correct because a very systematic search is done with the help of inbuilt specific rules. Option (d) is correct because it may not yield the optimal plan sometimes, as all the possible plans are not examined.

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23. Answer : (b) Reason : Purchase requisition is a document containing a clear specification of required materials,

quantity required and probable date of requirement. Hence, from above discussion, we can infer that option (b) is correct. Option (a) is incorrect. Purchase order is a legal document that authorizes the supplier to produce the goods. Hence, it is not applicable here. Option (c) is incorrect. Request for proposal is a request for bids that indicates the specifications for a software project or other system needs. Hence, it is not applicable here. Option (d) is incorrect. Quotation is a document given by the suppliers, in which they quote the price per unit of material, the delivery schedule, the mode of transportation and special conditions of the supplier, if any. Hence, it is not applicable here. Option (e) is incorrect. Request for Comments (RFC) is a set of technical and organizational notes about the Internet (originally the ARPANET), beginning in 1969. Hence, it is not applicable here.

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24. Answer : (d) Reason : Specialization of labour is a two-edged sword in job design as it has both potential

advantages and disadvantages. Becoming a specialist in some particular area can provide a worker a great sense of pride. The fewer the tasks a worker does and the narrower the range of his responsibilities, the more skilled and efficient the worker becomes, up to a point.

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There are simpler work instructions and ease in production control because of consistence in work assignment. Hence, from above discussion, we can infer that option (d) is not a disadvantage of Job Specialization. Options (a), (b), (c) and (e) are all disadvantages of Job Specialization.

25. Answer : (c) Reason : ERP has helped organizations realize order-winners and qualifiers by providing a software

that facilitates modeling of the logistics process in terms of items, bill of materials etc. Intelligent Resource Planning is the software built into many ERP packages to provide advanced materials and capacity planning facilities so as to take care of order-winners and qualifiers in a specific situation. Hence, from above discussion, we can infer that option (c) is correct. Option (a) is incorrect. Materials Requirement Planning (MRP) enables the implementation of the Master Production Schedule by showing time-phased requirements for releasing and receiving of materials. Hence, it is not applicable here. Option (b) is incorrect. Manufacturing Resource Planning (MRP II) is an integrated information system that shares data among and synchronizes the activities of production and the other functional areas of the business like marketing, finance etc. It is not applicable here. Option (d) is incorrect. During Information Process Reengineering, a company goes in for a review of its functioning in order to make dramatic gains in the market. It is not applicable here. Option (e) is incorrect. 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.” It is not applicable here.

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26. Answer : (c) Reason : Longest Processing Time rule gives first priority to jobs that take the longest amount of

processing time. It is based on the assumption that the jobs that consume more processing time are more valuable for the organization. Hence, from above discussion, we can infer that option (c) is correct. Option (a) is incorrect. In Earliest Due Date rule, the job with the earliest due date is run first. Hence, it is not applicable here. Option (b) is incorrect. The rule of Shortest Processing Time is based on the concept that cost reduction is possible by maximizing the flow of completed jobs. Hence, it is not applicable here. Option (d) is incorrect. First In, First Serve is a simple rule according to which jobs arriving at a work center are processed in the same order as their arrival. Hence, it is not applicable here. Option (e) is incorrect. In Last In, First Serve rule, as orders arrive they are placed on the top of the stack; the operator usually picks up the order on top to run first. Hence, it is not applicable here.

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27. Answer : (b) Reason : Electronic Supply Chain Management (ESCM) system makes use of Internet technologies to

integrate the entire supply chain, from the raw materials supplier to the end-user of the product. Therefore, it results in a truly virtual corporation that allows contact with any customer or supplier at any time. Hence, from above discussion, we can infer that option (b) is correct. Option (a) is incorrect. Supply Chain Management (SCM) is the management of relationships by a firm with all its trading partners involved in the supply chain. However, it does not make use of Internet technologies to integrate the entire supply chain. Hence, it is not applicable here. Option (c) is incorrect. Computer Aided Design (CAD) is a set of specialized software and hardware that is used to design products directly on computer terminals. Hence, it is not applicable here. Option (d) is incorrect. Computer Aided Manufacturing (CAM) is a specialized computer

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system, which translates the CAD information into instructions for automated machines, so that they perform the necessary production operations. Hence, it is not applicable here. Option (e) is incorrect. Computer Integrated Manufacturing (CIM) system includes all the engineering functions of CAD/CAM and the business functions of the firm as well. Hence, it is not applicable here.

28. Answer : (d) Reason : (a) This is true for purchasing function. Material procurement is a crucial job in many

manufacturing organizations because of the high costs involved in buying them. A small saving in the cost of the material can have a significant impact on the total performance of an organization.

(b) This is true for the purchasing function. In many big companies where there are number of production sites require materials with same or similar specifications. In such cases, centralization of purchasing activities will pool all those requirements and thus avoid uneconomical purchases in small quantities.

(c) This is a true statement for purchasing function. The purchase manager, who heads the purchase department, is responsible for developing purchase plans for each major product or service in accordance with the strategies of the organization. Purchase managers generally undertake the following activities to successfully carry out their responsibilities: • Vendor development • Selection of suppliers • Contract negotiation and Communication Interface

(d) This is not true for purchasing function. While selecting a supplier from those listed in the vendor database, before ordering an item, purchase managers have to ensure that the purchase is made on the most advantageous terms. The lowest price does not always ensure for a supply at a low cost, since the supply may attract other costs like rectification, in case defective material has been supplied. Hence quotations are examined for items such as delivery charges, discount structure, and other supplementary charges like tax payable. The selection is also made on the basis of other criteria like quality, quantity and promptness of deliveries. Purchase managers then select suppliers by rating their merit on relative scale, which is also known as vendor rating.

(e) This is true for purchasing function. Whenever a new item is indented, an important issue addressed by purchase managers is the make-or-buy decision. The purchase department never orders any material without analyzing whether such an order is economical or not. It is often possible for the firm’s production department to manufacture parts (or materials) in-house at a lower cost, of better quality and with faster deliveries, than what an external vendor would supply. On the other hand, it can also be economical to procure some materials from vendors, owing to their specialized skills. Purchase managers, with assistance of production engineers, generally do a make-or-buy analysis for materials.

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29. 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 decision-maker 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

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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.

30. Answer : (b)

Reason : MSE =

n2

t tt 1

1 . (A F )n =

−∑.

(in units)

Month Forecast (Ft) Actual (At) At - Ft (At – Ft)2

Sep 40 30 -10 100 Oct 35 38 3 9 Nov 45 37 -8 64 Dec 65 52 -13 169

Total 342

MSE = 1/4 × 342

= 85.5.

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Part B : Problems/Caselet

1.

TABLE 1.1 Warehouse

Factory W1 W2 W3 W4

Capacity

21 16 25 13 F1 11

11

17 18 14 23 F2 6 3 4

13

32 27 18 41 F3 10 9

19

Requirement 6 10 12 15 43 43

The total transportation cost associated with the given solution is: 11 × 13 + 6 × 17 + 3 × 14 + 4 × 23 + 10 × 27 + 9 × 18 = Rs. 811. We now examine if the transportation costs can be reduced further by replacing any of the unoccupied cells with the one actually used in the second solution. The net changes in costs together with their associated loops for each of the unoccupied cells are as follows:

Unoccupied Cell

Closed path Net cost change (Rs.)

(F1, W1) (F1, W1) → (F1, W4) → (F2, W4) → (F2, W1) 21 – 13 + 23 – 17 = 14

(F1, W2) (F1, W2) → (F1, W4) → (F2, W4) → (F2, W3) → (F3, W3) → (F3, W2)

16 – 13 + 23 – 14 + 18 – 27 = 3

(F1, W3) (F1, W3) → (F1, W4) → (F2, W4) → (F2, W3) 25 – 13 + 23 – 14 = 21

(F2, W2) (F2, W2) → (F2, W3) → (F3, W3)→ (F3, W2) 18 – 14 + 18 – 27 = – 5

(F3, W1) (F3, W1) → (F3, W3) → (F2, W3)→ (F2, W1) 32 – 18 + 14 – 17 = 11

(F3, W4) (F3, W4) → (F2, W4) → (F2, W3)→ (F3, W3) 41 – 23 + 14 – 18 = 14

Thus, the cell (F2, W2) with the negative value will be included in the new solution, because shipping one unit from factory F2 to warehouse W2 reduces the transportation cost by Rs. 5. Further, since min (3, 10) = 3 units can be shipped in cell (F2, W2), the second feasible solution is given below in the following Table 1.2:

TABLE 1.2 Warehouse

Factory W1 W2 W3 W4

Capacity

21 16 25 13 F1 11

11

17 18 14 23 F2 6 3 4

13

32 27 18 41 F3 7 12

19

Requirement 6 10 12 15 43 43

The corresponding shipping cost is: 11 × 13 + 6 × 17 + 3 × 18 + 4 × 23 + 7 × 27 + 12 × 18 = Rs. 796.

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The next step is to evaluate again all the unoccupied cells of the improved solution and see whether the total cost can be further reduced. The unoccupied cells of this improved solution are evaluated in the usual manner as shown below:

Unoccupied Cell

Closed path Net cost change (Rs.)

(F1, W1) (F1, W1) → (F1, W4) → (F2, W4) → (F2, W1) 21 – 13 + 23 – 17 = 14 (F1, W2) (F1, W2) → (F1, W4) → (F2, W4)→ (F2, W2) 16 – 13 + 23 – 18 = 8 (F1, W3) (F1, W3) → (F1, W4) → (F2, W4) → (F2, W2) → (F3, W2)

→ (F3, W3) 25 – 13 + 23 – 18 + 27 – 18 = 26

(F2, W3) (F2, W3) → (F3, W3) → (F3, W2)→ (F2, W2) 14 – 18 + 27 – 18 = + 5 (F3, W1) (F3, W1) → (F3, W2) → (F2, W2)→ (F2, W1) 32 – 27 + 18 – 17 = + 6 (F3, W4) (F3, W4) → (F2, W4) → (F2, W2)→ (F3, W2) 41 – 23 + 18 – 27 = + 9

Since all the unoccupied cells have positive values for the net cost change, there is no way to improve the solution anymore. Hence we have reached the optimal solution. The transportation schedule is shown in the following table and the total transportation cost of the optimal solution is as given below:

From factory Transported to warehouse Quantity Unit cost Total cost

F1 W4 11 13 143 F2 W1 6 17 102 F2 W2 3 18 54 F2 W4 4 23 92 F3 W2 7 27 189 F3 W3 12 18 216 Total transportation cost Rs. 796

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2. Let the following notations be used: X : Number of units of the product P25 Y : Number of units of the product P75 S1 : Slack time for process I S2 : Slack time for process II S3 : Slack time for process III Z : Profit. Maximize Z = 250X + 350Y + 0S1 + 0S2 + 0S3

Subject to : 12X + 12Y + S1 + 0S2 + 0S3 = 420 3X + 6Y + 0S1 + S2 + 0S3 = 150 8X + 4Y + 0S1 + 0S2 + S3 = 240 X, Y, S1, S2, S3 ≥ 0

Table 1

Profit 250 350 0 0 0 Variables

Profit Variables Solution X Y S1 S2 S3

0 S1 420 12 12 1 0 0 12420

= 35

0 S2 150 3 6 0 1 0 6

150 = 25

0 S3 240 8 4 0 0 1 4

240 = 60

0 –250 –350 0 0 0

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Enter solution: Y Leave solution: Min⎟⎠⎞

⎜⎝⎛

4240,

6150,

12420

= S2

Table 2

Profit 250 350 0 0 0

Variables

Profit Variables Solution X Y S1 S2 S3

0 S1 120 6 0 1 –2 0 6

120 = 20

350 Y 25 1/2 1 0 1/6 0 2/1

25 = 50

0 S3 140 6 0 0 –2/3 1 6

140 = 23.33

8750 –75 0 0 175/3 0

Enter solution: X Leave solution: Min⎟⎠⎞

⎜⎝⎛

6140,

2/125,

6120

= S1

Table 3

Profit 250 350 0 0 0

Variables

Profit Variables Solution X Y S1 S2 S3

250 X 20 1 0 1/6 –1/3 0

350 Y 15 0 1 –1/12 1/3 0

0 S3 20 0 0 –1 4/3 1

10250 0 0 25/2 100/3 0

Since all the Zi – Cj values are non-negative, the optimal solution has been reached. ∴ at the optimal solution, the number of units manufactured per day is: X : Product P25 : 20 units Y : Product P75 : 15 units. Maximum daily profit = Rs.10,250.

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3. Internal Strengths

• High-quality products.

• In-house expertise in design/construction of own equipment.

• New product innovations from time to time.

• Good maintenance of equipment.

• Low costs of raw materials per ton shipped.

Internal Weaknesses

• Very little spending on capital investment.

• Sixty percent of JSC's total purchase of steel rod (the raw material for steel wire) had to be purchased from WVS, even though it was well acknowledged throughout the industry that WVS's steel rod was the lowest in quality.

• The smaller size of WVS rod coils (300 lb.), compared to the newest industry sizes from Bethlehem Steel (1500 and 3000 lb.), increased the number of machine setups and production cost.

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• No increase in size of R&D staff or funding for R&D department for many years.

• Rise in equipment and building maintenance costs.

• Low sales salaries.

• Considerable reduction in sales staff travel in order to curb costs.

External Opportunities

• Enter into joint venture with some Japanese companies to utilize their more efficient technologies, and quality control and delivery techniques.

• Adopt new technologies to gain competitive advantage.

• Outsource non-core activities to lower costs.

External Threats

• Offshore competition, especially from the Japanese.

• Productivity-minded economy.

• Continuous fall in prices of steel-wire products because of the Japanese (in particular) manufacturing these products with greater efficiency.

• Improvement in technology, such as that of wire-drawing machinery. < TOP >

4. Johannsen Steel Company has always stressed upon high quality. It maintained its reputation for high quality throughout the 1970s and 80s. It won prestigious NASA and computer-industry contracts as a result of this. Keeping in view the above facts, as Manager of the Quality Control Department of Johannsen Steel Company, I would adopt Total Quality Management (TQM). 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 >5. Very costly and sophisticated machinery are being used at JSC. Also, a steel company works 24 hours a day, in

different shifts. So a machine breakdown is totally unwarranted in a steel company. Moreover, as per Joe Thomas, president of JSC, maintenance costs per shipped ton are to be lowered. Therefore, taking into consideration the above points, as Maintenance Manager of Johannsen Steel Company, I would undertake Predictive Maintenance, in addition to Periodic Maintenance. Predictive Maintenance is the set of irregular preventive maintenance activities, which detect problems while the equipment is still performing at

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satisfactory levels and rectify the problems when the equipment is not scheduled to be used. Predictive Maintenance helps in reducing the overtime costs for maintenance labour. The concept of Predictive Maintenance is gaining significance as it is easy to monitor the condition of a machine by using newly developed sophisticated technologies. Operations managers can use sensors to measure the temperature or vibration of an equipment and feed the data into a computer. This data can be analyzed to determine the problem areas by comparing the trends of the recorded vibrations with those recorded when the machine was working under normal conditions. Managers can also use 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. Thus, Predictive Maintenance reduces the service time as much of the diagnostic work has already been done.

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Part C: Applied Theory 6. Fixed Order Quantity System (Q-System)

According to this system, inventory is continuously checked and a new order is placed when the level of inventory reaches a certain point, called the recorder point. In this system, the order quantity (Q) is always constant and the order is placed when the level of inventory reaches the reorder point. This system is also referred to as recorder point system. The quantity to be ordered is determined by demand and cost considerations. The fixed order quantity system assumes that the demand for inventories over a period of time (i.e., the usage rate of materials) is constant and the lead-time for replenishment of inventories is zero (i.e., materials are received immediately after they are ordered). With the passage of time, the level of stock gets steadily depleted until it reaches the point R (reorder point) and then the order is placed for Q units and the stock reaches the initial level. The assumptions like no lead time, constant product demand, constant price per unit of product, constant ordering or setup costs may not be applicable in real life situations. Thus, to improve the applicability of this system, firms adopt a more practical approach wherein the time between two successive orders is varied to accommodate the changes in demand. For instance, in an FOQ system order quantity is 100 units and the order period is ten days. If the quantity demanded for a particular period becomes 150 units then instead of changing the order quantity the next order period is reduced to five days. The reorder point is determined by estimating the expected usage of inventory during the lead-time plus the safety stock needed. An order is placed for a fixed quantity (Q) as soon as the quantity of an inventory item in stock falls below the predetermined reorder level. Hence, from the above features of Fixed Order Quantity System and the condition given that K-Mart, an FMCG retailer, wants to institute an inventory management system which will keep track of merchandise at any point of time, Fixed Order Quantity System or Perpetual Inventory System is suggested. It helps sellers track the movement of merchandise at any point of time, compared to the Periodical Inventory System, where a physical count of items is made at regular intervals. Fixed Order Quantity System tracks the following activities on real-time basis: the time of ordering, the time of dispatch from the vendor’s end, arrival in the stores, dispatch to the retail outlets and the final purchase made by the customers.

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7. PURCHASING PROCESS The process involved in acquiring materials, machinery and equipment is similar in different organizations. In this process, the purchase department interacts with organizational units like the production and finance departments, and sellers. The general procedure that is involved in the process of purchasing is illustrated in Figure 9.1.

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The purchase department generally deals with elements like purchase indents (referred to as requisitions), requests for quotations and purchase orders. These three elements are also called purchasing instruments and are fundamental to the purchase process. Purchase requisitions come from departmental representatives who make use of the materials in their processes. These requisitions include a clear specification of required materials, quantity required, probable date of requirement, name of the department to which the costs are to be accounted, and in some cases, the list of vendors capable of supplying them effectively. This indent is acceptable only when it is approved by the signatory authorized to undertake the purchase. After receiving a purchase requisition from an indenting department with the approval of the authorized signatory, the purchase department prepares requests for quotations. These requests are sent to prospective suppliers, who are considered efficient enough to supply the materials by meeting the cost, quality and time requirements prescribed by the organization. In these requests, all the information about the material requirements that have been furnished by the indenting department is communicated to the suppliers. These requests will generate possible responses (also called Quotations) from the suppliers, in which they quote the price per unit of material, the delivery schedule, the mode of transportation and special conditions of the supplier, if any. The purchase department selects the supplier who offers the best quotation and negotiates the terms in order to enter into a meaningful and mutually agreeable deal. The department then prepares a purchase order for the materials in adherence to the negotiated terms and conditions, and sends the order to the vendor. A copy of the order is also sent to the head of the indenting department to inform him about the release of the order. Purchase Order is the legal document that authorizes the supplier to supply the goods. It represents the buyer’s obligation to buy the materials against the specified terms. Purchase order confirms the approval of the supplier’s quotation by the ordering organization. If an order is issued in the absence of a quotation, the commitment exists only after the supplier accepts the order and acknowledges the same.

In addition, the purchase department is also responsible for the proper delivery of materials on time. The finance department pays the vendors only when the purchase department and the corresponding indenting department notify it about the quantity of materials received with an acceptable quality level. Though there may be some variations in purchasing procedures, depending on the material required, the procedure described above is the general procedure that many organizations follow to procure their materials.

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