OPERATIONS MANAGEMENT

SECTION D AND E
BATCH 2019
60 MARKS
DURATION: THREE HOURS

NOTE:
1. Answer any six questions.
2. Use of calculators is permitted.
3. Assume any missing data.
4. No questions will be entertained during exam hours.

1. A manufacturing firm is performing an Aggregate Production Planning (APP) exercise for

its product. One unit of product requires 100 hours of the capacity. An extract of the
aggregate planning exercise for the firm is given in the table. Table 1 has details on the
number of working days, number of people employed and working hours per day. Complete
the table and answer the following questions:

Table 1: APP sheet

Month Demand Demand No. of Working No. of Capacity Supply-
(in units) (in hours) working hours workers available Demand
days per day (hours) (hours)
April 160 16000 23 8 90
May 150 15000 22 8 90
June 140 14000 21 8 90
July 160 16000 24 8 90
August 120 12000 22 8 90
September 150 15000 22 8 90
October 160 16000 19 8 90
November 180 18000 23 8 90
December 160 16000 21 8 90
January 180 18000 23 8 90
February 190 19000 20 8 90
March 150 15000 24 8 90

(a) What is the capacity required for the planning horizon? Does the company have
adequate capacity to meet the demand?
(b) Will the company fall short of capacity if you analyse on a period-by-period basis? By
how much does it fall short?
(c) If the cost of shortage is INR 5 per hour of capacity falling short, what is the cost that
the company may incur on account of shortages?
(d) If the cost of having excess capacity is INR 1 per hour, what will the cost of excess
capacity
(e) If the company chose to adopt this plan, what is the total cost of the plan? Identify the
APP alternatives and the APP strategy that the company has deployed in this plan.
(10 marks)

2a. As inventory manager, you must decide on the order quantity for an item that has an annual
demand of 2,000 units. Placing an order costs you $20 each time. Your annual holding cost,

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expressed as a percentage of average inventory value, is 20 percent. Your supplier has provided
the following price schedule.

Table 2: Price Schedule

Minimum order quantity Price per unit ($)
1 2.50
200 2.40
300 2.25
1000 2
What ordering policy do you recommend? (5 marks)
2b. One-Eyed Toad Pottery makes custom planters for up-scale clients. The average demand
for planters is 20 per week. One-Eyed Toad's production facility has the capacity to make 25
planters per week Setup cost is $1,500. The value of finished goods inventory is $250 per
planter. The annual per-unit inventory holding cost is 35 percent of the item's value.
a. What is the economic production lot size (ELS)?
b. What is the average time between orders (TBO)?
c. What is the total of the annual holding cost and setup cost? (5 marks)

3. An organization is using the exponential smoothening method for preparing short-term

forecasts for its product with an Alpha value of 0.20, However, it is not clear if the forecasts
obtained from the system are reliable enough. it is also not clear what the most appropriate
measure is for assessing the forecast accuracy. Perform the following exercises using Table 3
and suggest a suitable course of action for the organization:

Table 3: Demand Data

Month Demand
January 65
February 80
March 90
April 100
May 110
June 80
July 75
August 55
September 50
October 60
November 50
December 45

(a) For the existing forecasting system compute the MAD and MAPE at the end of December.
(b) Suppose you decide to change the value of a to 0.50, how will this impact forecasting
accuracy?
(c) On the other hand, if you replace the exponential smoothening model with a 3-period
moving average model, will the forecasting accuracy improve?
(d) Assume that a forecasting model with a linear trend will suit the system. Is it worthwhile to
shift to this model?
(e) Based on your computations, what will you finally recommend to the organization?
(f) For the forecasting model that you have recommended, compute the tracking signal and plot
the curve. What are your observations based on this plot? (10 marks)

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4. Oriental Healthcare is a multi-specialty hospital catering to a variety of illnesses connected
to the heart and respiratory system. The demand for a class of medical consumable is generally
random. Initially, Oriental followed a practice of ordering 200 boxes every two weeks. This
practice was not found to be satisfactory. After some review, they resorted to ordering 100
boxes every two weeks. Even this practice was not found satisfactory. Recently, an
examination of the stores records over a period of 10 weeks revealed the following weekly
consumption pattern (Table 4):

Table 4: Weekly consumption pattern

Week no. Consumption (units)
1 120
2 109
3 142
4 140
5 110
6 145
7 144
8 120
9 160
10 110

The supplier of the item takes (on an average) two weeks to deliver once the order is placed.
The item costs INR 450 per box. The ordering cost is INR 2,000 per order and the carrying
cost is 20 per cent.
(a) What should Oriental do in the light of this information?
(b) Will they be better off with the new recommendation? Assume a service level of 90
(10 marks)

5. The weekly requirement of furnace oil in a foundry has a mean of 3,000 litres and a standard
deviation of 900 litres. A litre of furnace oil costs INR 400 and the carrying costs are estimated
at 25 per cent. If the foundry uses a continuous review system of inventory control with a
desired service level of 90 per cent, then
(a) What will the reorder point and safety stock for furnace oil be if the lead time for supply is
1 week?
(b) What will the service level be if the reorder point is changed to 3,100 litres?
(c) If the reorder point is left unchanged when there is a 5 per cent increase in the mean demand,
how will it affect the service level?
(d) If the foundry estimates that the monetary value of the benefit that it may obtain is INR
3,000 when increasing the service level from 90 per cent to 95 per cent, what is the appropriate
service level for the item?
(10 marks)

6. Tabard Industries forecasted the following demand for one of its most profitable products
for the next 8 weeks: 120, 120, 120, 100, 100, 100, 80, and 80 units. The booked customer
orders for this product, starting in week 1 are: 100, 80, 60, 40, 10, 10, 0, and 0 units. The current
on-hand inventory is 150 units, the order quantity is 200 units, and the lead time is 1 week.
a. Develop an MPS for this product.
b. The marketing department revised its forecast. Starting with week 1, the new forecasts are:
120, 120, 120, 150, 150, 150, 100, and 100 units. Assuming that the prospective MPS you
developed in part (a) does not change, prepare a revised MPS record. Comment on the situation

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that Tabard now faces.
c. Returning to the original forecasted demand level and the MPS record you developed in part
(a), assume that marketing accepted a new customer order for 200 units in week 2, and thereby
booked orders in week 2 is now 280 units. Assuming that the prospective MPS you developed
in part (a) does not change, prepare a revised MPS record. Comment on the situation that
Tabard now faces.
(10 marks)
7. Figure 1 shows the product structure for a manufacturing firm. In addition to the final product
(Product A), Component B is sold as a spare in the market. The MPS for Product A and
Component B and other relevant information for the problem are given in Tables 5 and 6.

Figure 1: Product Structure

Table 5: MPS for the next six periods

Period 1 2 3 4 5 6
Product A 100 80 220 140 70 160
Product B 40 30 70 60 50

Table 6: Other Information

Item Lead time Inventory status Lot-sizing rule
(weeks)
A 2 200 L4L
B 2 900 L4L
C 1 750 L4L
D 2 2500 2 periods
E 1 300 3 periods
F 2 1000 500
G 1 600 1000
Perform an MRP exercise to cover the requirements of the MPS and answer the following
questions
(a) What is the gross requirement for Component B during the six periods?
(b) How many orders do we have to place for Component C and in what quantities?
(c) Suppose the lead time for Component G is two weeks instead of one week, what will
its impact be on the planning process?
(d) Suppose that the economic order quantity for Component C is 320 units. What will
the appropriate POQ lot-sizing rule be for Component C?
(10 arks)

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8. Canine Kernels Company (CKC) manufactures two different types of dog chew toys (A and
B, gold in 1,000-count boxes) that are manufactured and assembled on three different
workstations (W, X, and Y) using a small-batch process (Figure 2). Batch setup times are
negligible. The flowchart denotes the path each product follows through the manufacturing
process, and each product's price, demand per week, and processing times per unit are indicated
as well. Purchased parts and raw materials consumed during production are represented by
inverted triangles. CKC can make and sell up to the limit of its demand per week; no penalties
are incurred for not being able to meet all the demand. Each workstation is staffed by a worker
who is dedicated to work on that workstation alone and is paid $6 per hour. Total labor costs
per week are fixed. Variable overhead costs are $3,500/week. The plant operates one 8-hour
shift per day, or 40 hours/week. Which of the three workstations, W, X, or Y, has the highest
aggregate workload, and thus serves as the bottleneck for CKC?
(10 marks)

Figure 2: Manufacturing Process

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