ASSIGNMENT FOR JUNE 2020 EXAMINATION

Course Name: Operations Management

Answer 1.
The term Inventory refers to any resource, be it capital or Work in progress that can be put to use in future
and is reflected as a cost to profitability of the organisation. Broadly there are two type of Inventory control
systems, Continuous review and Periodic review type.
Continuous review system, is followed by most organisations and refers to two bin system where inventory
is kept in one smaller bin which is the re-order point and one in larger bin directly for consumption. When
Larger bin is emptied, new material is replenished.
Periodic Review system is the one where inventory review is done at fixed intervals of time and
replenishment order is generated basis the gap between predetermined level of stock and available stock.
Although Periodic review system is more reliable due to safety of stock but it is also the investment
intensive one.
Further there are many methods of inventory control as discussed below:
1. ABC classification technique- In this type of system A class are the inventory goods, which are least
used in quantity but comprise of 80% of the cost of all materials ordered in the organisation.
Similarly, C class items are the ones which have the least cost but comprise of 80% of the bulk
volume. It is basically a pareto of goods and takes into account the consumption pattern.
2. XYZ Classification technique- In this type of classification the units are classified on the basis of per
unit cost of the goods. X class items are the highest cost items, Y class is medium cost and Z class is
the least cost items.
3. FSN classification technique – In this type of system the goods are classified on the basis of fast
moving, slow moving and non-moving inventory items. This is basis ex post whereas ABC is future
oriented.
4. VED classification technique- It is a system based on Vital, essential and desirable types of goods. It
is mainly associated with maintenance in organisation. Spares can be mostly classified as vital and
desirable basis their urgency to repair machinery. They can have low cost as well as high cost.
5. Import, National & Local technique – in this the classification is done on basis of the supplier
type, imported, indigenous national and indigenous local.
6. JIT technique – It refers to availability of inventory when it is required in the right quantity so
no/less storage is required.
It is often possible to combine more than one type of inventory classification to categorize and manage the
inventory goods.

In our case of medical store, maintaining medical supplies can be done using a mixture of two three
inventory classifications. It can be done by use of the ABC classification, FSN & VED together. ABC
classification will necessary to study the pattern of consumption of medicines and in relation to the cost
of the medicines. It will provide a clear picture of the inventory costs & consumption involved.
After establishing the consumption pattern and cost of the inventory involved, further FSN analysis can be
done to establish which medicines are fast moving and in high demand in the local area. There might be
some medicines which will be slow moving due to less demand which can be in low quantities as well.
After establishing the pace of consumption of inventory, a VED analysis can be done to find out which
are the most vital medicines and in high demand in local area, whether they are low cost or high cost can be
determined by analysing ABC data parallelly. Also, if the essential ones are to be stocked in large
quantities and what is their cost impact.

Examples & Conclusion: Let’s say a Blood Pressure medicine is high cost, highly consumed, and vital
too, hence its stock will have to be replenished frequently and in appropriate quantity.
Also, nicotine gum Nicotex is high cost, low demand, slow moving and desirable type of item, hence its
stock will have to be limited to a few pieces in medical store.
 Answer 2.

In the recent years there has been a global shift of manufacturing and markets both in the Asian countries.
Due to integration of Indian and Asian economies with the global one, there has been a stiff completion to
benchmark Asian and Indian manufacturing sectors to that of the world. Competitive pressure manifests in
three major challenges.
Falling prices – even after inflation change
Shrinking delivery quote – reduction of delivery times
Build to Order requirements – customer demand of customized goods.
There has been a huge surge in customer expectations in terms of goods & services. Organisations offer high
end facilities and goods at minimum possible prices, which change consumer behaviour and effect the
customer requirements. Technological developments have changed the requirement of people as well.
Environmental issues & economic reforms are another point of concern that can drive competitive pressure
on organisations.
Chinese manufacturers are able to manufacture cheaper goods or duplicate copies of original products
because of a number of reasons. Some of them are highlighted below:
1. Cheap Resources availability- in Asian countries mostly, each and every resource to manufacture
the products or copies of original products comes at a cheap cost due to cheap labour, electricity, raw
materials and too much of surplus cash available in such countries. They can just buy one original
product and make several copies of it.
2. Lack of Patents in consumer goods – there are far many products in market which are simple
technology consumer goods and do not have patents authorization for them hence its easier for these
manufacturing hubs to copy and replicate the goods in a cheaper version. For example: inverters just
have a PCB and Transformer working inside, no patents and easily available designs, hence the copy
paste and easy sale at a cheaper price.
3. Distribution networks- Cheaper manufacturing hubs have a wide distribution network in low cost
economic countries like in India and south east Asia. China is manufacturing plastic toys and goods
and selling them in South east Asian countries with its wide distribution network hence the bigger
toys companies are able to make less sale in such markets, for example Hamleys chain of toys.
4. No Green responsibilities- These copy cats have no responsibility or liability towards green
manufacturing or CSR responsibilities and hence are easily able to produce the goods in a cheaper
environment.
5. Technology- In such manufacturing units, mostly the machinery used is second hand and still
working hence the less operational cost for them. Hence, they are able to produce the same good at
half the price then their standard branded counterpart.
It is very important for branded organisations to streamline their operations system to market/customer to
be able to compete with these cheap manufacturers whilst maintaining their brand and quality. They need
to be continuously improving their processes and grow with them. This is a very big challenge but still
can be achieved by following some strategies as below:
1. Relating operations systems to customers & Market- Customer is centre point for any
organization for its design, manufacturing, supplier management or product development. Hence all
decisions have to be based on customer requirement and ease, hence the need for better quality
management systems.
 2. Capabilities to tolerate product /service proliferation – Customers will always demand high value
offerings from organisations; hence it is important for organizations to incorporate a customer layer
to layers of organization in every new product development.
3. Patents & New development- A new development should always have the necessary patents and a
strong legal structure in place in organisation to address that their designs are not copied and
manufactured by someone else. Apple Inc is one such company that keeps track of its all product
patents and its customer interests at first position.
4. Continuous improvement- Organizations must strive for continuously improving their operations
systems and manufacturing systems to produce existing as well as new products at controlled costs.
Per unit manufacturing cost should not go high then benchmark.
5. Green manufacturing systems – Organisations should adopt green manufacturing & operational
practices such that products are sustained in green manner and that resources are not depleted or
wasted for usage of others.
Conclusion- Hence it is evident that the branded organisations should keep continuously improve and
innovate to keep themselves in market against cheaper competition. Their focus should be building strong
relationships with customers so they do not look for cheap alternates. NIKE is one big example, innovating
and providing customers the best possible quality in their budgeted cost. A person using NIKE will rarely
want to go to cheap fakes or trying another brand.

Answer 3 (a)

ABC ltd wants to diversify from FMCG to food & beverages industry. The decision by management is
backed by extensive marketing research that means there is already a product demand available into
market and that it’s a good opportunity to tap into the foods & beverages market.
1. In my Opinion yes ABC ltd should definitely diversify into flavoured coconut beverages because it
is a lucrative market taking into consideration the upcoming summer season and the variety of
summer drinks people look for in summers.
2. It is very important for an organisation to diversify in other sectors as well, provides the management
a financial backup in times of losses or less business running.
3. Since it is two types of products only being launched and that too with batching process combined
it makes it intermittent flow of process. Since the FMCG sector is in flow type process, it is good
to explore into a new process industry.
4. Being in FMCG industry, ABC ltd is already fulfilling demands of customer on daily basis and have
a brand reputation already in every household which can be used to their advantage.
5. Since ABC has vast experience in process machinery (mixers/ pressers/ boilers/ saturation tanks)
of the kind that is used in daily use products, it has relevant experience to venture into beverages
market. Even if the idea fails, they will somehow be able to modify and re-use machinery for
their existing business. The assets will not go to waste.
6. They have investors ready to invest, which is a good thing and will help them secure funds without
hassle for this venture.
7. It is a wise decision to not keep All eggs in one basket, hence the diversification is required for
ABC ltd.
 Answer 3 (b)

ABC Ltd. Wants to go ahead with Coconut flavoured drinks in market and has a very good response from
the market. Based on the inputs, there are a certain factor for deciding the location of the Plant setup. Some
of them are company competitiveness, sector competitiveness and country competitiveness. All these three
tier checks are used to asses the competitiveness of location. Some of the factors affecting location of the
plant are as below:
1. Market related Issues – whether there is market available for products or in ABC’s case Beverages.
Raw material availability, Proximity of suppliers, Demand supply gap & nature of competition.
2. Cost related issues – factoring in cost of input, transportation costs, taxes and tariffs, cost of
conversion etc.
3. Regulatory & Policy issues-Govt policy and stability, quality of legal and other institutes, trading
blocks etc.
4. Other issues- Culture, climate & quality of life.
ABC Ltd should start the beverage manufacturing in Kerala/ Tamil Nadu location because of the
following reasons:
1. Availability of raw material & Market – easy in Southern Indian States.
2. Govt Policy – favourable for other FMCG units & ABC ltd.
3. Costs & Transportation – Inexpensive labour & easy transport unions available.
4. Distribution Networks - Wide existing distribution networks of ABC ltd.
5. Demand for coconut Beverages – More demand in southern Indian states due to easy availabuility
and preference of coconut.
6. Location Factor rating – Is good and favourable for ABC ltd, infra & size of market.
7. Transportation Model – Is good and favourable for ABC Ltd, ports & truck unions available.
Conclusion: Since the above factors are favourable for ABC ltd in Kerala/Tamil Nadu, hence the new plant
location should be based out in southern India, specifically Kerala/ Tamil Nadu.