HARAMBEE UNIVERSITY

FACULTY OF BUSINESS AND ECONOMIOCS

BUSINESS ADMINSTRATION DEPARTMENT
OPERATIONAL MANAGEMENT

GROUP ASSIGNMENT

Answer the following questions based on the information given in the question or case. You can
refer to additional material like reference books or internet sources to answer the questions.
Write only relevant answers. Do not cut and paste the junk. Understand the question and write
only relevant answers as per to the question. Copying is strictly forbidden and could result in
Zero marks. Good time!!

Question 1

ABC company supplies a component to several large auto manufacturers. This component is
assembled in a shop by 15 workers working on 8 – hours shift on an assembly line that moves at
a rate of 150 components per hour. The workers receive their pay in the form of a group
incentive amounting to 30 Br per completed good parts. This wage is distributed equally among
the workers. Management believes that it can hire more workers for a second shift if necessary,
to take advantage of government incentive to encourage local assembly or import of brand-new
cars than its second hand counterpart.

Parts of the final assembly come from two sources. The molding department makes one very
critical part and the rest come from outside suppliers. There are 11 machines capable of molding
the one part done in – house; but historically, one machine is overhauled or repaired at any given
time. Each machine requires a full – time operator. The machines could each produce 25 parts
per hour, and the workers are paid on an individual piece rate of 20 Br per good part. The
workers will work overtime at a 50 percent increase in rate, or for 30 Br per good parts. The
work force for molding is flexible; currently, only 6 workers are on this job. Four more are
available from labor pool within the company. The raw material for each part molded cost 10 Br
per part; a detailed analysis by the accounting department has concluded that 2 Br electricity is
used in making each part. The parts purchased from the outside cost Br 30 for each final
component produced.

This entire operation is located in a rented building costing Br 100 per week. Supervision,
maintenance and clerical employees receive Br 1000 per week. The accounting department
charges depreciation for equipment against this operation at Br 50 per week. Take a 5 working
days per week in all cases.

1. In the case above, parts for final assembly can come from two sources: made within the
organization or purchased from outside sources leading to Make(produce) or Buy (Outsourcing)
decisions by an organization. Discuss factors which determine organizations to go for Buy or
make decisions? Under what conditions organization opt to make or buy a component or a
product?

2. Determine the capacity (number of components produced per week) of the entire process. Are
the capacities of all processes balanced? Discuss about balanced and unbalanced processes. If
there is unbalance between successive processes, discuss ways to mitigate it?

3. If the molding process were to use 10 machines instead of 6, and no changes were to be made
in the final assembly task, what would be the capacity of the entire process? What would be the
capacity of the entire process? Would you discuss about blocking and starvation of the
stages/phases in the process? In which of the stages or phases will there be blocking/Starvation?
Why?

4. If the same organization wants to establish a self-serving restaurant, which is a service

division, how do you think the design of such service division differ from the design of physical
products like component parts above?
 Answers for Question 1

The accompanying process flow diagram describes the process. The tasks have been shown as
rectangles and the storage of good (inventories) as triangles.

1. Answer: A make-or-buy decision refers to an act of using cost-benefit to make a strategic

choice between manufacturing a product in-house or purchasing from an external supplier. It
arises when a producing company faces a diminishing capacity, experiences problems with
the current suppliers, or sees changing demand. The majority of the make or buy decisions
are made on the basis of price. But this is only one of the criteria, which is to be evaluated in
this strategic decision. Many non-cost factors encourage long term contracts with the
suppliers to aid in the achievement of production and quality levels and encourage
investments in appropriate resources and new ideas.
Factors Influencing Make or Buy Decision [1]:

1. Volume of Production:

The quantity or volume of production affects the make or buy decision to the greater extent. If
the volume of production is high, it favors the make decision and low volume favors buy
decisions.

2. Cost Analysis:

The cost analysis refers to the determination of costs to make an item as well as the cost to buy
it. The cost to make include – the material cost, direct lab our cost, set up and tooling up costs,
depreciation, administrative overheads, interest, insurance, taxes and inventory carrying costs of
raw materials and work in process. The cost to make also includes the appropriate allowances,
spoilage of work or scrap, and the risk associated with doing business. The cost to buy an item
should include -purchase price of the item or component, transportation cost, sales tax and
octopi, procurement cost, carrying cost, receiving and incoming inspection costs. The analysis of
these two costs helps take decision whether to make or buy.

3. Utilization of Production Capacity:

The organization, which has created large production capacity, favors the decision to make

4. Integration of Production System:

The vertical integration favors the make decision whereas horizontal integration favors buy
decision.

5. Availability of Manpower:

Availability of skilled and competent manpower favors makes decision where as scarce
manpower prefers buy decision.

6. Secrecy or Protection of Patent Right:

This condition favors the make decision.

7. Availability of competent suppliers or vendors

This condition favors the make decision.

 Functional Aspects (Factors) of Make or Buy Decision:

Make or buy decision should be viewed with both long term and short-term perspectives in mind.
Some of the effects are tangible and others are intangible.

These functional factors are classified as follows:

I. Financial aspects III. Marketing Aspects

II. Technological Aspects IV. Strategic Aspects

I. Financial Aspects:

The make decision is always demanding an investment in plant, machineries and equipment. The
investments can be categorized in to fixed cost and variable cost. The buy decision is associated
with only variable cost. Expressing all factors in to money terms carries out a thorough and
comparative analysis. Then the decision is to be taken based on which one is more economical,
to make or to buy.

II. Technological Aspects:

The make or buy decision is influenced by:

(a) The access to the latest technology to the organization.

(b) Feasibility and terms and conditions of technology transfer

(c) Outdating of technology

(d) Product life cycle.

III. Marketing Aspects:

The marketing aspects have the influence on make or buy decision. When there is a fierce
competition, an organization tries to enhance the quality and cut down the costs. The make
decision assures the quality and reliability of the parts. Under the situation of increasing market
share and a good future sales potential company can have an additional investment potential and
hence can opt for make decision.

When there is a doubt about the market potential, the company should opt for buy decision. The
large organizations pay greater attention to quality which favors the make decision to maintain
quality and reliability of items.

IV. Strategic Aspects:

Any decision that is to be taken including make or buy decision should be taken with due
consideration to overall objective of the organization. Due importance should be given to the
economy, secrecy and flexibility in taking decision regarding make or buy.

Economic and no Economic Factors Influencing Make or Buy Decisions:

Decisions regarding whether to make or buy the components involve both economic and non
-economic factors. Economically, an item or component is a candidate for in house production, if
the company has sufficient capacity and if the components value is high enough to cover the
variable costs of production and make some contribution towards the fixed cost. Low volumes
favor buying, which incurs very little or no fixed costs.

The non-economic factors are:

a. Availability of infrastructure and skilled personnel

b. Desire for alternate sources of supply
c. Employee preferences and stability concerns
d. Need to maintain trade secrets
e. Desire to expand in to new product line
f. Forward or backward integration
g. Long lasting and mutually rewarding relationships with vendors
2 Answer:

Given
  150 components per hour  8 working hours in a shift
 5 working days in a week  25 produced parts per hour
 1 shift  6 working machines at Molding dept

Required

A) Weekly capacity of the assembly process (with one shift)?

B) Regular time capacity of Molding dept per week?

Solution

A) Weekly capacity of the assembly process (with one shift) =

components per hour ×working hours∈a shift × shift ×working days in a week
¿ 150 ×8 ×1 ×5

¿ 600 units

B) Regular time capacity of Molding dept per week

¿ produced parts per hour ×working machines at molding dept × working hours∈a shift × working days ∈a
¿ 25 ×6 × 8× 5
¿ 600 units
 Capacities of the both processes are equal and hence balanced.

Balanced processes means that the processes have equal production capacities, whereas
unbalanced processes are those with unequal production capacities.

Line balancing is a production strategy that involves balancing operator and machine time to
match the production rate to the takt time. Takt time is the rate at which parts or products must
be produced in order to meet customer demand. For a given production line, if production time is
exactly equal to takt time, then the line is perfectly balanced. If the production process is
unbalanced, resources should be reallocated or rearranged to remove bottlenecks or excess
capacity. In other words, the quantities of workers and machines assigned to each task in the line
should be rebalanced to meet the optimal production rate. Generally, unbalanced line/process can
be mitigated by the following measures [2]:
 a. Calculate takt time

Since the goal of line balancing is to match the production rate to takt time, being aware of your
takt time is essential.

Availabe working time per shift

Takt Time=
rate of customer demand per shift

b. Perform time studies

The goal of time studies is to establish the time required to complete each task along a
production line. In other words, you want to find out how long employees and machines spend
on each part of a process.

c. Identify bottlenecks and excess capacity

When it comes time to analyze the data from your time studies, notice which parts of the process
are taking longer than takt time. Exceeding takt time means late deliveries, high shipping costs or
unhappy customers. Also, notice which parts are taking less than takt time. There is excess
capacity in those places.

d. Reallocate resources

Start by considering task precedence, which is the sequence in which tasks must be carried out.
For example, if a step requires a certain part, you need to make sure that part is completed before
reaching that step. A Precedence Diagram can help in this case. Then, rearrange tasks to reduce
excess capacity and bottlenecks. For example, move resources–workers and equipment–from
parts of the line that have excess capacity to bottlenecks. In other words, aim to alleviate the
workload where there are blockages, and move it to places where excess capacity can be filled
by absorbing more work. This will reduce the waiting waste in the places where there was excess
capacity. It will also help improve production flow where there were bottlenecks. Try to organize
elementary tasks into groups that minimize operators’ idle time and that maximize the utilization
of machines and equipment. Share the workload among operators in the most logical way, taking
into account the data on operator performance that you have gathered. Ideally, each group of
tasks should be completed in the same amount of time to achieve synchronization. Wherever you
have several operators performing consecutive tasks and working as a unit, you should strive to
reduce the imbalance between workers and workloads. Proper arrangement and allocation of
tasks in production lines help maximize output at the desired time.

e. Make other improvements

The analysis of the quantitative data on your lines will surely reveal other opportunities for
improvement that could improve the balance of your lines. To implement process improvement,
you can manipulate three parameters: operator time, machine time, and setup time. For instance,
you can give additional training to workers that take longer to complete tasks or facilitate
transitions to reduce changeover times. You can also upgrade machines or make sure operators
follow proper machine setup and maintenance standard operating procedures (SOPs).

3 Answer:
 Capacity of the assembly process = 150 x 8 x 1 x 5 = 6,000 units per week remains the
same.
 Capacity of the Molding process (with the number of machines at molding dept changing
from 6 to 10) is
¿ produced parts per hour ×working machines at molding dept × working hours∈a shift × working days ∈a

¿ 25 ×10 ×8 × 5

¿ 10,000 units per week

 Now, assembly is the bottleneck and its capacity is the capacity of the entire process. So,
the capacity of the entire process is 6,000 units per week.
 A blocking/bottleneck is commonly referred to step in a process which limits the total
capacity of the process. It is the step, workstation, or stage which causes work in progress
to build-up because it cannot be processed at the same rate as the other steps or
workstations or has the greatest cycle time in a one path process. Now, for this case
assembly is the blocking stage as it is limiting the total capacity of the process to 6,000
units per week, which would have been 10,000 units per week for molding process.
  Process Starvation occurs when the steps after the bottleneck or blocking step are
forced to stop or idle because of no material process until the bottleneck process can
supply materials to this next step.

In our case the process after assembly, which is finished components storage and supply to
manufacturers can become starved because its capacity is less than the previous step
(Molding Process) and will be forced to idle while it waits finished components. This limits
the capacity utilization of the whole process.

4 Answer:

Service design is the coordination and combination of people, communication, and material
components to create quality service while a product design is the combination of manufacturing
capabilities with product and business knowledge to convert ideas into physical and usable
objects.

The design of service division such as a self-serving restaurant differs from the design of
physical product in that it doesn’t includes the storage as for a physical product and the quality of
the service is defined by experience other than by data unlike that of product design.

The major design differences between product design and service design are given below:

Product design Service design

 Tangible  Intangible
 Storable  Perishable
 Control quality with data  Define quality by experience
 Measurable output  Measurable outcome
 Repeatable  Non-repeatable
 Patentable  Non-patentable

Truly, a product and a service are not that diverse: literally, in all cases, product and service
come together and are both required to deliver a sustainable experience and can, consequently,
not be decoupled. Service and product design are not alternatives but looking at different aspects
of an overall value proposition: service design is holistic and broad; product design is more
focused.
Question 2

Case 1: Relocation of Manufacturing Plant: Case of “Tata Nano”

Site selection in India is often dominated by tax incentives

provided different state governments. Many times, political reasons dominate the location
decision of Government projects; for example, Many Indian Rail way projects are located at
particular place due to political compulsions. One of the most talked about plant relocation
problem of recent years in that of Shifting of Tata Nano plant from “Singur” in West Bengal,

Tata Nano, an ambitious family – car project from Tata Group, is aimed at providing world’s
cheapest car to the consumers. Its manufacturing facilities were originally set up in Singur to
avail the financial subsidies, tax holidays, etc. Land availability and its low cost, cheap labor,
raw materials availability, etc were other governing factors in site selection for the low- cost
manufacturing.

Singur, a small village in the state of West Best Bengal, was selected as a site, which require
over 1000 acres of land. However, political disagreements started growing up soon from
opposition political party and hostility from local communities became unmanageable for Tata
Group. Tata Motors eventually to pullout its Rs 2000 crore project from Singur despite the fact
that it had already suffered a loss to the tune of about Rs 500 crore.

Many other state governments came up with lucrative proposals to attract Tata Nano project after
its re- location. State of Kerla, Jharkhand, Orissa, Andhra Pradesh, Gujarat and even countries
like Sri Lanka came out with their attractive proposals. However, Sanand in Gujarat could make
it because of various factors such as political stability, availability of economical land and labor,
proximity to ports (benefit for both import and export), financial incentives like tax holidays for
first 10 years, etc. According to Mr. Ratan Tata, “The group had opted for Gujarat because it had
already lost a lot of time ( in the Singur Controversy) and urgency was the need of the day… We
had an urgency to move a new location… the “reputation of Gujarat and the ‘speed’ at which
provisions were made, forced us to opt for Gujarat.” Sanand is located a distance of 40 Km from
Ahmadabad. It is very close to ports like Rajkot as well as Mundra, which is the advantage for
export.

There is no doubt that West Bengal’s loss is Gujarat’s gain. Tata’s decision to re-locate was
based on minimization of the future losses and salvation of the existing situation in the best
possible manner. Captains of Indian Corporate world have learnt their lesson – without socio-
political stability, industrial growth is a distance dream.

Answer the following questions based on the case and other related sources.

1. What factors need to be considered during product design, which otherwise might affect the
economy, environment and society?

2. From what is in the case and other materials, discuss factors which are to be taken in to
consideration when making location decisions at international, national and regional levels.
3. Why did you think Tana Nano opted Singur in the first place and why it decided to relocate to
Sanand? Why did it choose Sanand after relocation?

4. Can you identify factors why investors from throughout the world choose Ethiopia as a
destination for investment (FDI).

5. What are the preferential benefits/incentives that Oromia Region give to attract investors over
other region/City Administration? Make a comparison of incentive/benefit between the two
Regions/City Administration?

6. Take any project you have known in Ethiopia, whose operation is halted or interrupted due to
political/ Social or environmental or any other reason/s y. Discuss the reasons you know and
What decisions were made to mitigate the scenario?

 Answers for Question 2

1. Answer:

I. Sustainability of the Product

Designers have a crucial role to play in achieving a more sustainable economic and social order,
and they must ensure that by providing solutions to one set of environmental problems they are
not increasing others. Sustainable design seeks to convert global and regional socio-
environmental concerns into products and services at the local level. Design can have an impact
upon the environment in many different ways; through the extraction of raw materials; through
the design of the manufacturing process, how the product is used and distributed and what
happens when the product reaches the end of its useful life.

II. Functionality

A product design should be functionally sound. Purpose of any product design is the complete
satisfaction of consumers. So, it has to function for which it is made. There should be proper
coordination in its appearance and service to the consumers.

III. Cost/Price Ratio

Product designers, in a competitive market, face lot of pressures in designing one which is cost
effective, better quality and the one that attracts a consumer. Cost effectiveness and quality
should be an integral part of a product design. With a constraint on the upper limit on producing
products, the designer must ensure cost effective designs.

IV. Product Quality

Quality of a product and its design go hand in hand. Product quality partly depends on how well
the design is and partly on conformity. The policy of a firm should stress quality of a product in
the design stage itself.

V. Material Requirements / Material Selection

The nature and quality of the materials have significant impact on the design of the product. The
designer should have up to date information about new materials available to make the desired
product. Regarding material selection, the product design should consider the use of eco-friendly
materials that are also cost effective and does not pose any harm to the environment and the
society.

VI. Work Methods and Equipment

For a most viable design, necessary equipment and method of work carry a significant amount of
importance. So, a product designer should be innovative in nature. He should be aware of the
innovations for improving the work methods and nature of the equipment. Production cost can be
influenced by a simple modification in work methods. The method of work should be
economically viable route through which the product will be made. The product design should be
such that there is sufficient adaptability and scope for improvement in work methods and type of
equipment required for the operations involved in production process

VII. Packaging

Packaging is an essential part of a product. Design of a package is equally important as the

design of the product. Packaging design should consider the objectives of packaging such as
protection and promotion of the product. Attractive packaging enhances the sales appeal of
product in case of consumer products (non-durables). Furthermore, for disposable packaging, the
material from which the packaging is made should be eco-friendly and degradable.
 2. Answer:

For the case of international location decisions several key factors are considered in the
selection of international location for a given company, some of which are not relevant in
domestic location decisions such as policies and incentives from host governments, social
factors, nature of supply base and the political climate of a foreign country.

These international location decision factors with their description are summarized in the table
below [3]:

Factors Description
Favorable labor market labor costs, quality of labor force, skills,
availability of labor force, labor unions, attitude of
present employees, wage rate, productivity
Transportation costs costs involving transporting materials and finished
goods, delivery times, distribution costs
Proximity to markets and customers location of demand, number of customers, size of
markets, delivery speed
Proximity to suppliers and resources quality of suppliers, alternation suppliers,
competition for materials from other companies,
nature of supply process, location of suppliers
Proximity to parent company’s facilities distance between plant and parent company
Location of competitors number of competitors nearby, type of
manufacturer
Quality of environment/climate related geographical characteristics of plant, level of
factors quality-of-life index
Political environment factors record of government stability, stability of regime,
effectiveness of government, consistency of
government policy
Tax structure related factors tax structure and tax incentives, financial
incentives, custom duty, tariffs, quotas, regulatory
barriers, bureaucracy
Social environment factors culture, customers’ life, language differences,
 norm and custom, customer characteristics,
standard of living

currency, exchange rate, interest rate, inflation,

Economic related factors employment level, inflation, strength of currency
against US dollar, business climate; country’s
debt, and GDP/GNP growth, income per capita
Infrastructure Existence of modes of transportation (airports,
railroads, roads and sea ports); quality and
reliability of modes of transportation; quality and
reliability of utilities (e.g., water supply, waste
treatment, power supply, etc.) and
telecommunication systems

For location decision at national level most of the factors mentioned for international location
decision can be utilized, among which, political environment, favorable labor market,
transportation cost, proximity to market and customers, proximity to suppliers and resources,
location of competitors, and to some extent economic factors, such as employment level and
buying capacity are the most commonly considered factors in location decisions at national level.

At regional level location decision might involve considering factors such as availability of
resource and favorable labor market, availability of potential customers, political stability,
availability of infrastructure, etc.

3. Answer:

Tata Nano opted Singur in the first place in order to avail the financial subsidies, tax holidays,
etc. furthermore, land availability, low cost and cheap labor, raw materials availability, etc. were
other governing factors why Tata Nano chose Singur in the first place. Tata Nano decided to
relocate to Sanand due to political disagreements that started growing up soon from opposition
political party, hostility from local communities, and the company had already suffered a loss to
the tune of about Rs 500 crore. Sanand was chosen after relocation because of various factors
such as political stability, availability of economical land and labor, proximity to ports (benefit
 for both import and export), financial incentives like tax holidays for first 10 years, etc.
Furthermore, According to Mr. Ratan Tata “The group had opted for Gujarat because it had
already lost a lot of time (in the Singur Controversy) and urgency was needed”.

They had an urgency to move to a new location, and the reputation of Gujarat and the ‘speed’ at
which provisions were made, forced them to opt for Gujarat. Sanand is very close to ports like
Rajkot as well as Mundra, which is the advantage for export.

4. Answer:

There are many factors why investors from throughout the world choose Ethiopia as a
destination for foreign direct investment (FDI) [4, 5].

I. Rapid economic growth

 Among the top performing economies with an average GDP growth of 11% per
annum since 2004
 Rapid growth expected to continue
II. Large domestic and international markets
 Large domestic market as the second most populous country in Africa
 Located in the crossroads between Africa, the Middle East and Asia
 Preferred access to many international markets
III. Low cost and abundant labor
 Large population of ~110 million, among which around 40% is under age 15
 One of the lowest minimum wages in Africa
 Good standards of spoken and written English
IV. Favorable political environment
 Stable political environment
 Government actively promoting private sector investment with attractive incentive
packages
V. Massive investments in infrastructure
 Projected national investments of $73 billion to upgrade hard and soft infrastructure
 Access to low-cost electricity due to investments in hydroelectric power, etc.
VI. Favorable Climate
VII. Availability of natural resource

5. Answer:

The comparison will be made between Oromia and Tigray national regional states. According to
the investment guide of Oromia region (July, 2015) and Tigray regional investment profile
(2019) Prepared by Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA),
Oromia region has relatively large labor market than Tigray region based on their population,
where Oromia has almost 7 times larger population than that Tigray region. Oromia region has
larger land area, 363.346 square kilometers, than that of Tigray region, 54,572 square kilometers
(more than 7 times larger), which is another preferential incentive for investors, especially for
those investing in agriculture and agro-processing. The diverse agroecology, large surface and
ground water potential and highly fertile land makes Oromia suitable for almost any type of fruit
and vegetable products than other regions. Oromia has fertile soil, and is centrally located within
Ethiopia allowing for a diverse agro-ecology that makes it ideal for all investment sectors.
Oromia is home to most of resources found in Ethiopia. This includes coffee, poultry, beehives
and live stocks. Over 60% of Ethiopian’s top export earner commodity coffee comes from
Oromia Region. About 36% of livestock in Ethiopia, 37% of the poultry and 50% of the beehives
are found in the Oromia. Oromia can be considered as the logistics and infrastructure hub of
Ethiopia with reasonable distance to Djibouti. The region has over 2600 km asphalt road and
served by five airports including the Addis Ababa, Dire Dawa and Hawassa airports, which is
another preferential incentive the region offers to investors. The region is the leading investment
destination in the country and strongly positioned in terms of infrastructure. In 2014/15, the
agricultural sector of the region accounted for 53 % of the Regional Gross Domestic Products
and provides over 85% of the employment and is a major earner of foreign currency for the
nation. Its climate is suitable to grow almost all types of crops. The comparison of
incentives/benefits the two competing regions give to investors is summarize in the table below.
No Incentive Oromia Tigray Comment
1 abundant the region has 33.9 million Total population of the Oromia region
labor people. Of this population region is 5,055,999 shows much
49% is between 15-60 years stronger current
old while another 48% is and future
below the age of 15. manpower base.
2 domestic and Due to its large population, it Due to relative proximity In terms of having
international has large domestic market, and to port Djibouti via Serdo- large domestic
markets also as a result of proximity to Afdera-Shiket, than some market base and
Djibouti port and Bole parts of Oromia, and using proximity to
International airport, the Mekelle Alula Abanega international
region is closer to International Airport, the market, Oromia
international market region can reach to region offers
international market better
incentives/benefits
3 Logistics and The region has over 2600 km Mekelle–Awash Railway Oromia can be
Transportation asphalt is under construction. It considered as the
road and served by five connects with Djibouti- logistics and
airports including the Addis Addis Ababa Railway. infrastructure hub
Ababa, Dire Dawa and Also, Mekelle dry port is of Ethiopia with
Hawassa airports. The Ethio- under construction. cold reasonable
Djibouti railway also connects room facility and direct distance to
the region with port Djibouti. cargo flights were Djibouti. Thus,
The Modjo, Gelan and Dire available. four airports; regarding logistics
Dawa dry ports also serve the Humera, Shire, Axum and and infrastructure
region. Mekelle air ports. Oromia offers
better
benefits/incentive
for investors than
 Tigray region

4 Availability Oromia Regional State has Tigray regional state has In this regard also
of Natural large variety of natural also natural resource the Oromia region
resources resources, ranging from which includes, minerals, has a lot more to
minerals, water source, beautiful landscapes, etc. offer for investors
landscapes, land, etc. Oromia is than the Tigray
one of the richest regions of the region.
country in natural resources.
5 Stable Oromia region has become one Unfortunately, Tigray Especially,
Political of the most stable regions of the regional government has currently in terms
Environment country with hospitable and entered into war with the offering peaceful
welcoming Inhabitants. federal government, due to environment for
several political factors, investors to do
which results in the region their job safely
being the most chaotic Oromia region is
region of the country far better than
which poses challenges for Tigray region
investors.
6 Incentive the The Oromia Regional State The Tigray Regional State
regional gives several incentives aligned also gives several
governments with Federal Investment incentives including; free
offer for Incentive packages. These duty, income tax
investors includes 100% duty exemption exemption from 2-7 years,
for importing capital goods for one stop shop service for
the first-time duty-free import investment service,
of vehicles, one stop-shop investment guarantees and
service for licensing and protection, and remittance
registration, 4-5 years tax of funds.
holidays, loss carry over, capital
remittance, export incentive and
access to finance
 6. Answer:

We chose the Grand Ethiopian Renaissance Dam (GERD) for the discussion. Initially
construction of the dam was planned to be completed within 6 years. But due to some political
problems the dam is still under construction. 81% of the construction of the dam has been
completed and it took more than 11 years to reach this point. There are a lot of factors that
contributed to the lag of the completion of the project. First the company named, Metals and
Engineering Corporation (METEC), the military-run conglomerate, which was handed an $853m
(24 billion birr) contract in 2011 (reports Reuters) to install turbines and other electrical and
mechanical work under the dam’s main contractor, Italy’s Salini Impregilo, was unable to
complete the project according to the contract, due grand corruption of the higher officials of the
corporation.

The lag of the electro-mechanical part has impacted the civil construction part of the dam and
made Ethiopia pay large amount of foreign currency for Salini as a compensation for the delay.
The construction of the dam was also interrupted by limitations in the supply of cement and other
inputs for the construction of the dam. After the new leadership led by Dr. Abiy Ahmed came to
power, it took a very significant measures to solve the existing problems and speed up the
construction of the dam. The measures include; firing METEC from the project and making the
officials responsible for the delay accountable and charging them with corruption. The project
was then handed over for competent company. The logistics problems were also mitigated by
appointing a logistics committee and mobilizing trucks carrying supplies from the port and
factories to the construction site. To elevate the people’s interest and support for the dam,
people’s participation coordination office has been made to be led by opposition party leaders,
and different fund-raising activities has been implemented. Finally, effective project
management strategies have be designed and implemented, and as a result the dam is know able
to complete its second filling of its reservoir.
Question 3

Case 2: Cookie Company

You and your roommate are preparing to start Cookie Company in your on - campus apartment.
The company will provide fresh cookies to customers at night during or after return from work or
walk. You need to evaluate the preliminary design for the company’s production process to
figure out many variables, including what prices to charge, whether you will be able to make a
profit, and how many orders to accept. This is the idea generated from the observation during
COVID 19 lock down where people are in difficulty to freely move to get what they want. In
addition, the income generated during the day time work is meager to meet the monthly demand
to cover all expenses, which necessitated additional source of income.

Business Concept

Your idea is to bake fresh cookies to order, using any combination of ingredients that the buyer
wants. The cookies will be ready for pickup at your apartment within an hour. Several factors
will set you apart from competing products such as store -bought cookies.

First, your cookies will be completely fresh. You will not bake any cookies before receiving the
order; therefore, the buyer will be getting cookies that are literally hot out of the oven.

Second, you will have a variety of ingredients available to add to the basic dough, including
chocolate chips, Chopped Heath bars, coconut, walnuts, and raisins. Buyers will telephone in
their orders and specify which of these ingredients they want in their cookies. You guarantee
completely fresh cookies. In short, you will have the freshest, most exotic cookies anywhere,
available right on campus.

The production Process

Baking cookies is simple: mix all the ingredients in a food processor; spoon out the cookie dough
on to a tray; put the cookies in to the oven; bake them; take the tray of cookies out of the oven;
let the cookies cool; and finally, take off the tray and carefully pack them in a box. You and your
roommate own all necessary capital equipment: One food processor, Cookie trays, and spoons.
Your apartment has a small oven that will hold one tray at a time. Your landlord pays for all the
electricity. The variable costs, therefore, are merely the cost of the ingredients ( estimated to be
$0.6/dozen) , the cost of box in which the cookies are packed($0.1 per box; each box holds a
dozen cookies), and your time (what value do you place on your time?).

A detailed examination of the production process, which specifies how long each of the steps
will take, follows. The first step is to take an order, which you roommate has figured out how to
do quickly and with 100% percent accuracy. (Actually, you and your room mate devised a
method using an electronic mail system to accept orders and to inform customers when their
orders will be ready for pickup. Because this runs automatically on your personal computer, it
does not take any of your time.) Therefore, this step will be ignored in further analysis.

You and your room mate have timed the necessary physical operations. The first physical
production step is to wash out the mixing bowl from the previous batch, add all the ingredients,
and mix them in your food processor. The mixing bowls hold ingredients for up to 3 dozen
cookies. You then dish up the cookies, one dozen at a time, on to a cookie tray. These activities
take 6 minutes for the washing and mixing steps., regardless of how many cookies are being
made in the batch. That is, to mix enough dough and ingredients for two dozen cookies takes the
same six minutes as one dozen cookies. However, dishing up the cookies onto the tray takes two
minutes per tray.

The next step, performed by your roommate, is to put the cookies in the oven and set the
thermostat and timer, which takes about one minute. The cookies bake for the next nine minutes.
So total baking time is 10 minutes, during the first minute of which your roommate is busy
setting the oven. Because the oven holds only one tray, a second dozen takes dozen takes an
additional 10 minutes to bake.

Your roommate also performs the last steps of the process by first removing the cookies from the
oven and putting them aside to cool for 5 minutes, then carefully packing them in a box and
accepting payment. Removing the cookies from the oven takes only a negligible amount of time,
it must be done promptly. It takes 2 minutes to pack each dozen and about 1 minute to accept
payment for the order.
That is the process for producing cookies by the dozen in Cookie Company. As experienced
bakers know, simplifications were made in the actual cookie production process. For example,
the first batch of the cookies for the night requires preheating the oven. However, such
complexities will be set aside for now. Begin your analysis by developing a process flow
diagram of the cookie making process. The following are Key Questions to Answer Before you
Launch the Business.

Case related Questions to be answered

1. Draw a flow chart for the cookie production process?

2. Your product in the case above must be made to order because each order is potentially
unique. If you decide to sell standard cookies instead, how should you change the production
system? The order taking process? Differentiate between “Make -to - order and Make – to -
Stock” processes. Discuss conditions under which each of them will be used? Today many
organizations are using the hybrid of the two depending their products. Why do you think is the
reason? Discuss also the Processes available for option (Job shops, Batch, Mass and Continuous
Process).

3. Because your baking trays can hold exactly one dozen cookies, you will produce and sell
cookies by the dozen. Should you give any discount for people who order two dozen, three dozen
cookies, or more? If so, how much? Will it take you any longer to fill a two – dozen cookie order
than a one dozen cookie order? How many food processors and baking trays will you need?

4. Are there any changes you can make in your production plans in the above case that will allow
you to make better cookies or more cookies in less time or at lower cost? For example, is there a
bottle neck in your production process that you can expand cheaply? What is the effect of adding
another oven? How much would you be willing to pay to rent an additional oven? Discuss about
Theory of Constraints, which is associated with bottleneck? What do you recommend for
improvement for cookie company?
5. To prepare the cookie, the cookie company uses various ingredients which could be channeled
from various sources (suppliers). Discuss about supply chain management and its components.
Elaborate this by taking certain “bakery” in your nearby locality.

 Answer for Question 3

1. Answer:

Assume that Mr. X and X’s roommate has stablished a cookie company. The company is aimed
at supplying fresh baked cookies for starving students.

Factors to be considered in designing the production process are as follows:

 Design process has to maximize the production of small bakery in student’s college
apartment.
 Should decide the price to charge so that to make a profit we can estimate how many
orders to accept per day
 Should calculate variables such as time, food, processors and other equipment to meet the
targeted orders
 2. Answer:

If we decide to sell standard cookies, the production system would be changed in a way that
orders from customers will not be accepted, instead there will be a predefined design of how the
cookies will look like and how many cookies should be prepared for a given time should be
predetermined, of course taking into account the actual market need of the day. The basic
difference between Make-to-order (MTO) and Make-to-Stock (MTS) processes is that for the
case of Make-to-order, you first accept orders from customers and make the cookies as per the
customer requirements, these systems are directly driven by customer demand and, as a result,
products are directly made in response to placed customer orders. As production is triggered by
orders, these systems are also known as pull systems, characterized by long delivery times, low
storage costs and high flexibility. In contrary to MTO systems in MTS system you just make the
cookies according to a predefined standard set in the design and sell the cookies to customers
who came to buy. In MTS systems, customers demand is satisfied with stocked inventories of
finished products.

Stocked inventory is maintained according to some inventory replenishment policy that, for
example, periodically orders stock up to a predetermined level. The parameters of the inventory
replenishment policy are tuned to meet the demand that a product sees in some favorable way.

There are certain conditions under which each of these processes will be used. Many companies
adopt MTO approach when the production process does not have a substantial amount of time,
which usually pertains to products that can be either assembled rather quickly or can be produced
within a short period of time. MTO can be used when manufacturing products that could be
customized to consumer specifications, and this production strategy can aid with striving for zero
inventory and eliminating waste within your operation. MTS production approach is used for
items that have rather long lead times and take a substantial amount of resources to produce,
such as an automobile. By using both MTS and MTO, the strengths of these methods can be
combined, and their weaknesses mitigated.

Job shops: This type of process produces small batches of many different products. Each batch
is usually customized to a specific customer order, and each product may require different steps
and processing times. Examples of job shop products include a bakery that specializes in baking
and decorating wedding cakes, each one customized for a bride, or a programmer that creates
customized websites for his clients.

Batch shops: These produce periodic batches of the same product. Batch shops can produce
different products, but typically all the products they produce follow the same process flow. A
facility producing shirts of different sizes and colors or a bakery preparing different flavors of
cakes or types of cookies are examples of batch shops. These processes make one type of shirt or
cookie in a batch and then switch to a different type, but all types follow the same flow. Batch
shops usually require some setup time — time required to prepare resources to produce a
different type of product.

Mass production processes is used by companies that need to create standardized products in
large quantities as economically as possible. Products are mass produced in order to generate the
inventory needed to meet high market demand. This type of production usually requires heavy
investment in machinery and equipment; workers are generally needed to assemble component
parts to make the finished good.

Continuous processes: As the name implies, these processes produce items continuously,
usually in a highly automated process. Examples include chemical plants, refineries, and electric
generation facilities. A continuous flow process may have to run 24/7 because starting and
stopping it is often difficult.

3. Answer:

Whether we should give a discount for people who order two, three, or more dozen cookies,
depends on whether we make extra profit for each additional order made or not. The amount
of the discount the we could make also depends on the amount of extra profit we get from
two, three, or more orders we receive.

So, let’s see if we could give discount for people who order two, three, or more dozen
cookies. First, we need to evaluate the labor cost (labor time) associated with filling 1-dozen,
2-dozen, 3-dozen, or more order.

Consider the following data

Activity Activity Type Time

Wash and Mix (Mr. X) Setup 6 min
Dishing up on tray (spoon) (Mr. Operation 2 min
X)
Put in Oven (roommate) Operation 1 min
Pack (roommate) Operation 2 min
Receive payment (roommate) Setup 1 min

Labor Cost: how much labor time it takes to fill 1-dozen, 2-dozen order.
 Labor cost for 1-dozen

1-dozen = Time taken for own + time taken for roommate

= 8 min + 4 min

= 12 min

Labor cost for 2-dozen

Count the setup activities only once and the operation activities twice. The table is represented as
follows:

Activity Labor resource Time

Receive Order E-mail O min
Wash bowl and mix Self 6 min
Fill tray 1 Self 2 min
Fill tray 2 Self 2 min
Prepare oven 1 Roommate 1 min
Bake 1 Oven 9 min
Remove 1 Roommate 0 min
Cool 1 None 5 min
Prepare oven 2 Roommate 1 min
Bake 2 Oven 9 min
Remove 2 Roommate O min
Cool 2 None 5 min
Pack 1 Roommate 2 min
Pack 2 Roommate 2 min
Collect money Roommate 1 min

2- dozen = Time taken for own + time taken for roommate

= 10 min + 7 min

= 17 min

Labor cost for 3-dozen

Activity Labor resource Time

Receive Order E-mail O min
Wash bowl and mix Self 6 min
Fill tray 1 Self 2 min
Fill tray 2 Self 2 min
 Fill tray 3 Self 2 min
Prepare oven 1 Roommate 1 min
Bake 1 Oven 9 min
Remove 1 Roommate 0 min
Cool 1 None 5 min
Prepare oven 2 Roommate 1 min
Bake 2 Oven 9 min
Remove 2 Roommate O min
Cool 2 None 5 min
Prepare oven 3 Roommate 1 min
Bake 3 Oven 9 min
Remove 3 Roommate O min
Cool 3 None 5 min
Pack 1 Roommate 2 min
Pack 2 Roommate 2 min
Pack 3 Roommate 2 min
Collect money Roommate 1 min

3- dozen = Time taken for own + time taken for roommate

= 12 min + 10 min

= 22 min

Now, we calculate the production cost, taking into account that our landlord pays for all the
electricity.

Production cost = Material cost + Labor cost

Material cost = $ 0.60 (ingredients) + $ 0.10 (box)

= $ 0.70 / dozen

Assuming we charge $ 0.30 / minute for labor cost, then the cost of production will be as follows:

Production cost for 1-dozen

1-dozen = 0.70 + (0.30 X 12)

= 0.70 + 3.6

= $ 4.30
Production cost for 2-dozen

2-dozen = 0.70 + 0.70 + (0.30 X 17)

= 1.40 + 5.1

= $ 6.50

Production cost for 3-dozen

3-dozen = 0.70 + 0.70 + 0.70 + (0.30 X 22)

= 2.1 + 6.6

= $ 8.70

Now, in order to calculate profit for each case and how much discount we could make for people who
order more than one dozen, let’s set a selling price for a single dozen. Let’s say we sell 1-dozen for $ 5,
then a profit for each case will be:

Profit for 1-dozen = selling price – production cost

= 5 – 4.30

= $ 0.70

Profit for 2-dozen = selling price – production cost

= 2(5) – 6.50

= $ 3.50

Profit for 3-dozen = selling price – production cost

= 3(5) – 8.70

= $ 6.30

For 2-dozen order we are supposed to get $ 1.40 profit but we got $ 3.50 profit, which shows that we got
$ 2.10 extra profit as a result of the additional order. Thus, we can make a discount in the range $ 0 – $
2.1 for people who order 2-dozen.

For 3-dozen order we are supposed to get $ 2.10 profit but we got $ 6.30 profit, which shows that we got
$ 4.20 extra profit as a result of the additional order. Thus, we can make a discount in the range $ 0 – $
4.20 for people who order 3-dozen.
Generally, for people who order n-dozen we can make discount in the range $ 0 – $ 2.10 (n)

Note: the actual discount that we make for people who order 2-dozen, 3-dozen, or more, depends on how
much we are willing to discount in the given range and how much value we place on the extra time taken
for making the additional dozens (extra time that is not included in labor time).

It takes us 2 extra minutes to fill a 2-dozen order than a 1-dozen order and we need 1 additional try to fill
the second order.

4. Answer:

Yes, there can be some changes that we can make which allows us to make better cookies or
more cookies in less time or at lower cost. In order to identify what changes we can make, we
need to first find the bottleneck in the cookie making process. One of the bottlenecks in the
process is a labor cost (labor time). For example it takes 2 min of labor time to make 1-dozen
cookie. We can reduce labor time employing time effective ways of doing operations requiring
labor force. For instance we can use mixing machine to reduce labor time required for mixing.
We can also learn faster ways of filling trays and packaging the cookies. This all changes helps
us make cookies at lower cost. One the other hand to make 2-dozen cookies using 1 oven
requires a total of 40 min. but if we use 2 ovens the time required for making 2-dozen cookies
will be reduced to 30 min, (prepare oven2 = 1min and bake2 = 9 min ) will be reduced. So,
adding another oven helps to make more cookies at less time, and the effect is more pronounced
where the number of cookies to be made increases. The importance of adding another oven
become more evident when there are large number of orders at particular time range, when you
are receiving large number of orders at the same time. The addition of another oven does not
have a significant impact on labor cost, as it only reduces 1 min for making 2-dozen cookies (1
min required to prepare for tray 2 for the case of 1 oven). Therefore, how much we are willing to
pay to rent an additional oven depends on how much order we accepted at a given time.

The Theory of Constraints is a methodology for identifying the most important limiting factor
(i.e., constraint) that stands in the way of achieving a goal and then systematically improving that
constraint until it is no longer the limiting factor. In manufacturing, the constraint is often
referred to as a bottleneck. The Theory of Constraints takes a scientific approach to
improvement. It hypothesizes that every complex system, including manufacturing processes,
consists of multiple linked activities, one of which acts as a constraint upon the entire system
(i.e., the constraint activity is the “weakest link in the chain”). So, what is the ultimate goal of
most manufacturing companies? To make a profit – both in the short term and in the long term.
The Theory of Constraints provides a powerful set of tools for helping to achieve that goal,
including [8]:
The Five Focusing Steps: a methodology for identifying and eliminating constraints
The Thinking Processes: tools for analyzing and resolving problems
Throughput Accounting: a method for measuring performance and guiding management
decisions
A successful Theory of Constraints implementation will have the following benefits:
Increased Profit: the primary goal of TOC for most companies
Fast Improvement: a result of focusing all attention on one critical area – the system constraint
Improved Capacity: optimizing the constraint enables more product to be manufactured
Reduced Lead Times: optimizing the constraint results in smoother and faster product flow
Reduced Inventory: eliminating bottlenecks means there will be less work-in-process
BASICS OF TOC
Core Concept
The core concept of the Theory of Constraints is that every process has a single constraint and
that total process throughput can only be improved when the constraint is improved. A very
important corollary to this is that spending time optimizing non-constraints will not provide
significant benefits; only improvements to the constraint will further the goal (achieving more
profit).
Thus, TOC seeks to provide precise and sustained focus on improving the current constraint until
it no longer limits throughput, at which point the focus moves to the next constraint. The
underlying power of TOC flows from its ability to generate a tremendously strong focus towards
a single goal (profit) and to removing the principal impediment (the constraint) to achieving
more of that goal.
In fact, Dr. Eliyahu Goldratt, who conceived the Theory of Constraints (TOC), and introduced it
to a wide audience through his bestselling 1984 novel, “The Goal” considers focus to be the
essence of TOC.

The Five Focusing Steps

The Theory of Constraints provides a specific methodology for identifying and eliminating
constraints, referred to as the Five Focusing Steps.

Step Objective
Identify Identify the current constraint (the single part of the process that limits the rate
at which the goal is achieved).
Exploit Make quick improvements to the throughput of the constraint using existing
resources (i.e., make the most of what you have).
Subordinate Review all other activities in the process to ensure that they are aligned with
and truly support the needs of the constraint.
Elevate If the constraint still exists (i.e., it has not moved), consider what further actions
can be taken to eliminate it from being the constraint. Normally, actions are
continued at this step until the constraint has been “broken” (until it has moved
somewhere else). In some cases, capital investment may be required.
Repeat The Five Focusing Steps are a continuous improvement cycle. Therefore, once
a constraint is resolved the next constraint should immediately be addressed.
This step is a reminder to never become complacent – aggressively improve the
current constraint…and then immediately move on to the next constraint.
The improvements for the cookie company the we recommend is that, in order to reduced the
labor cost associated with each task use machines that simplify tasks and lower operating times,
and also have relevant training on best time management. We also recommend to employ better
ways of doing tasks.
 5. Answer:

Supply chain management is the handling of the entire production flow of a good or service to
maximize quality, delivery, customer experience and profitability. It is the handling of the entire
production flow of a good or service, starting from the raw components all the way to delivering
the final product to the consumer. A company creates a network of suppliers (“links” in the
chain) that move the product along from the suppliers of raw materials to those organizations
that deal directly with users. There are five components of supply chain management systems [9]:

I. Planning

Plan and manage all resources required to meet customer demand for a company’s product or
service. When the supply chain is established, determine metrics to measure whether the supply
chain is efficient, effective, delivers value to customers and meets company goals.

II. Sourcing

Choose suppliers to provide the goods and services needed to create the product. Then, establish
processes to monitor and manage supplier relationships. Key processes include: ordering,
receiving, managing inventory and authorizing supplier payments.

III. Manufacturing

Organize the activities required to accept raw materials, manufacture the product, test for quality,
package for shipping and schedule for delivery.

IV. Delivery and Logistics

Coordinate customer orders, schedule deliveries, dispatch loads, invoice customers and receive
payments.

V. Returning
Create a network or process to take back defective, excess or unwanted products.

The bakery nearby that we chose to elaborate the supply chain management is called Bole
Bakery. Supply chain for the bakery starts with raw ingredients and ends with the delivery of the
product baked products such as bread to the end consumer.

Orchestrating the various activities at each stage requires careful planning, as well as continual
optimization to increase efficiency while maintaining quality.

Raw Materials

The bakery buys flour from whichever supplier such as flour factories offering lowest price. It
also buys flavoring ingredients from whole sellers at Arada and Merkato.

Manufacturing

At the manufacturing stage of the supply chain, the bakery converts raw ingredients into a
product. The bakery produces different types of breads and cakes.

Delivery

Delivery of the products to consumers is the final stage of the supply chain. The bakery sells its
products to customers in its own shop which is in the same room with the bakery. The
customer’s purchase is the final step of the supply chain. In order to smooth the process of
delivering the products to customers there are three people who hands products to customers as
per amount they require and one cashier who accepts the payment.
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