ASSIGNMENT SUBMISSION FOR OPERATIONS MANAGEMENT JUNE 2021 EXAM

CYCLE

Ans – 1)
Introduction
Being in the right place or location is one of the prime requirement for success in any business.
An organisation’s location strategy should comply with, and be part of, its overall corporate
strategy. For example, if a company wants to become a global leader in Smart phones industry,
it must establish manufacturing plants and warehouses in regions that conform to its long term
strategy, ease access to global customers, and offer right resources required for smart phones
manufacturing. If a firm selects an inappropriate location, it may face issues related to
accessing customers, skilled workforce, logistics costs, materials sourcing etc.
Strategically planning the location for a company necessitates identifying company needs and
objectives and thereby searching locations compatible with these needs and objectives. In
general, the task of firming up the location aims for future growth opportunities while
minimizing costs and risks. To find an ideal location, firms can take following steps:
- Identify the factors that can impact the location decision
- Consider appropriate importance and weightage for each factor
- Prepare a methodology to analyse impact of each factor
- Rank each prospective location based on scores and make right selection
Location Decision for Hospitality Business
Various factors involved in selecting a suitable location for a Hotel/Resort can be broadly
classified under following four categories:
1) Market related factors: In general, while choosing location, it is important to have
either market for a company’s products/services or the materials & supplies nearby.
Other market related factors include quality of available infrastructure, availability of
skilled labour, nature of competition, local proximity factors etc. Some questions that
must be answered include:
- How many tourists visit across the year? Is the market already saturated due to
competition? How are long term (10 years or more) growth prospects in the
location? Analyse the demand and supply difference between the available resorts
and annual customer’s data.
- Is the basic infrastructure & utilities such as water, electricity, sewage facilities,
cooking gas etc. adequately available in the area?
- How is the road, air and rail connectivity in the location? Does location support for
tourist requirements such as telephone and internet connectivity, nearby shopping
places etc.?
- What location does the tourists look for? Do they make trade-off between price and
location? How far are main tourist spots from the location? Are there adequate
facilities for local travel? Enough activities, sports and places to visit etc. available
to keep the tourists engaged?
 - Who is going to fulfil the Hotel infrastructure needs such as beds, linen, curtains,
catering, Spa, Gym equipment etc.? Are enough skilled people available at the
location needed for staffing?
2) Cost Based Factors: These factors are related to cost involved in setting up &
operating a business and analysing such costs for all prospective locations. For
example, hotel/resort setup cost (including cost of land, hotel construction materials,
rooms renovations, onsite services & facilities such as gym, spa, pool, restaurant,
gaming zones etc.), transportation costs (for routine operations & materials supply,
guests local travel needs etc.) & other costs (such as local municipality taxes, water &
electricity costs, etc.). For all available location choices, careful evaluation for cost
benefits shall be required. Taking account of all such costs, a remote site location may
offer better returns on investment as compared to a previously chosen prime location
based on market factors.
3) Regulatory and legal Factors: Companies may face government barriers and heavy
restrictions and regulations especially if they intend to expand into other countries.
Environmental regulations (such as pollution, noise, aviation norms restricting building
heights etc.), government policies for taxes & labour laws, local tourism and cultural
regulations are some of the legal and policy requirements that must be evaluated in
detail before zero in on a location. For instance, if a person plans to setup a beachfront
site resort, there may be local requirements enforcing onsite safety equipment such as
life boats, safety kits including life jackets, radar systems etc. which will add on to
investment. Likewise, if the resort wants to have a bar inside, liquor licensing
requirements shall be applicable. All these factors play an important role in planning a
suitable site or location for a hotel / resort establishment.
4) Other Factors: Various other factors such as Cultural, demographics (population
density, per capita income, adult population etc.) climatic conditions, linguistics, Hotel
theme/uniqueness, car parking facilities, political environment and risks should be
considered while assessing the optimal location for setting up a business. With respect
to planning a hotel or resort, following questions needs to be answered:
- Whether the majority of customers will be leisure seekers/tourists or business
oriented guests? Is the location good enough to attract tourists?
- If the theme based resort is being planned, is the location suitable for the theme?
Does competitors already have similar theme parks in the vicinity?
- How much is the population density of the location? Does the culture promotes
vacation and holidays? How much is the per capita income and how much people
enjoy spending on excursions?
- How is the weather conditions in the location? How does the climate effect the guest
footfall across the year? Does the location mandates special needs such as room
heating, solar water heaters, fire place etc.?
- Are there any language barriers to overcome? Can the hotel manage to have staff
on board for all language needs of potential guests?
- Does the location/country offers political stability and good government policies
specially related to tourism, interests and currency rates etc.?
Once all these factors are analysed in detail, the next step is to give appropriate weights to all
the factors based on their importance and relevance to the Hospitality firm. Afterwards, all the
prospective locations should be ranked as per the weights and weightage factors. The top
ranked location that fits across most requirements and parameters can be selected for setting
up a hotel or a resort.

Ans – 2)
Inventory management is a key step in any company’s operations and supply chain
management where inventory and stock quantities are tracked in and out of the warehouse. It
refers to the process of ordering, storing and using a company's inventory efficiently.
Common Techniques for Inventory management
Some commonly used techniques in Inventory management systems are described as follows:
1) Just in Time (JIT) Inventory Management: In Just in Time method of inventory
control, a company keeps only as much inventory as it needs during the production
process. This approach reduces storage and insurance costs, as well as the cost of
liquidating or discarding excess inventory. Companies receive inventory on an as-
needed basis instead of placing more orders and risking dead stock. JIT can be a risky
technique as it requires businesses to be highly agile with the capability to handle a
much shorter production cycle.
2) Economic Order Quantity (EOQ): The EOQ inventory management method uses
customer demand, ordering cost, and carrying cost to determine what the optimum lot
size is for inventory levels. EOQ is a formula for the ideal order size that a company
should buy for its inventory and is defined as follows:

EOQ =
Here, C0 = Ordering Cost
Cc = Carrying Cost
D = Total Customer Demand
The EOQ technique considers there is a trade-off between inventory carrying &
ordering costs, and ideal order quantity is when the total costs are minimized.
3) ABC Analysis: The ABC analysis approach to inventory management helps in
prioritize products. It is a technique that’s based on putting products into categories in
order of importance (monetary value), with A being the most valuable and C being the
least. Not all products are of equal value and more attention should be paid to more
important products.
4) VED analysis: VED analysis is similar to ABC analysis but in VED analysis, inventory
items are categorised as per their criticality in requirements and production. Based on
criticality, the items are classified into three categories: vital, essential and desirable. A
higher level of inventory is maintained for vital parts that are very essential for process
involved and customers whereas least inventory are maintained for desirable items that
are not very critical.
5) Backordering: Backorder is an order for a good or service that cannot be filled at the
current time due to a lack of available supply. The item may not be held in the
 company's available inventory but could still be in production, or the company may
need to still manufacture more of the product. A large number of backorders means that
the demand is higher than the supply for the products. The technique helps in
maintaining low store space, minimize carry costs, deliver custom products etc. at the
expense of increased lead time, better process control requirements, order cancellations
etc.
6) Bulk Shipments: This method banks on the notion that it is almost always cheaper to
purchase and ship goods in bulk. Bulk shipping is one of the predominant techniques
in the industry, which can be applied for goods with high customer demand. The
downside to bulk shipping is that a company need to lay out extra money on
warehousing, which will most likely be offset by the amount of money saved from
purchasing products in huge volumes and selling them off fast.
7) FIFO & LIFO Methods: In FIFO (First In First Out), the products that were acquired
first are the ones that are sold first. LIFO (Last in First Out) is opposite of FIFO and the
products acquired most recently are the ones that are sold first. Depending on the type
of goods, companies use either of these techniques. For example, LIFO can be more
useful for perishable goods (e.g. milk, butter, bread etc.) Whereas FIFO is more
suitable for long lasting non-perishable goods (e.g. chemicals, metals etc.).

Inventory Management by Medical Stores:

Inventory management is a critical part of hospitals and medical stores because without
adequate inventory management system, hospitals run the risk of not being able to
provide patients with the most appropriate medication when it is most needed. A
pharmacy or medical store can efficiently manage its medical equipment and medicines
stocks using an inventory management software. A good inventory management
software also provides alerts related to the expiry date of medicines.
Since the medical needs are quite urgent for customers, lack of adequate inventory can
force customers to seek their requirements elsewhere rather than wait for order to get
fulfilled by a particular store. Hence, techniques such as JIT, back ordering etc. are not
much suitable for hospitals and medical stores due to criticality of services that directly
impact human lives.
Some popular techniques used in medical stores for managing inventory include FIFO,
Bulk Ordering, ABC-VED analysis etc. and are explained as follows:
1) FIFO: In order to avoid accumulation of expired and obsolete medicines, all items
should be stored and issued on FIFO basis. Inventory control system must keep
records of all medicines date of receipt and expiry date and can further implement
advanced features such as asset tagging to track all medicines flow in the store.
2) Bulk Ordering: For commonly used household medicines, especially those not
needing doctor prescriptions, can be ordered in bulk to reduce ordering costs. This
technique is useful for medicines with longer expiry dates and shelf lives.
3) ABC & VED Analysis: A combination of ABC and VED analysis (ABC-VED
matrix) is one of the most common technique used by hospitals and medical stores
for managing their inventories. With this technique, the medical store can keep
more stocks of medicines with longer lead times, longer expiry, more monetary
 value and criticality of human life while maintaining lower inventories for easily
available low cost medicines. ABC-VED matrix helps in carefully planning &
managing the inventory requirements while minimizing the risk of lost business and
customer trust.
In a nutshell, using a mix of one or more of the above discussed strategies often provides
the most optimal solution for a company’s inventory and warehousing requirements.

Ans – 3a)
Definition of Quality
Quality can be defined as a basic attribute or property of goods or services that allows them to
be compared with other similar goods or services. Further, quality is relative in nature and is
the perception that a customer has about a product or service. It is a consumer’s mind-set that
accepts a specific good or service and acknowledges its ability to meet his or her needs.
Quality can also be related a product’s performance, conformance to specifications, design and
features. In short, Quality refers to ‘Fitness for purpose or intended use’.
Quality in Operations of a Restaurant Business
Some key elements of quality relevant to a restaurant & hotel business include:
 Performance: Performance of any product or service denotes to how effectively a task
can be accomplished and executed. In case of a restaurant business, key performance
indicators (KPI) could be quality and consistency in food taste, time taken to serve
customer orders, efficiency in usage of raw materials & equipment, food waste w.r.t
total consumption etc. An efficiently performing restaurant will be able to generate
profits and increase its revenues in the long term while maintaining high productivity.
 Features & Attributes: Features and Attributes implies to the various properties or
parameters of a product or service that distinguishes it from others. For a restaurant,
features such as different type of cuisines & variety of options in its menu, type of
sitting arrangements (e.g. fine dining, casual dining, fast food joints, take away etc.)
etc. constitutes its features and attributes.
 Conformance to Specifications: This aspect of quality signifies whether the product
or service complies with the established norms and specifications. For example, if a
restaurant claims to offer an authentic Chinese noodles and yet misses out on some key
ingredients required for getting true flavour of Chinese noodles, the restaurant lacks
conformance to standard norms and specifications.
 Design/Aesthetics: A product is cherished by customers not only based on its features
and performance but also based on its visual appeal, pleasing looks & aesthetics. The
best chefs in the world no just make delicious food but present it in an enticing and
pleasing manner. Further, the inside ambience and physical design of the restaurant also
creates its brand value and unique selling proposition.
 Trustworthiness: Quality is highly correlated with reliability and trustworthiness.
Reliability of a product or service is the measure that quantifies if it functions correctly
& consistently every single time. Untimely delivery, delay in serving orders,
 inconsistencies in food taste and ingredients across the restaurant chain, etc. are some
of the factors that can create hindrance in building trust with customers.
We can summarise that though quality has various important quantifiable dimensions, often it
is the customer perception of quality that works as a prime factor in growing any business.
Since word of mouth marketing places a crucial role in growing business for a restaurant,
satisfying customers is extremely important for any restaurant while maintaining high quality
standards.

Ans – 3b)
Introduction to Bill of Materials (BOM)
Bill of materials (BOM) is a comprehensive list of parts, components, ingredients, sub-
assemblies, raw materials etc. required for constructing, assembling or repairing a product or a
service. A BOM is sometimes also referred to as a product structure, assembly component list
or production recipe (in process manufacturing industries) as it explains what, how, and where
to buy required materials, and includes instructions for how to assemble the product from the
various parts ordered. Some key information that any BOM comprises include Part Numbers,
Part name, Phase/Stage, Description, Quantity, Units of measurement, remarks etc.
BOM can be prepared in various formats such as single level, multi-level or indented BOM,
Modular BOM, and Hierarchical BOM. Often, a BOM are prepared in a hierarchical format
where in the finished product is indicated at the top and individual components and materials
are shown at the bottom. Further, BOM can be related to manufacturing or engineering or sales
depending on the stage of product preparation.
BOM Significance & relevance to Restaurant business
BOM is a vital constituent of an efficient ERP system for any organisation. A well-defined
BOM helps companies to:
- Plan purchases of raw materials
- Estimate material costs
- Gain inventory control
- Track and plan material requirements
- Maintain accurate records
A restaurant is practically a manufacturing shop floor in which you have products (dishes) that
must be manufactured (cooked). Just like any other manufacturing or organisation, a restaurant
also needs to maintain BOM for effectively managing its raw materials, costs and eliminating
wastes.
For example, a fine dining Indian restaurant serving north Indian food needs to keep records
of its raw materials such as quantities & varieties of vegetables, stables, spices, pulses, grains
fruits, beverages, dairy products etc. at regular intervals in order to keep enough stocks,
minimize wastage, and optimise food preparation cost and efficiency. The restaurant have to
develop recipes for all its offerings with precise raw material quantity requirements and
preparation instructions. Such well-defined BOM or recipe ensures that the end product tastes
the same every time and quantities are measured, procured and managed accurately.
An effective BOM tracking system keeps a check on usage of all ingredients and alerts the
restaurant manager about the future raw material requirements based on the daily usage patterns
& every time a customer purchases a dish.
Conclusion
To summarise, a BOM is the backbone of any manufacturing process. Going through the
example of the simple Indian restaurant, it can be understood why a bill of material is
significant and how it can help any organization reduce its costs and efficiently manage its
inventory. Well planned ERP system mandates the requirement of accurately preparing and
managing the BOM for any organisation. If a BOM is inaccurate, it can cause production
process to halt due to unavailability of right materials, thereby increasing operating costs,
customer dissatisfaction and loss of business & goodwill.