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Operations Management - Previous Year

The document provides a comprehensive overview of Operations Management, including definitions, types of waste, production flows, service system design, and inventory management. It covers the evolution of operations management, forecasting time horizons, supply chain management significance, and various costs associated with inventory. Additionally, it includes detailed explanations of forecasting as a planning tool and the Process-Product Matrix, along with practical examples and calculations related to inventory management.

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Vishakha Borse
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0% found this document useful (0 votes)
15 views12 pages

Operations Management - Previous Year

The document provides a comprehensive overview of Operations Management, including definitions, types of waste, production flows, service system design, and inventory management. It covers the evolution of operations management, forecasting time horizons, supply chain management significance, and various costs associated with inventory. Additionally, it includes detailed explanations of forecasting as a planning tool and the Process-Product Matrix, along with practical examples and calculations related to inventory management.

Uploaded by

Vishakha Borse
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1) 2-MARKS ANSWERS

A) Define Operations Management:


Operations Management (OM) is the systematic direction and control of the
processes that transform resources into finished goods and services. It deals
with planning, organizing, and supervising production, manufacturing, or the
provision of services. OM focuses on efficiency, quality, and continuous
improvement to deliver value to customers.

B) Enumerate “Seven Types of Waste”:


The “Seven Wastes” in Lean Manufacturing, originally identified by Toyota,
include:

1. Overproduction
2. Waiting
3. Transportation
4. Overprocessing
5. Excess Inventory
6. Unnecessary Motion
7. Defects
These wastes increase costs and reduce productivity.

C) List out various Flows in Production System:


Production systems involve multiple flows such as:

1. Material Flow – movement of physical items


2. Information Flow – exchange of data and instructions
3. Financial Flow – payment and cost-related movements
4. Work Flow – sequence of tasks
5. Product Flow – from raw material to finished product

D) List the steps to follow in “Service System Design Matrix”:


The steps include:

1. Identify service delivery system


2. Classify customer interaction level
3. Define operations characteristics
4. Match employee and customer roles
5. Select appropriate service design based on customization vs. efficiency
E) Write the meaning of Production, Planning and Control (PPC):
PPC refers to managing and regulating all production activities. It includes
scheduling, routing, dispatching, and monitoring operations to ensure timely
completion and resource optimization. The goal is to maintain a balanced
workflow with minimal delays and maximum output efficiency.

F) Sources of Data for Forecasting:


Data for forecasting can be sourced from:

1. Internal records (sales history, production data)


2. Market surveys (customer trends)
3. Economic indicators (inflation, interest rates)
4. Competitor analysis
5. Government and industry reports

G) List out Production Control Tools in manufacturing/service:


Key tools include:

1. Gantt Charts – visualize schedules


2. PERT/CPM – manage complex projects
3. Kanban System – control flow
4. MRP/ERP – resource planning
5. Inventory Control Charts – monitor inventory levels

H) Write three basic formulas to compute Basic EOQ:

1. EOQ = √(2DS/H)
Where D = Demand, S = Ordering Cost, H = Holding Cost
2. Total Cost = Purchase Cost + Ordering Cost + Holding Cost
3. Reorder Point = Lead Time × Demand Rate

2) 5-MARKS ANSWERS

A) Explain the Evolution of Operations Management:


Operations Management has developed significantly from craft production in
ancient times to today's advanced, automated systems.
• Craft Production: Early systems were small-scale, labor-intensive, and
lacked standardization.
• Industrial Revolution: Introduction of machinery and mass production
transformed manufacturing. Emphasis was on efficiency, economies of
scale, and use of steam power.
• Scientific Management: F.W. Taylor introduced time studies,
standardization of work, and incentives, focusing on productivity.
• Human Relations Movement: Elton Mayo emphasized the social and
psychological aspects of work. Worker satisfaction became a factor in
productivity.
• Post-War Techniques: Techniques like TQM, Six Sigma, and Lean
Manufacturing focused on quality improvement, waste elimination, and
continuous improvement.
• Modern Era: Today, OM integrates IT, ERP systems, automation, AI,
and data analytics. Concepts like Just-In-Time, Agile, and Sustainable
Operations drive competitiveness in global markets.
Thus, OM has evolved from labor-focused to technology-integrated,
aiming for responsiveness, customer focus, and value creation.

B) List out Forecasting Time Horizons and explain:


Forecasting is classified into three major time horizons, each serving specific
managerial needs:

1. Short-Term Forecasting (up to 3 months):


Deals with daily or weekly decisions like workforce scheduling, inventory
replenishment, and production planning.
2. Medium-Term Forecasting (3 months to 2 years):
Involves budgeting, marketing strategies, capacity planning, and new
product launches. It helps align departmental goals with organizational
targets.
3. Long-Term Forecasting (2 years and beyond):
Focuses on strategic decisions like plant expansion, entering new markets,
technology investment, and diversification.
Each time horizon varies in accuracy and impact. Short-term forecasts
are generally more accurate but less impactful, while long-term
forecasts shape the organization's direction despite greater uncertainty.

C) Explain the Significance of SCM:


Supply Chain Management (SCM) integrates the flow of goods, services,
finances, and information from supplier to customer. It is vital for ensuring
smooth coordination among suppliers, manufacturers, distributors, and retailers.
Key significance includes:

• Cost Efficiency: Minimizes production and logistics costs through


coordination and waste reduction.
• Customer Satisfaction: Ensures timely delivery and quality service,
improving reliability.
• Flexibility: SCM allows businesses to adapt quickly to demand changes,
disruptions, or trends.
• Inventory Optimization: Reduces unnecessary stockpiles and avoids
stock-outs.
• Global Competitiveness: Efficient SCM gives firms an edge in global
markets by improving responsiveness.
• Sustainability: Supports green logistics, ethical sourcing, and responsible
resource use.
SCM is not just a support function—it’s a strategic driver for
competitive advantage and long-term success.

3) 10-MARK QUESTION

A) Need of Inventory Plays a Vital Role in Any Manufacturing Industry –


Justify

Inventory is a fundamental component of any manufacturing system and plays a


critical role in ensuring smooth production and customer satisfaction. The
importance of inventory can be justified as follows:

1. Uninterrupted Production:
Inventory ensures a continuous flow of raw materials and components to
the production line. Without sufficient inventory, production could halt,
leading to costly downtime and delivery delays.
2. Buffer Against Uncertainty:
Manufacturing is often exposed to demand and supply fluctuations.
Inventory acts as a cushion against such uncertainties by absorbing
demand spikes and supply chain disruptions.
3. Bulk Purchasing & Cost Savings:
Maintaining inventory allows companies to purchase raw materials in bulk,
often at discounted rates, reducing overall procurement costs and
transport expenses.
4. Lead Time Management:
Inventory helps bridge the time gap between ordering and receiving
materials. This is especially important when suppliers have long lead times
or are located far away.
5. Customer Service & Satisfaction:
Finished goods inventory enables faster order fulfillment, improving
customer service levels. Delays due to stock-outs can lead to loss of sales
and damaged brand reputation.
6. Decoupling Production Processes:
Inventory allows different production stages to operate independently.
For example, if one stage faces a breakdown, the next can still continue
using available stock.
7. Support for Seasonal Demand:
Businesses facing seasonal or festival-based spikes can produce in
advance and stock finished goods to meet future demand efficiently.
8. Avoiding Price Fluctuations:
Firms may stock up when prices are low to hedge against expected price
increases, thus maintaining cost stability.

OR

B) Explain Various Costs Associated with Inventory

Managing inventory involves various costs, which directly impact the


profitability and efficiency of operations. Understanding these costs helps
businesses control expenditure and improve supply chain performance. The
major costs associated with inventory are:

1. Ordering Cost:
This includes all costs incurred in placing an order, such as communication,
invoice processing, inspection, and delivery charges. Frequent small orders
lead to higher cumulative ordering costs.
2. Carrying or Holding Cost:
These are the costs of keeping inventory in storage. They include:
o Storage Cost (warehousing, utilities)
o Insurance and Security
o Depreciation and Obsolescence
o Opportunity Cost of Capital tied up in stock
Holding costs are usually expressed as a percentage of inventory
value, typically 20–30% annually.
3. Stock-out or Shortage Cost:
This arises when demand cannot be met due to insufficient inventory. It
results in:
o Lost Sales
o Customer Dissatisfaction
o Urgent Expediting Costs
o Loss of Market Share
4. Setup Cost (in manufacturing):
This includes the cost to prepare equipment or changeover production
lines for different products. Frequent setups for smaller batches
increase setup costs.
5. Obsolescence Cost:
For products with short life cycles (e.g., electronics, fashion), unsold
inventory may become obsolete and lose market value. This leads to
markdowns or scrapping.
6. Spoilage and Shrinkage Cost:
Spoilage refers to inventory that becomes unusable due to damage,
contamination, or expiry. Shrinkage involves inventory loss due to theft,
pilferage, or administrative errors.
7. Capital Cost:
The money invested in inventory could have been used elsewhere. This
cost, known as opportunity cost, is the return foregone on that
investment.

4) 10-MARK QUESTION

A) “Forecasting is used as a Planning Tool” – Clarify the Statement

Forecasting plays a critical role in the decision-making and planning process


across all business functions. It helps organizations predict future events,
reduce uncertainty, and make informed strategic and operational decisions.

Here’s how forecasting functions as a planning tool:


1. Demand Planning:
Forecasting future demand helps businesses prepare inventory, align production
schedules, and manage resources accordingly. Accurate demand forecasts lead
to better inventory control and reduced stock-outs or overstocking.

2. Resource Allocation:
With a clear projection of future needs, companies can allocate raw materials,
labor, equipment, and finances efficiently. For example, workforce planning
relies heavily on seasonal or trend-based forecasts.

3. Capacity Planning:
Forecasting helps determine whether current production capacity can meet
future demand. Based on forecast data, businesses can decide whether to
expand facilities, upgrade equipment, or outsource production.

4. Financial Planning:
Sales forecasts directly impact budgeting, cash flow management, and
investment planning. Accurate financial forecasting supports capital expenditure
decisions and loan requirements.

5. New Product Development:


Forecasting market trends, consumer preferences, and competitor activity
guides innovation and product launch timing. It helps reduce the risk of failure
and ensures market alignment.

6. Supply Chain Coordination:


Forecasts enable better coordination with suppliers and distributors. Long-term
forecasts allow for bulk procurement, supplier negotiations, and efficient
logistics planning.

7. Strategic Planning:
At a macro level, forecasting is crucial for expansion planning, entering new
markets, mergers and acquisitions, and long-term sustainability strategies.

Types of Forecasting Methods:

• Qualitative: Expert opinion, market research


• Quantitative: Time series, regression, moving averages
OR

B) Explain Process-Product Matrix in Detail

The Process-Product Matrix is a strategic tool developed by Hayes and


Wheelwright, used to analyze the relationship between product volume/variety
and the type of manufacturing process. It helps businesses align their
production strategy with the nature of their products.

Axes of the Matrix:

• X-axis (Product Structure): Ranges from low volume/high variety to high


volume/low variety.
• Y-axis (Process Structure): Ranges from project-based to continuous
flow operations.

Types of Processes in the Matrix:

1. Project Process:
o Used for one-off, highly customized products (e.g., construction,
shipbuilding)
o High flexibility, low volume
o Skilled labor and unique resources required
2. Job Shop:
o Produces small batches of customized products (e.g., specialized
tools, furniture)
o High variety, low volume
o Flexible equipment and skilled workers
3. Batch Process:
o Produces products in batches (e.g., baked goods, clothing)
o Moderate volume and variety
o Equipment can handle variety but is more standardized
4. Assembly Line (Mass Production):
o High-volume, standardized products (e.g., automobiles)
o Low variety
Efficient, linear workflows and specialized machines
o
5. Continuous Flow:
o Very high-volume, non-discrete products (e.g., oil, chemicals)
o Low flexibility, no variation
o High capital investment and automation

Strategic Implications:

• Firms aligned with the matrix (e.g., using batch process for medium-
volume, medium-variety products) operate efficiently.
• Firms that are misaligned (e.g., using job shop process for high-volume
production) may face cost inefficiencies and quality issues.

5) 10-MARK QUESTION

A) A company uses 1200 units per month of an electronic component, each


costing Rs. 2/-. Placing each order costs Rs. 50/-, and carrying cost is 6%
per year of average inventory. Find:

a) EOQ
b) If the company gets 5% discount if it places a single order, should they
accept the discount offer?

Given:

• Annual Demand (D) = 1200 units/month × 12 = 14,400 units/year


• Ordering Cost (S) = Rs. 50
• Unit Price = Rs. 2
• Carrying Cost % = 6% of unit price
• Carrying Cost (H) = 6% of 2 = Rs. 0.12/unit/year

a) EOQ Formula:
EOQ=2DSH=2×14400×500.12=1,440,0000.12=12,000,000=3464.1 unitsEOQ =
\sqrt{\frac{2DS}{H}} = \sqrt{\frac{2 × 14400 × 50}{0.12}} =
\sqrt{\frac{1,440,000}{0.12}} = \sqrt{12,000,000} = \mathbf{3464.1} \text{
units}

So, EOQ = 3464 units (approx.)

b) Discount Analysis

Case 1: Without Discount (Order as per EOQ)

• Number of orders = 14400 / 3464 ≈ 4.16 orders


• Ordering Cost = 4.16 × 50 = Rs. 208
• Average Inventory = 3464 / 2 = 1732 units
• Holding Cost = 1732 × 0.12 = Rs. 207.84
• Purchase Cost = 14400 × 2 = Rs. 28,800

Total Cost (Without Discount) = 28800 + 208 + 207.84 = Rs. 29,215.84

Case 2: With 5% Discount (Order full quantity at once)

• New Unit Price = 2 – 5% = Rs. 1.90


• Ordering Cost = Rs. 50 (1 order)
• Average Inventory = 14400 / 2 = 7200 units
• Holding Cost = 7200 × 0.12 = Rs. 864
• Purchase Cost = 14400 × 1.90 = Rs. 27,360

Total Cost (With Discount) = 27360 + 50 + 864 = Rs. 28,274

Decision:

• Total cost without discount = Rs. 29,215.84


• Total cost with discount = Rs. 28,274
• Savings = Rs. 941.84

Conclusion:
Since accepting the discount reduces the total cost, the company should
accept the 5% discount offer even though it means buying in bulk and holding
more inventory.

OR

B) Perform ABC Analysis on the Following Items

Annual Unit Price Annual Value


Item
Consumption (Rs.) (Rs.)
Axles 6000 10 60,000
Brake Liners 4000 12 48,000
Bumper 300 1500 4,50,000
Clutch Plates 3000 50 1,50,000
Coolant 2500 5 12,500
Flanges 1000 20 20,000
Head Lamps 1500 20 30,000
Oil 1750 10 17,500
Plastic Speedometer
600 20 12,000
Gear
Tyre 500 500 2,50,000

Step 1: Calculate Annual Consumption Value

(Already shown above)

Step 2: Rank Items by Value (High to Low)

1. Bumper – 4,50,000
2. Tyre – 2,50,000
3. Clutch Plates – 1,50,000
4. Axles – 60,000
5. Brake Liners – 48,000
6. Head Lamps – 30,000
7. Flanges – 20,000
8. Oil – 17,500
9. Coolant – 12,500
10. Speedometer Gear – 12,000
Step 3: Cumulative % of Total Value

Total value = Rs. 10,50,000


(You can calculate cumulative % for classification, but roughly:)

• A Category (70-80% of value): Bumper, Tyre


• B Category (15-20% of value): Clutch Plates, Axles
• C Category (5-10% of value): Remaining items

ABC Classification:

Category
Bumper, Tyre
A
Category B Clutch Plates, Axles
Brake Liners, Head Lamps, Flanges, Oil, Coolant, Speedometer
Category C
Gear

Conclusion:

• A items: High value, strict control


• B items: Moderate value, moderate control
• C items: Low value, basic control
ABC analysis helps in prioritizing inventory management efforts,
focusing more on critical high-value items.

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