Operation management

Question 1

write an essay about your research into an operations concept and its application to a business situation. The aim of the essay is to explain to an intelligent person, with no specialised knowledge of operations management, the concept on which your research was based and the extent of its application to the operations tasks in a manufacturing or service organisation.

Your essay should:

• State the operations concept and explain its meaning and relevance.
• State two (2) important areas of knowledge about the concept, preferably from recent research.
• Briefly explain a real business situation where your concept can be applied.
• Explain the most important management tasks in this business situation and the effect that the operations concept has on those tasks.

Question 2 Answer either Section A or Section B

A. How realistic are the assumptions of the Economic Order Quantity (EOQ) model? Discuss how the issues of safety stock can be incorporated in EOQ and re-order point (RP) while ordering inventory. Do you think the model is still used in practice? If not, what model is mostly used while ordering inventory?


B. Demand is variable at all times. An organisation can select from alternatives to manage demand in order to better meet the needs of the business and its customers. The other way organisations can manage the balance between demand and capacity is to consider different ways of managing capacity. Which approaches to demand management would you favour using in a ski resort hotel. Include in your discussion methods for changing the pattern of demand such as pricing, advertising, and scheduling.
Question 3 Answer either Section C or Section D

C. Christie Levine is the manager of the Instant Paper Clip Office Supply Company. The company attempts to gain an advantage over its competitors by providing quality customer service, which includes prompt delivery of orders by truck or van and always being able to meet customer demand from its stock. In order to achieve this degree of customer service, it must stock a large volume of items on a daily basis at a central warehouse and at three retail stores in the city and suburbs. Christie maintains these inventory levels by borrowing cash on a regular basis from the bank. She estimates that for the coming fiscal year the company’s demand for cash to pay for inventory will be $17,000 per day for 305 working days. Any money she borrows during the year must be repaid with interest by the end of the year. The annual interest rate currently charged by the bank is 9%. Any time Christie takes out a loan to purchase inventory, the bank charges the company a loan origination fee of $1,200 plus 2.25% annually of the amount borrowed.

Christie often uses EOQ analysis to determine optimal amounts of inventory to order for different office supplies. Now she is wondering if she can use the same type of analysis to determine an optimal borrowing policy. This requires careful interpretation of the information given above to correctly identify ordering costs, holding costs and total costs. Determine the amount of the loan Christie should borrow from the bank, the total annual cost of the company’s borrowing policy, and the number of loans the company should obtain during the year. Also determine the level of cash on hand at which the company should apply for a new loan given that it takes 15 days for a loan to be processed by the bank. Using Excel, include graphs in your answer that illustrate the relationships between ‘ordering cost’, ‘holding cost’, and ‘total cost’. Remember to show all working in your answer.

Suppose the bank offers Christie a discount as follows. On any loan amount equal to or greater than $500,000, the bank will lower the origination fee from 2.25% to 2.00%. What would be the company’s optimal amount borrowed?


D. Reducing design complexity is a principle that applies just as much to service as to manufactured products. For example, television programmes are made increasingly with a worldwide market in mind. However, most television audiences around the world have a distinct preference for programmes which respect their regional tastes, culture and of course language. The challenge facing global programme makers therefore is to try to achieve the economies which come as a result of high-volume production while allowing programmes to be customised for different markets.

For example, take the programme ‘Art Attack!’ made for the Disney Channel, a children’s TV channel shown around the world. In 2001, 216 episodes of the show were made in six different language versions. About 60% of each show is common across all versions. Shots without speaking or where the presenter’s face is not visible are shot separately. If a simple cardboard model is being made, all versions will share the scenes where the presenter’s hands only are visible. Commentary in the appropriate language is over-dubbed onto the scenes which are edited seamlessly with other shots of the appropriate presenter. The final product will have the head and shoulders of Brazilian, French, Italian, German or Spanish presenters flawlessly mixed with the same pair of (British) hands constructing the model. The result is that local viewers in each market see the show as their own. Even though presenters are flown into the UK production studios, the cost of making each episode is only about one third of producing separate programmes for each market.

(1) How does the concept of modularisation apply to this example?
(2) What do you think are the similarities between what this company did and how motor vehicle manufacturers design their products?