INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

Masters Program in Business Administration (MBA)

Specializations: - Operation Management

N.B.: 1) Attempt any Five Questions       2) All questions carry equal marks.

Case Study 1 :-

Read the case carefully and answer the questions at the end of the case.

INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

Good Shepherd Home

The Good Shepherd Home is a long-term care facility with an 80-bed capacity located in San Mateo, California. Mr. Scott, the administrator is concerned bout rising food costs. He questions whether administration is efficient as it might be and realizes that food, a "raw material" for his food services, has increases in price significantly. Mr. Scott decides to investigate food services more closely.

Analyzing last month's purchased items, Mr. Scott summarizes a random selection of items. Mr. Scott wonders what interpretation he should make about these typical items. He has looked at 100 stock items and is considering tighter controls (dozens, cases, pounds, etc.) have been ordered.

Typical Inventory Items

Number of Stock Items

Quantity Ordered (in units)

Total Cost (in $) Average Inventory (in $)

3 50 3,500 1,200

12 150 2,500 900

20 200 1,500 600

40 400 2,000 200

25 200 500 200

Of particular interest is a problem with a perishable good. Since the home has residents in independent living units and eating at the home irregularly, bread demand is uneven. Bread is delivered daily and is used that day for table meal service only; the day-old bread is salvaged for dressing and similar dishes. Scott estimates the cost of bread to be $0.75% loaf and the cost of day-old bread to be $0.25%loaf, Scott says, "We should not be out of fresh bread at the table. Although man cannot live by bread alone, it is very important to our residents. I put a high cost on being out of bread -- considerably more than the cost of a loaf, In fact, I think every time we run out of bread, it costs a dollar per loaf short in goodwill last from our residents."

Knowing how Mr. Scott feels, the food services supervisor has a standing order for 30 loaves/day and twice that amount on Sunday. The demand for bread for the last two weeks is shown below:

Bread Demand (in loaves)

Day Week 1 Week 2

Mon 20 19

Tue 15 27

Wed 21 20

Thu 30 32

INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

Fri 31 27

Sat 19 16

Sun 42 39

In conversation with Mr. Scott, the supervisor says, "I recently heard about cost tradeoffs in food service inventory. I can't really see what item cost, carrying cost.ordering cost, and stockout cost have to do with proper nutrition. I try to buy good quality foods and spend less than $5/day on food for each resident. That's my objectives."

Mr. Scott has heard, too, about cost tradeoffs, but he wonders what they mean and how they apply to a nursing home environment, To try to understand this better he talked to his bookkeeper. The supervisor says that she knows with certainty that demand for hamburger over a menu cycle is 200 pounds. Furthermore, the bookkeeper estimates it costs $12 to place an order and 20 percent of the hamburger cost to carry hamburger in inventory. Hamburger costs $1.55/pound. The dietitian says a menu cycle lasts two weeks and Good Shepherd currently orders hamburger every week. Mr. Scott is puzzled by all this.

Questions:

1. What is the problem associated in the case?

2. How do you solve the bread problem, which is a perishable good? Could you find out the optimum size (EOQ) of the bread that must be ordered?

Case 2 :-

Read the case carefully and answer the questions at the end of the case.

INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

Nartha Thompson, who has worked in restaurants for 20 years, opened her first short-order "Mom and Pop" café 12 years ago. She is regarded in her community as an excellent small businessperson. In 1985 she sold her small café and went to work as a professional manager for a fast-food hamburger franchise. In 1987 she resigned and opened Martha's Original Burger Queen. Martha's salary is 25 percent higher than the one she earned as a professional manager. In 1987 her Burger Queen broke even in 1988 it had a net profit after taxes of $10,000 Martha then opened two more restaurants in the same city. The results of all three restaurants are summarized in the accompanying comprehensive report (on page 5).

Martha states her strategy: "My Restaurant concept is to copy fast-food chains such as McDonalds, Burger King, and Jack-in-the-Box. I've tried patties, soybean burgers, breakfast, and larger sandwiches to increase dollar sales per customer. I believe that I should expand rapidly just as those chains seem to be doing, yet maintain a personable, local operations staff and a homey atmosphere. But I seem to have less efficient operations than we did when I managed for a chain. I think my layout is good, as is my food quality. I can't buy in buy in larger volumes, but I for try to turn over my inventory at least weekly. I believe in women employees, especially in management positions. I hire Caucasians African-Americans, and Mexican-Americans, so on one can say I/m prejudiced."

Martha's response to net income difficulties at the second and third restaurants is, "I need to open more restaurants to spread out my fixed costs. Expansion of operations is my strategy, but I'm finding financing hard to come by now."

  Martha’s Original

Restaurant:MBQ1

  MBQ2   MBQ3  

  1989 1990 1989 1990 1989 1990

    Sales Summar

y

       

Revenues $3,30,000 $370,000

$2,10,000

$200,000

$170,000

$150,000

Number of Customers

132,000 130,000 91,000 90,000 85,000 85,000

Revenues $2.50 $2.84 $2.30 $2.22 $2.00 $1.76

      Expenses Salary

     

Equipment depreciation

$16,500 $16,500 $10,500 $10,500 $8,500 $8,500

Building lease 33,000 33,000 21,000 21,000 17,000 17,000

Operations:Food

82,500 83,400 52,500 52,500 42,500 51,000

Labour 115,500 129,000 73,500 73,500 68,000 68,000

INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

Suppliers 16,000 18,000 10,000 10,000 8,500 8,500

Overhead 17,00 17,000 11,000 11,000 8,500 8,500

Gross margin and administrative costs

Advertising 15,000 15,000 12,000 12,000 9,000 9,000

Administration 18,000 18,000 9,000 9,000 8,000 8,000

Advertising 15,000 15,000 12,000 12,000 9,000 9,000

Administration 18,000 18,000 9,000 9,000 8,000 8,000

Net income (loss) before taxes

  $16,500 $40,100 $10,500 $500 –0– $28,500

Case Questions:

1. Set forth what you believe is a good overall business strategy for Martha. Specify an operations strategy that is consistent with the overall strategy.

2. Examining the comprehensive report, does the data support the idea that Martha needs a change in operations strategy? If so, which data?

Case 3 :-

Read the following carefully and answer the questions at the end:

COMPANY BACKGROUND

The Bronson Insurance Group was originally founded in 1900 in Auxvasse, Missouri, by James Bronson. The Bronson Group owns a variety of companies that

INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

underwrite and commercial insurance policies. Annual sales of the Bronson Group are $100 million. In recent years, the company sulfured operating losses. In 1990, the company was heavily invested in computer hardware and software. One of the problems the Bronson Group faced (as well as many insurance companies) was a conflict between established manual procedures and the relatively recent within the past 20 years) introduction of computer equipment. This conflict was illustrated by the fact that much information was captured on computer but paper files were still kept for practical and legal reasons.

FILE CLERKS

The file department employed 20 file clerks who pulled files from stacks, refilled used files, and delivered files to various departments including commercial lines, personal line, and claims. Once a file clerk received a request for a file, it usually tock about two hours for the requester to receive the file. Clerks delivered flies to underwriters on an hourly basis throughout the day. The average file clerk was paid &8,300 per year. One special file clerk was used full time to search for requested files that another file clerk had not been able to find in the expected place. It was estimated that 40 percent of the requested files were these 'no hit' flies requiring a search after these 'no hit' files were eventually found stacked in the requester'' office. The primary "customers" of the file clerks were underwriters and claims attorneys.

UNDERWRITING

Company management and operations analysts were consistently told the greatest problem in the company was the inability of file clerks to supply files in a speedy fashion. The entire company from top to bottom viewed the productivity and effectiveness of the flies department as unacceptable. An underwriter used 20-50 files per day. Because of their distrust of the files department, underwriters tended to hoard often uses files. A count by operations analyse found that each underwriter kept form 100-200 files in his or her office at any one time. An underwriter would request a file by computer and work on other business until the file was received. Benson employed 25 underwriters.

MANAGEMENT INFORMATION SYSTEMS

Upper management was deeply concerned about his problem. The MIS department had suggested using videodisks as possible solutions. A video disk system was found that would be sufficient for the company needs at a cost of about $12 million. It was estimated that the system would take two years to install and make compatible with existing information systems. Another, less attractive alternative was using microfilm. A microfilm system would require underwriters to go to a single keyboard to request paper copies of files. The cost of a microfilm system was $5 million.

Questions

(a) Looking at the facts of the case, which one of the new technologies

should the company implement? Give reasons for your recommendation.

INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

(b) An operation analyst suggested that company employees shared a "dump on the clerks" mentality What in your view can be the outcome of such a mentality?

(c) How can you apply what you have learnt lot size reduction, WIP inventory reduction, and JIT to improve the files situation in this case?

Q 4.         Consider the following two mutually exclusive projects.  The net cash

flows are given below:

YEAR NET CASH FLOWS FROM PROJECT A NET CASH FLOWS FROM PROJECT B

0 -  Rs. 1,00,000 - Rs. 1,00,000/-1 + Rs. 30,000 + Rs. 15,000/-2 + Rs. 35,000 + Rs. 17,500/-3 + Rs. 40,000 + Rs. 20,000/-4 + Rs. 45,000 + Rs. 22,500/-5   + Rs. 25,000/-6   + Rs. 27,500/-7   + Rs. 30,000/-8   + Rs. 32,500/-

 

INDIAN SCHOOL OF MANAGEMENT

Sub: Operation Management Max Marks: 100

If the desired rate of return is 10% which project should be chosen and why?

Q 5 ) Whirlpool Company has experienced the following demand for ice during the past six months:

Months Ice coolers demanded

September 200

October 300

November 200

December 100

January 300

February 400

Forecast for March sales using six-months moving average Compare the result with three-months moving average and one-month moving average. Which result do you recommend?

Q 6 ) Give two examples (with supporting details) of the impact of technology in product and service design, in the context of service and manufacturing firms.

Q 7).         Would a project management organization be different from an

organization for regular manufacturing in what ways?  Examples.

Q 8).       How project evaluation different from project appraisal?  Explain with

examples.