MB05 – 02 : OPERATION MANAGEMENT

1. Why is a JIT system considered a pull system? What competitive advantages do pull systems have over push systems?

Ans:

JIT system is considered a pull system,

In pull system the inventory level is maintained at the least. Inventories are made against the customer demand.

P Competitive advantages of pull system over push system.

In push system where the production starts in advance of customer needs. Hence the finished end products are stocked in the market incases where the lifetime of the product is very less. But in the case of pull system customer demands activates the production. Hence the setup time and process time are low, flow of materials are well defined.

P Consistently High Quality

To eliminate scrap and rework in order to achieve a uniform flow of materials. Control quality at the source with workers acting as their own quality inspectors

P Small lot sizes:

Huge inventory are avoided, users maintain inventory with lot sizes that are as small as possible. Small lot size has three benefits.

a. Small lot sizes reduce cycle inventory

b. Small lot sizes help cut lead times.

c. Small lots help achieve a uniform operating system workload.

d. Short setup times

2. Write a note on:

a) Sensitivity Analysis

b) Simplex Method

Ans.

a. Sensitivity Analysis:

Profit contributions used for the objective function coefficients do not reflect uncertainties in selling prices and such variable costs as wages, raw materials, and shipping etc. Accounting, marketing, and work-standard information systems often provide these initial estimates. After solving the problem using these estimated values, the analyst can determine how much the optimal values of the decision variables and the objective function value would be affected if certain parameters had different values. This type of post solution analysis for answering “What if” questions is called Sensitivity Analysis.

b. Simplex Method:

A Method of solving Linear Programs The simplex method was the first method developed to solve linear programs. The function that is either being minimized or maximized. For example, it may represent the cost that you are trying to minimize.

The graphic analysis gives insight into the logic of the simplex method, beginning with the focus on corner points. One corner point will always be the optimum, even when there are multiple optimal solutions. Thus the simplex method starts with an initial corner point and then systematically evaluates other corner points in such a way that the objective function improves at each iterations. In the Stratton company problem, an improvement would be an increase in profits. When no more improvements are possible, the optimal solution has been found. This simplex method also helps generate the sensitivity analysis information that we developed graphically.

3. What is process management and what are five major process decisions? Explain.

Ans:

Process Management is the selection of inputs, operations, workflows and methods for producing goods and services. Input selection includes choosing the mix of human skills, raw materials, outside services and equipment consisted with an organization’s positioning strategy and its ability to obtain these resources. Operations managers must determine which operations workers and which will perform by machines.

Five major process decisions are

a) Process choice

b) Vertical integration

c) Resource flexibility

d) Customer involvement

e) Capital intensity

a. Process choice:

Is the starting point for designing well-functioning processes. The four basic choices for implementing positioning strategy are project process, batch process, line process and continuous process.

b. Vertical integration:

Management decides the level of vertical integration by looking at all the activities performed between acquisition of raw materials or outside services and delivery of finished products or services. Vertical integration can be in tow directions

Backward integration (make or buy decision) and Forward integration (own or lease decision)

c. Resource flexibility:

The choices that management makes concerning competitive priorities determine the degree of flexibility required of a company’s resources- its employees facilities and equipments.eg: Requirement of correct work force and flexible equipment.

d. Customer involvement:

The fourth major process decision is the extent to which customers interact with the process. The amount of customer involvement may range from self-service, product selection and Time & location.

e. Capital intensity:

For either the design of a new process or the redesign of an existing one, an operations manager must determine the amount of capital investment required. As the capabilities of technology increase and its cost decrease. Managers face an ever-widening range of choices. Automation is a system, process or piece of equipment that is self-acting and self-regulating. Automation decision requires careful examination. There are two types of automation, fixed and flexible automation.

4. An interactive television service that costs Rs.7/- per month to provide can be sold on the information highway for Rs.12/- per client per month. If a service are includes a potential of 10,000 customers, what is the most a company could spend on annual fixed cost to acquire and maintain the equipment?

Ans.

Annual fixed cost = F

Total Revenue per annum = TR

Variable cost per annum = CQ

TC = F + CQ

Where TR = PQ and PQ = F + CQ Then the equation can be TR = F + CQ

TR= 12*10,000/- = 1,20,000

CQ= 7 * 10,000/- = 70,000

TR = F + CQ

1,20,000 = F + 70,000

There fore F = 1,20,000 - 70,000

F= 50,000/-

Hence the annual fixed cost to acquire and maintain the equipment is

F That is 12* 50,000

F= Rs.6,00,000/-