Operations Management

Operations Management2ndEditionWORKBOOK Icfai Center for Management ResearchRoad # 3, Banjara Hills, Hyderabad 500 034For IBS Use Only Class of 2009

ISBN 81-314-1126-5Ref. No. OM WB – 03 2K7 35For any clarification regarding this book, students may please write to Icfai giving the abovereference, and page number.While every possible care has been taken in preparing this book, Icfai welcomes suggestionsfrom students for improvement in future editions.Icfai, March 2007. All rights reserved.No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic,mechanical, photocopying or otherwise – without prior permission in writing fromIcfai .Operations Management (2ndEdition) – WorkbookFor IBS Use Only Class of 2009

ContentsPart AMultiple Choice Questions 3-67Multiple Choice – Answers and Explanations 71-136Part BPaper IPaper I – Model Test 1 139-148Paper I – Model Test 2 149-159Paper I – Model Test 1 – Answers and Explanations 163-172Paper I – Model Test 2 – Answers and Explanations 173-184Paper IIPaper II – Model Test 1 187-196Paper II – Model Test 2 197-207Paper II – Model Test 1 – Answers and Explanations 211-221Paper II – Model Test 2 – Answers and Explanations 222-231For IBS Use Only Class of 2009

ivDetailed ContentsPart One: Introduction to Operations Management1. OPERATIONS MANAGEMENT – AN OVERVIEWOperations Management DecisionsThe Historical Evolution of Operations ManagementComputers and Advanced Operations Technology2. OPERATIONS STRATEGYOperations Strategy as a Competitive WeaponElements of Operations StrategyDeveloping an Operations StrategyFinancial and Economic Analysis in Operations3. FORECASTING DEMANDForecasting in OperationsForecast ComponentsDemand Forecasting ProcessForecasting MethodsSelecting a Forecasting MethodMeasures of Forecasting AccuracyMonitoring and Controlling ForecastsPart Two: Design of Facilities and Jobs4. ALLOCATING RESOURCES TO STRATEGIC ALTERNATIVESAllocation Decisions in Operations StrategyLinear Programming in Operations ManagementFormulation of Linear Programming ProblemsSolution of Linear Programming ProblemsThe Transportation Problem in Linear Programming5. DESIGN OF PRODUCTION PROCESSESProcess Planning and DesignMajor Factors Affecting Process Design DecisionsTypes of Process DesignsProcess Planning AidsSelecting the Type of Process DesignFor IBS Use Only Class of 2009

∆⇒×=∑ ∑∑∑−∑−∑∑( ) ( )Answers and ExplanationsPaper II - Model Test 21.(c) The number of trays used is dependant on the lot size of productionThe single card Kanban system is more useful in executing repetitive operations. Also, trays usedin this system should be standardized to the lot size in production. For example, if a firm producesone television at a time, a tray should contain only the parts required to manufacture onetelevision. If it produces ten televisions at a time, the tray should contain materials required to produce ten televisions.2.(d) Maintain inventory of the purchased material till usageMaintain inventory of the purchased material is the task of raw material inventory department andnot that of the purchase department.3.(b) Pick-and-placeThe two basic types of applications where robots are used are ‘processing’ and ‘pick-and-place’. Ina processing application, the robot works as a tool by performing a job on a product (cutting,screwing, etc.) that moves to the robot. In a pick-and-place application, the robot moves the product (e.g. loading and unloading of materials). The pick-and-place application is more relevantin materials management.4.(a) Vendor authorization cardA vendor authorization card specifies the product name, vendor name and quantity of materialordered. When this card is issued, it authorizes a vendor to supply the required materials in thespecified quantity.5.(c) i, ii, and ivThe limitation of the Kanban system is that it depends excessively on the people involved. Thefailure of a vendor to supply the required amount of materials and missing a Kanban are seriousthreats to the success of the system. Reduction of work-in-process and raw materials stores is a benefit derived through the effective use of Kanban system.6.(c) Value analysisValue analysis is a technique used by purchase managers to identify and rank components basedon the level of importance in operations during the purchase of materials and components.7.(b) Number of cards increase with increase in demand for a product

The number of cards can be altered according to the estimated demand for a product. If thedemand for the product increases, a larger number of Kanban cards are used to meet it. Similarly,the number of Kanbans can be decreased with less demand for the product.8.(c) The set up time is lowMRP Systems require longer set up times.9.(c) It is responsible for the purchase of required materialAn MRP is a backward scheduling process which generates a schedule of all the items required for production of the end product. It helps in coordinating orders from external and internal sources.External sources are purchase orders and internal sources are jobs. However, it is not in the scopeof MRP to oversee the purchase process of these materials.For IBS Use Only Class of 2009Part B22310.(c) Inventory records fileThe inventory records file is computerized with a complete record of each material held in theinventory. It contains information about inventory levels i.e., levels at the beginning of the planning horizon and the details of the expected arrivals of inventory during that period.11.(a) Planned ordersPlanned orders specify the quantity of inventory required in a time bracket. It includes informationabout all inventory requirements during the planning period. Planned orders and order releases are part of primary report outputs. Exception and performance reports come under secondary reportoutputs.12.(c) Bill of materialsBill of materials contains information about whether a particular item is produced internally or purchased from external sources. The purchase or production lead-time to acquire the item is alsomentioned in the bill of materials.13.(c) Net Requirement = Gross Requirement - On hand inventory - Quantity on orderIn netting, the net product requirements are calculated by subtracting the available units of itemand the quantity on order from gross product requirement. Net Requirement = Gross Requirement- On hand inventory - Quantity on order.14.(c) Jobs are assigned according to the latest available time slot at a work centerUsing forward scheduling, the operations manager determines the start and finish times for jobs to be done by assigning them to the earliest available time slots at the work center.15.(a) Backward scheduling is calculated from earliest start time forwardBackward scheduling starts from due date of the order and works backwards. Jobs are assigned thelatest time slots and as a job is finished, the material is immediately sent to the next workstation for process. Thus, work-in-process inventory is reduced. Backward scheduling is done for goods andservices whose demand can be forecast or anticipated beforehand.16.(b) Shortest processing timeHere, jobs are processed in the shortest time. Under this rule, jobs with shorter processing timesget completed earlier than jobs with longer processing time. This rule ensures that minimumnumber of jobs are left for processing.17.(a) Appointment systemAppointment systems are used to control customer flow at the individual level. The system worksonly when the service is provided to a single individual or few individuals at a time. Reservationsystem is

used to provide service to a large number of individuals at a time. Routing explains thesequence of operations and processes to be followed to produce a particular product.18.(d) i and iiiGantt charts provide ease and clarity in communicating important job information, but they do nottake into account hurdles like production breakdown and human performance. They are usefulonly when the number of work centers is limited, job times are long, and job routings are short.19.(b) i and iiSelection of the scheduling method depends mainly on production volume and the nature of theoperation. While scheduling is done, it is assumed that required inventory is already present instore so that a stock-out situation does not arise and hinder the production process.For IBS Use Only Class of 2009Operations Management22420.(a) Job operationsJob operations are used to produce goods and services on the basis of customer orders whilerepetitive operations, also known as continuous operations, are used to mass produce goods andservices. Labor intensive operations involve using a large number of workers to produce highvolumes. In general, service operations are done on the first in-first serve principle.21.(a) i and iiGantt charts are simple bar charts used to schedule any kind of operation. Workload charts andscheduling charts are two types of Gantt charts. X-chart and R-chart are used in quality control.22.(d) Cannot be determinedFor a 3 machine and n job problem, Johnson’s sequencing rule is applicable only when one of thefollowing two conditions are satisfied: (i) Smallest time on Machine A should be greater than or equal to greatest time on Machine B or (ii) Smallest time on Machine C should be greater than or equal to greatest time on Machine B. In this problem, both conditions are not satisfied. Hence,Johnson’s sequencing rule cannot be applied for determining the optimum sequence.23.(c) A set of logically related tasks performed to achieve a defined business outcomeAccording to Davenport and Short, a business process is a set of logically related tasks performedto achieve a defined business outcome24.(a) Gaps that can be eliminated with minimal programmingGaps that can be eliminated with minimal programming fall under the purview of project teamsand they can take corrective action to fill those gaps. However, gaps that require extensive rework and gaps that cannot be handled by the system are dealt with by the steering committee.25.(a) PerformanceA product’s primary operating characteristics relates to its basic performance.26.(a) Unrealistic expectations from employees about the benefits of ERPCommunication should not overstate or understate the functionalities of the system. Overstatingfunctionalities would raise employees’ expectations unrealistically, while understating them mightleave employees unprepared for the changes required for ERP implementation.27.(b) Decision-makingFour key drivers of supply chain performance are inventory, transportation, facilities andinformation. They help in overall decision making in the supply chain management.28.(c) Alignment

Alignment here refers to the matching of corporate and business unit goals. It also includesconsistency in processes, actions, and decisions across business units to support the supply chainmanagement processes.29.(a) Evaluation of performance of processes, programs, and systemsPeriodic review involves measurement of performance at periodic intervals. It focuses onevaluation of performance of processes, programs, and systems periodically and contributes tocontinuous improvement. The basic objective of the customer-supplier focus is to prepare anorganization’s processes to understand and react to customer requirements fast.Decision-makingis covered by the participation/involvement enabler and process design is covered by the designenabler.30.(b) Increase in cycle timeUnder ESCM, cycle time is actually reduced. Other advantages of ESCM include increase in costsavings, reduction in inventory levels, and reduction in procurement costs.For IBS Use Only Class of 2009Part B22531.(a) Participation/involvementParticipation/involvement is an SCM enabler, which discusses the participation of all stakeholdersof the organization in the decision-making process. The knowledge of employees and suppliersshould also be considered while arriving at decisions. This makes the decision- making processmore effective.32.(d) All of the aboveIn a demand chain, every member should monitor consumer preferences. Due to growth intechnologies like the Internet, consumers have begun to use multiple channels to procure goodsand services. Due to marketing practices like direct marketing, tele-marketing, etc, consumers arenow interacting with different entities in the purchasing process. So, every member of the demandchain, whether they design, manufacture, market, sell, or transport a specific product, needs tomonitor consumer needs and wants.33.(c) i, ii, and iiiJust-in-time manufacturing focuses on continuous improvement in all processes, and maintainsconsistent performance (in terms of quality) in operations. JIT manufacturing does not focus on producing large volumes of output, but on reducing inventory levels as well as wastage in production facilities while making products.34.(d) Steady and continuous demand for materialFirms practicing JIT enjoy certain advantages. The inventory is reduced to almost zero, reducingthe maintenance costs of inventory. Long-term relationship with suppliers enables firms to get therequired materials just-in-time for production. The cycle time also comes down. The long-termrelationship also reduces the otherwise considerable amount of paperwork and provides steadysupply of materials. Steady and continuous demand for the material is an advantage for suppliersof the firm but not for the firm implementing JIT.35.(c) ii, iii, and ivWhile reduced lead times, achieving uniform loads and reduced cycle inventory are advantages,increased set-up frequency is a disadvantage. Due to maintenance of small lot sizes, purchaseorders should be placed frequently and inventory should be regularly replenished.36.(d) Reduced speed of production

Grouping of machinery into cells reduces material movement and the need for material handlingequipment, which in turn cuts overall the materials handling costs. This will lead to speedy production and quicker deliveries.37.(b) Large lot sizesFirms that follow JIT type of manufacturing system maintain inventory in the smallest possible lotsizes. This is required as small lot sizes reduce cycle inventory (the excess of inventory, above thesafety stock, that is carried between two orders), cut lead times and also help in achieving auniform workload. JIT manufacturing systems follow uniform workstation loads where material isfed to the workstation uniformly and uniform output is produced across different workstations.Besides, these firms have flexible facilities and quick and economic set-ups.38.(a) Complex equipment design and non-standardized replacement partsSimple design equipment and standardized replacement parts make the work of preventivemaintenance easier, while complex designs delay maintenance. Non-standardized parts canincrease delays in terms of procurement and usage.39.(d) Meters of cloth producedWhile options (a), (b), and (c) are examples of inputs, option (d) is an example of output.For IBS Use Only Class of 2009Operations Management22640.(d) Perceived qualityPerceived quality is directly related to the reputation of the firm that manufactures the product.Total information about the various quality aspects of a product is usually not available, especiallywhen it is a new product. So, customers rely heavily on the firm’s reputation and past performanceof its products when attaching a value to its new products.41.(c) After the commencement of irreversible processesIt is not possible to inspect products that are in the middle of an irreversible process. To improvethe efficiency of inspections they should be carried out: after operations most likely to producefaulty items, before costly operations commence, before operations that can mask defects, whenthe finished product is ready for delivery, and before undertaking assembly operations that cannot be undone.42.(a) i/p, ii/q, iii/r, iv/sX-Chart illustrates the central tendency of inspected samples. R-Charts show the variability of the process. A process is said to be in control when both accuracy (mean) and precision are in control.P-Chart is employed to find proportion of defective items in a selected sample. C-Chart is used toillustrate the total number of defects in an item when it may have more than one defect.43.(d) Inspection labor costsThe first three options are costs of undetected faults while the last is an inspection cost.44.(a) X-chartX-chart and R-chart come under control charts for variables. X-chart illustrates the centraltendency of inspected samples while R-chart (range chart) shows process variability.45.(b) To improve the control of tasksThe facilities management function is outsourced to focus on core competencies, reduce costs,improve the efficiency and quality of tasks. Loss of control is one of the costs associated withoutsourcing.46.(c) Periodic maintenance

Periodic maintenance implies servicing equipment at regular intervals of time or at regular usageintervals. The given case falls under the latter.47.(c) i and iiiRemedial maintenance is also called corrective or breakdown maintenance.48.(b) Adult stageIn the adult or useful life stage, failure rate is constant, and to some extent, predictable. Proper maintenance of equipment can ensure longevity of this stage. Most causes of failure during thisstage are attributed to external causes or accidents, for example, a mistake by an operator or usageof improper materials.49.(a) i and iiiTaking up preventive maintenance activities over and above the required number of times cancause delays in production and increase maintenance costs. Down time of machines will rise,leading to stalling of work, and decrease in productivity.50.(a) Early failure stageThe early failure stage is characterized by more equipment failure. This can be due to faulty designor improper installation. This stage is also called as burn-in stage.For IBS Use Only Class of 2009Part B22751.(c) Slack timeSlack time refers to the amount of time by which an activity can be delayed beyond its earliest starttime without extending the project duration, provided that the activity and other activities take their estimated durations. It is a measure for determining the criticality of an activity.52.(c) i/q, ii/s, iii/p, iv/rComputer Numeric Controlled (CNC) machines can perform a variety of tasks based on theinstructions fed to the onboard computer. Computer Integrated Manufacturing (CIM) systemsintegrate design, manufacture and control functions. Flexible Manufacturing System (FMS) is aflexible production system capable of producing different types of products. Artificial intelligence(AI) allows computer systems with capabilities of reasoning and decision making.53.(c) Institutional impedimentImpediments to globalization can be economic, managerial, or institutional. Some institutionalimpediments are: tariffs and duties which may limit benefits achieved by economy of scale in production, quantitative quotas and other similar restrictions, preferential procurement from localorganizations by government and quasi-government entities, governmental pressure to use locally produced components or insistence on local R&D, preferential tax treatment and labor policies andcorporate laws, tax laws or other policies of the local government.54.(d) Intelligent robotsIntelligent robots are capable of perceiving environmental conditions of the workplace throughtactile or visual perception (or both) and can make necessary and suitable decisions by using theon-board computers they are equipped with.55.(a) Vendor authorization card and conveyance authorization cardA dual Kanban system uses two Kanbans and they include Vendor authorization card andConveyance authorization card.56.(b) Develop a consolidated materials requirement plan for products using same type of materials

Manufacturing firms that produce multiple products and have common material requirements for two or more products must consolidate the individual material requirements and form a singlemaster material requirements plan for the two products.57.(b) Order releasesOrder release documents empower the purchase department to procure a specific quantity of inventory items required within a specified period.58.(d) Work-in-process inventory is very lowIn forward scheduling, production activities start when job orders are received and scheduling isdone from the date of production. Start and finish times of each job is determined by assigning theearliest possible time slots for the jobs. As a result, jobs get finished before the requirement at their respective work stations. They get accumulated as work-in-process inventory. Hence, work-in- process inventory is high in forward scheduling.59.(a) i and iiGantt charts are simple bar charts used to schedule any kind of operation. Workload charts andscheduling charts are two types of Gantt charts. X-chart and R-chart are used in quality control.60.(d) i, ii, iii, ivAs typical implementation of a ERP project exceeds one year, experts suggest having several‘deliverables’ or milestones. A single milestone leads to problems in ERP implementation.For IBS Use Only Class of 2009Operations Management22861.(d) i, iii, ivBusiness Process Reengineering (BPR) advocates the complete overhaul of the existing systemsand processes in the entire organization (irrespective of departments) in order to increase productivity, reduce costs and improve business practices.62.(d) ConformanceConformance is defined as that dimension of quality which is measured as the degree to which a product is manufactured to the pre-specified specifications.63.(b) Reduction in product design timeReduction in product design time is not a benefit of JIT purchasing. This mainly focuses oninventory management-related issues leading to increase responsiveness and supply flexibility. Italso improves administrative efficiency.64.(d) Quality can be enhanced through collective efforts of all departmentsIt is not just the firm’s quality control department that is responsible for ensuring product quality.High quality can be attained only through the collective and coordinated efforts of all departmentsof the firm.65.(b) Products above the AOQL are not shipped to customersProducts are rejected if the AOQ crosses the AOQL. They are retained and not sent to customers.Such rejected lots of products would be inspected completely and defects removed.66.(b) Products are retained and inspectedProducts are rejected if the AOQ crosses the AOQL. They are retained and not sent to thecustomers. Such rejected lots of products would be inspected 100% and the defects removedcompletely.67.(a) Probability of rejecting the lot at AQL

In any sampling plan, there is always a risk that a good lot will be rejected - this is the producer’srisk. This is termed as Type I error.68.(c) ReprographicsReprographics refers to reproducing or duplicating printed material using various kinds of printing presses and high speed copiers.69.(b) Production costs would decreaseThe probable consequences of poor maintenance of facilities are: productivity of the firm would beaffected and reduced, production costs would rise, safety would be hit, leading to more accidents,and output quality would come down.70.(a) Mechanical maintenanceMechanical maintenance includes maintenance of the firm's machines and equipment such asfurnaces, boilers, compressors, material handling equipment, transport vehicles, etc. Civilmaintenance includes building construction and maintenance; maintenance of service facilities likewater filters, air conditioning, plumbing, etc. Electrical maintenance covers electrical andelectronic equipment such as generators, motors, electrical installations, lighting, telephonesystems, etc. Preventive maintenance is a type of maintenance operation.71.(c) i and iiiRemedial maintenance is also called corrective or breakdown maintenance.For IBS Use Only Class of 2009Part B22972.(d) Equipment manufacturers dispatch equipment only after the burn-in period is overThe bathtub curve may not always be an effective indicator of the failure rate of equipment. For example, present day manufacturers dispatch equipment only after the ‘burn in’ period is over, sothat they can identify and rectify problems before it reaches end-users. So, the initial stage of the bathtub curve will not be applicable to such machines.73.(a) Reducing the workforceTo crash a project, one needs to utilize the services of additional resources and/or maximize theservices of existing resources. Hence instead of reducing the workforce, it can be increased toreduce the expected time of project completion.74.(b)( )( )Crash timetime Normalcost NormalcostCrash−−Time-cost ratio helps in identifying those activities which are to be crashed in a project. Theactivities with smallest time-cost ratio on the critical path have to be identified and crashed.75.(b) Critical path methodNetworking methods/techniques are used in project management in scheduling operations suchthat wastage in terms of time and material is minimized. Popular networking methods includeCritical Path Method (CPM) and Project Evaluation and Review Technique (PERT).76.(c) FMSFMS (flexible manufacturing system) is a form of flexible automation in which several machinetools are linked to a material-handling system. A central computer controls all aspects of thesystem which is effective in producing different items that have similar processing requirements.77.(d) i and iv

Robotics is an automation technology that has received considerable attention since 1960s. It is based on two related technologies: numerical control and teleoperators. Numerical control (NC) isa method of controlling machines by means of numbers coded on punched paper, tape or other media. Teleoperator is a mechanical manipulator that is controlled by an individual from a remotelocation.78.(a) Selection of marketsWhen a global organization decides to select a new market (which can be a new country or a newarea in an existing country), it has to analyze the macro-economic factors, market information,capabilities of the subsidiary with which it is tying up, etc.79.(c)Institutional impedimentRules and regulations framed by different national governments hinder the process of globalization. They come under institutional impediments. Preferential procurement from localorganizations by government and quasi-government entities is one type of rules and regulationsthat might be framed by governments to hinder the expansion of global corporations.80.(c) 20 units4 units of D are required to produce 1 unit of A. It implies that 20 units (5 x 4) of D will berequired to produce 5 units of A.81.(b) 60 units3 units of E are required to produce 1unit of B and 4 units of B are required to produce 1 unit of A.Hence to produce 5units of A, 60 units (3 x 4 x 5) of E are required.For IBS Use Only Class of 2009Operations Management23082.(d) 6 weeksLead time of E is 2 weeks, but lead time of D is 4 weeks. Hence, at the end of 4 weeks, products B( 3 weeks), and product C & D ( 4 weeks) will be ready to produce A. It takes 2 weeks to produceA using B, C and D. Therefore the total time to produce A will be 6 weeks (4 + 2).83.(a) 2000 unitsBEP (in number of units) = fixed cost / (unit price – variable cost per unit)= 50000 / (150-125)= 2000 units84.(c)D C B E AFrom the given data, least processing time on the photocopying machine is for job D and on the binding machine for job A. Using Johnson’s sequencing rules, place job D at the beginning and jobA at the end of the sequence. Repeat the process with the remaining jobs. The optimum sequenceis D-C-B-E-A.85.(d) 335 minutesPhotocopying Machine Binding MachineJobSequenceTime in ProcessingTimeTime out Time in ProcessingTimeTime outD 0 30 30 30 30 60C 30 50 80 80 45 125B 80 100 180 180 60 240E 180 90 270 270 40 310A 270 40 310 310 25335The total elapsed time is 335 minutes.86.(b) 25 minutesTotal idle time on photocopying machine is the difference between the time when the last job inthe optimum sequence is completed on binding machine and the time when the last job iscompleted on photocopying machine.= 335 – 310 = 25 minutes87.

(a) 135 minutesTotal idle time on binding machine = (Time taken by photocopying machine to complete the first job in the optimum sequence) +Σ[(time when k thjob starts on binding machine) – (time when(k-1)thjob finishes on binding machine)].= 30 + [(80-60) + (180-125) + (270-240) + (310-310)]= 30 + [20 + 55 + 30]= 135 minutes88.(c) 0.220Fraction defective for each sample is given by p = c /n (number of defectives /sample size)For IBS Use Only Class of 2009Part B231Fraction defective for Sample 1 = 4/20 = 0.2Fraction defective for Sample 2 = 3/20 = 0.15Similarly, calculate the fraction defective for all five samples as given in the following table.Sample Fraction Defective1 0.202 0.153 0.304 0.255 0.20Total 1.10Average = 1.10/5 = 0.22089.(b) 0.4978UCL=P+3n)P(1P−wherePis the averageproportionof defects, and n the number of samples.UCL = 0.22 + 320)22.00.22(1−UCL = 0.22 + 3(0.0926)UCL = 0.497890.(c) 0LCL=P- 3n)P(1P−wherePis the average proportion of defects and n the number of samples.LCL = 0.22 - 320)22.00.22(1−LCL = 0.22 - 3 (0.0926)LCL = - 0.0578As negative value cannot be considered while counting defects, LCL is assumed to be zero