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End Term Examination eEPOM-03 Batch

Operations Strategy
Max. Marks: 50 Time: Two Hours
Note: (i) The question paper consists of one question and two short cases; a of these
are compusor! to answer" (ii) #ssume suita$! where%er required $ut don&t
for'et to mention !our assumptions in !our answer $ook" (iii) (t is an open $ook
exam hence )ooks and Notes are aowed" (i%) cacuators are aowed in the
Question 1: *ecommend the operations strate'! for the four sta'es of the +,- of
an inno%ati%e product. ./0
ase !:
*e$ecca started a +i11a shop immediate! upon 'raduation from coe'e. The shop
ser%es wraps with a twist: *e$ecca ets customers choose from one of 2 main
in'redients (either meat or %e'etarian offerin's); an! of 30 different toppin's; one of
5 wrap t!pes; 40 different t!pes of sauce ran'in' from sweet to semi hot to met5!our5
ton'ue5off hot. The tota num$er of +i11a com$inations is o%er 30"000 end +i11as.
The shop did we from the first da! it was open $ecause customers o%ed
*e$ecca&s sauces6man! customers came in 7ust for his specia pepper chocoate
sauce" which was spic! with 7ust a hint of sweetness. The shop was primari! run $!
*e$ecca and one of his $est friends in the first !ear of operation. 8aes for the first
!ear were 9350"000; saes for the second !ear were 9:/0"000. *e$ecca has $een
pannin' an expansion for the comin' !ear. The ta$e $eow shows the pro7ected
saes for this !ear (!ear 0) and the foowin' se%en !ears. 8he has two expansion
options. 8he can ease a new faciit! in which to ocate the shop" a :0005square5foot
space that coud $e expanded $! :"000 square feet in steps of 3"000. #ternati%e!"
she can ease a :"0005square5foot space with no option to expand" $ut then open
another restaurant ocation in another part of town.
*e$ecca has $een quoted a price of 9450"000 to open a :"0005square5foot
faciit!. ;ach expansion of that faciit! to add a 3"0005square5foot addition wi cost
an additiona 9300"000. The aternati%e approach" openin' a sin'e :"0005square5foot
faciit! and then openin' new faciities as needed" requires an in%estment of 9400"000
for each :"0005square5foot faciit!. *e$ecca&s operatin' costs for a$our" utiities"
equipment" and other expenses are <0 percent of his saes. The maximum capacit! of
a sin'e :"0005square5foot faciit! is 9<00"000 per !ear" so *e$ecca must open a new
faciit! or expand the existin' faciit! when saes hit this num$er. #n! new restaurant
or expansion has a ead time of one !ear from the time *e$ecca appro%es the idea to
the time when the faciit! is up and runnin'.
Ta"#e: *estaurant ;xpansion =ptions
$ear Pro%ected Sa#es
>ear 0 9:/0"000
>ear 3 9450"000
>ear : 9<:0"000
>ear 4 9<?0"000
>ear < 9550"000
>ear 5 9@00"000
>ear @ 9@<5"000
>ear 2 9@?5"000
ase ! Questions
3.3 #s a 'enera strate'!" woud !ou recommend that *e$ecca take an a''ressi%e
approach to capacit! expansion or more of a wait5and5see approachA .@0
3.: 8houd *e$ecca 'o with the option for one faciit! that can $e expanded as
needed" or shoud she pan to open one fixed5si1e restaurant and add new
restaurants incrementa! as neededA Bith either approach" when shoud
*e$ecca make expansion decisionA .@0
3.4 Bhat are the risks of !our recommended capacit! expansion strate'!A How can
*e$ecca miti'ate and minimi1e his risksA .@0
ase !!:

C)irds Bord& manufactures a %ariet! of $ird feedersD" 'arden accessories" and other
items intended to hep peope 'et in touch with and o$ser%e nature. Eounded in 3??5
$! Fim McMaster in ,aGran'e" (inois" the compan! started when he was workin' as
a fourth5'rade teacher. +resentations to students on $irds and widife had a wa! of
capturin' their enthusiasm; thus" McMaster started offerin' presentations to other
schoos in the 'reater -hica'o area. Bithin a few !ears" McMaster was so $us! doin'
presentations at %arious schoos" as we as runnin' nature camps from his home" that
he quit his fu5time 7o$ as an eementar! schoo teacher to form Natura Hesi'ns. #t
first" C)irds Bord& was most! Fim and his wife 'i%in' presentations and runnin'
camps" $ut 'radua! the compan! expanded to se some of the $ird feeders and other
nature de%ices featured in his cass taks. Toda!" the compan! has saes of 9: miion
per !ear" most of which comes from ph!sica products sod to outdoor" nature" and
$ird stores such as Bid )irds Inimited.
(n the first few !ears of operation" Fim McMaster and his wife" 8heia"
produced $ird feeders and other products in their 'ara'e. (n 3??2" howe%er" the
operation $ecame too ar'e for their 'ara'e" so the! rented a <"0005square5foot faciit!
for production and distri$ution purposes. The! aso hired two empo!ees to mana'e
these two functions so that the McMasters coud continue 'i%in' schoo taks. Toda!"
C)irds Bord& has 35 empo!ees" : of which are focused soe! on 'i%in' nature taks
and sein' the products to retaiers interested in resein' C)irds Bord& products.
The product ran'e consists of 500 stock5keepin' units (8JIs).
=ne of the chaen'es faced $! C)irds Bord& in%o%es its customi1ed $ird
feeders. This operation aows customers to 'et one of the 30 made5to5stock $ird
feeders and ha%e it customi1ed with their name or address car%ed in the wood" pus
paintin' in an! of 30 coor schemes. This portion of the $usiness has $een 'rowin'
$! 50 percent per !ear and now represents 9300"000 per !ear in saes. # customer
order is taken o%er the (nternet and promised for dei%er! within one week. Then the
item is pued from stock" car%ed with the appropriate name and address" and painted.
Eina!" the item is shipped direct! to the customer&s home. Bhie this product has
$een wid! popuar with customers" Fim McMaster has two ma7or concerns. Eirst" he
is not sure that the customi1ation is profita$e6he char'es an additiona 930 per $ird
feeder" $ut he is not sure exact! how much extra a$our is in%o%ed in fufiin' the
customi1ation portion of the order. 8econd" despite assi'nin' an empo!ee to the
custom $ird feeder operation fu time" ead times on orders ha%e 'radua! increased
from an a%era'e of <.5 $usiness da!s to ?.: $usiness da!s. This pre%ents C)irds
Bord& from meetin' its promised ead time of one week or ess. (n addition" durin'
peak periods (ear! sprin' and ear! fa)" the ead time can stretch to three or four
#s Fim McMaster re%iews the current state of C)irds Bord&" he is peased to
note that saes are continuin' to 'row o%era at a rate of 30 percent per !ear.
Eurthermore" his work force is 'enera! happ!" and the $usiness is profita$e.
Howe%er" his accountants ha%e $een tein' him that profits are decinin' as a
percenta'e of saes and that the num$er of customer returns of items and compaints
ha%e increased $! o%er 40 per cent in the past !ear. The capacit! of the existin'
faciit! is extreme! ti'ht" and Fim is considerin' either addin' a second faciit! or
mo%in' to a ar'er /"0005square5foot faciit!.
D)ird Eeeders are de%ices paced outdoors to supp! $ird food to $irds
ase !! Questions
:.3. Bhat t!pes of decisions must Fim McMaster make on a dai! $asis for C)irds
Bord& to run smooth!A Bhat kind of decisions must he make on a on'5term
$asisA .@0
:.:. Hescri$e the operations strate'! for C)irds Bord&. Has this strate'! chan'ed
as a resut of the custom $ird feeder operationA (f !es" howA .@0
:.4. Bhat mi'ht ha%e $een done different! to faciitate the offerin' of custom $ird
feedersA .@0
:.<. How shoud McMaster ana!1e the aternati%e expansion optionsA Bhich
woud !ou recommend: a second faciit! or a mo%e to a sin'e" ar'er faciit!A

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