Assignment No (OM_MA2)

Bella M Wagharalkar Div C Roll no.180

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Question 1: a. What are the characteristics of Services and give examples. Services are the benefits, activities or satisfaction which are offered for sale or are provided in connection with the sale of goods. Characteristics of Services: 1. IntangibilityServices are intangible, we cannot touch them. They are not physical objects. For example: An Airline sells a flight ticket from A destination to B destination. Here it is the matter of consumers perception of services than smelling or tasting it. 2. PerishabilityServices are perishable. If its not used today, it is lost forever. It cannot be stored. For example: an unoccupied building, an unemployed person, if loabour stops working its a complete waste. 3. InseparabilityServices and their providers are associated closely and thus, not separable. For example: the entertainment industry, health experts and other professionals create and offer their service at the same time. 4. HeterogeneityThe quality of the services can not be standardized. Te same type of services can not be sold to all the consumers even if they pay the same price For example: prices paid for a service may either be too high or too low as seen in entertainment industry. 5. OwnershipIn the case of service, user can only have an access to service he can not own the services. For example: A consumer can use hotel room or swimming pool of the hotel, however the ownership remains with the provider. 6. SimultaneityServices cannot move to the channels or distribution and cannot be delivered to the potential customers and users. Thus, either users are brought to the services or providers go to the users. For example: An Airplane cannot be brought to customer. 7. Quality measurementServices can be measured in terms of service level. It is very difficult to rate or quantify total purchase. For example: we can quantify the food served in a hotel but the way waiter serves the customer or the behavior of the staff cannot be ignored while rating the whole process. 8. Nature of demandGenerally, the services are fluctuating in nature. For example: during peak tourist season there is an abnormal increase in the demand of services.

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b. Explain Process Selection types and list differences between Intermittent and Continuous Operations with examples Process Selection Types are: 1. Project processes are used to make one-at-a-time products exactly to customer specications. These processes are used when there is high customization and low product volume, because each product is different. Examples can be seen in construction, shipbuilding, medical procedures, creation of artwork, custom tailoring, and interior design. With project processes the customer is usually involved in deciding on the design of the product. The artistic baker you hired to bake a wedding cake to your specications uses a project process. 2. Batch processes are used to produce small quantities of products in groups or batches based on customer orders or product specications. The volumes of each product produced are still small and there can still be a high degree of customization. Examples can be seen in bakeries, education, and printing shops. The classes you are taking at the university use a batch process. 3. Line processes are designed to produce a large volume of a standardized product for mass production. With line processes the product that is produced is made in high volume with little or no customization. Think of a typical assembly line that produces everything from cars, computers, television sets, shoes, candy bars, even food items. 4. Continuous processes operate continually to produce a very high volume of a full standardized product. Examples include oil reneries, water treatment plants, and certain paint facilities. The products produced by continuous processes are usually in continual rather than discrete units, such as liquid or gas. Also, these facilities are usually highly capital intensive and automated.

The two main differences between the intermittent and repetitive processes are product variety and Product volume. Intermittent processes are very flexible in meeting the individual requirements of different products or customers, but they tend to be very inefficient, with high amounts of waiting time, work in process inventories, and space requirements. Repetitive processes are very efficient at reducing unit production costs, waiting time, and inventories, but they are not very flexible in accommodating high product/customer variety. Intermittent processes organize labour and equipment into departments by similarity of function to serve a wide variety of production requirements. This production process is called an intermittent process, because the activity of each department happens intermittently at irregular intervals, depending on the particular needs.

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Below example show two different products, A and B make their way through an intermittent process layout.

INTERMITTENT PROCESSES

Shipping

Warehouse Product A Product B

Process A Process D

Process B Process E

Process C Process F

Department

Repetitive processes are used to produce identical or very similar products in high volumes. Equipment and labour are organized in a line flow arrangement to meet very specific customer or product processing requirements. The products or customers follow the same production steps to produce a standardized outcome. Since the production requirements to produce each unit of output are so well understood, there are many opportunities to achieve high levels of efficiency in repetitive process environments. Efficiency is a key goal in repetitive process environments. Investments in automation and technology are financially justified because the high volume of production spreads out the investment cost over more items/customers. Below example represents an example of a repetitive process for producing a product such as a small appliance, where raw materials and components are assembled to each unit at different stages of production. The units flow through the facility in a uniform pattern until they are completed and shipped to the customer.

CONTINUOUS PROCESS

WAREHOUSE Process A Product A Process B Process C Process D

SHIPPING DEPARTMENT

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DIFFERENCE BETWEEN INTERMITTENT AND CONTINUOUS OPERATIONS DECISIONS Product variety Degree of standardisation Organization of resources Path of product through facility Factor driving production Critical resource INTERMITTENT OPERATIONS Great Low Grouped by function In a varied pattern, depending on products need Customer orders Labour intensive operations (workers skill important) General purpose Low Longer More CONTINUOUS OPERATIONS Small High Line flow to processing needs Line flow Forecast of future demand Capital intensive operations (equipment, automation, technology important) Specialised High Shorter Less accommodate

Type of equipment Degree of automation Throughput time Work-in-progress inventory

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c. There is guest house in Mumbai suburb and it has a capacity of 20 rooms where 3 can be accommodated in each room and other basic residing facilities. Currently the overall occupancy is low. You are to provide capacity plan for the owner. Following are few alternatives to utilize the capacity to its optimum level: 1. Partitioning the demandThe demands for services are often grouped into random arrivals and planned arrivals. Therefore the hotel can reserve the hotel rooms for weekend in order to rent it to some other party and take the random guests in the weekdays. 2. Vary the service offeringsDepending on the seasons of the year, day of the week, or time of the day, we can change the nature of the service offering. That is special packages can be provided during festive season. 3. Developing complementary servicesComplementary services can be provided to attract people and to enhance the image of the hotel. For example the hotel can add bar or food court area where the customers can enjoy food and drinks separately as well as together. 4. Promoting off-peak demandThe hotel can use its unutilized capacity i.e. premises as a retreat location for business or professional groups. 5. Pricing incentivesIn order to smoothen the demand on the service process, prices can be raised during peak hours and price can be lowered during non peak hours. 6. Communicate with the customersAnother way of shifting demand is communicate with the customer and let them know the peak demand period so that they can choose to use the services at alternative times and avoid crowding. 7. Advertising and sales promotionAdvertising and sales promotion can be used to emphasize different services during different periods. For example the hotel can come up with fests to attract a large no. of demand.

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Question 2: a. Draw Process Flow Analysis diagram for buying movie tickets in multiplex complex consisting of 4 cinema halls.

START

MOVIE TICKET REQUEST

YES

NO
ALTERNATI -VE MOVIE SELECTION

AVIAILABILTY OF SEATS AND CHECKING ID &AGE

NO YES
HEAD TOWARDS OTHER 3 ALTERNATIVE CINEMAS

YES
PROCESS DETAILS

INPUT MOVIE DETAILS

LOSS OF SALES NO
CASH PAYMENT PAYMENT MODE CREDIT/DEBIT CARD

YES
EXCHANGE THE CHANGE FROM THE CUSTOMER

YES
INPUT PAYMENT DETAILS

PROCESS FOR VALIDATION OF CREDIT/DEBIT CARD

PAYMENT INFORMATION

NO
BOOKING COMPLETE

LOSS OF SALES
CONFIRMATION AND HANDING OVER THE TICKET

STOP

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b. Why business have moved from individual Functions execution towards Process Engineering. Illustrate with examples Businesses have moved from individual Functions execution towards Process Engineering due to following key benefits: Business Process Engineering can provide numerous benefits that can directly influence an organizations competitiveness. Some of the key benefits are: * Elimination of redundant and inconsistent work leading to dramatic improvements in quality, productivity, profit, and responsiveness. * Complete understanding of the business processes. * Complete process tracking and enhanced process status awareness. * Investment and effort targeted towards business objectives and strategy. * Process Integrity: Process execution is as modelled and documented. * Integration of process and product information through IT Basically process engineering consistently/quicker/cheaper/efficiently. is to do things better/more

For example: The phone company have people sitting on the phone waiting to take orders for new service. When a new order comes in there are probably 100s of steps that take place and many people involved to get from order until the time the customer has dial tone. A process engineer might come in to that situation and study the entire process from order until dial tone and attempt to make it more efficient. More efficient in the end means less costly and quicker. Another good example of process engineering at work is McDonalds. The people behind the counter everything that is done at McDonalds has a specific process they follow it ends up being quick and consistent. That is why you can generally go to any McDonalds in the world and the food and service will be exactly the same.

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c. What are different facilities types? What are the factors (in bullets) that you consider for location for the following businesses:1. Starbucks coffee outlets 2. Gold & Diamond jewellery manufacturing 3. Ford cars from manufacturing factory to distribution outlets Different facility types are: Heavy-manufacturing industryHeavy industry does not have a single fixed meaning as compared to light industry. It can mean production of products which are either heavy in weight or in the processes leading to their production. Heavy industry projects can be generalized as more capital intensive or as requiring greater or more advanced resources, facilities or management.

Light industry Light industry is usually less capital intensive than heavy industry, and is more consumer-oriented than business-oriented (i.e., most of light industry products are produced for end users rather than as a semi products for use by other industries). Light industry has less environmental impact than heavy industry and is more tolerated in residential areas. Some economic definitions state that it is a "manufacturing activity that use moderate amounts of partially processed materials to produce items of relatively high value per unit weight"

Retail and Service facilitiesRetail and Service facilities are usually the smallest and least costly. Examples include retail facilities such as groceries and department stores, among many others, and such service facilities as restaurants, banks, hotels, cleaners and law offices.

1. Starbucks coffee outlets Convenient to freeway exit and parking Served by public transportation Set back from the street surrounding clutter Traffic volume on street that may indicate potential impulse buying Adequate off street parking Room for expansion Immediate surroundings should complement the service Location of competitors Zoning restrictions

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2. Gold & Diamond jewellery manufacturing Proximity to raw materials Good transport facilities Basic amenities Availability of power supply Proximity to subcontractors Availability of cheap, skillful and efficient labor

3. Ford cars from manufacturing factory to distribution outlets Raw material availability. Location (with respect to the marketing area.) Availability of suitable land. Transport facilities. Availability of labours. Availability of utilities (Water, Electricity). Environmental impact and effluent disposal. Local community considerations. Climate. Political strategic considerations. Taxations and legal restrictions

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Question 3: a. Explain Level, Chase and Hybrid Types Aggregate plans with basic examples Aggregate Planning: Attempts to match the supply of and demand for a product or service by determining the appropriate quantities and timing of inputs, transformation and outputs. Decisions made on production, staffing, inventory and backorder levels. Characteristics of aggregate planning:

Considers a "planning horizon" from about 3 to 18 months, with periodic updating Looks at aggregate product demand, stated in common terms Looks at aggregate resource quantities, stated in common terms Possible to influence both supply and demand by adjusting production rates, workforce levels, inventory levels, etc., but facilities cannot be expanded.

Level Aggregate Plans: Capacities (workforce levels, production schedules, output rates, etc.) are kept constant over the planning horizon. Advantages: stable output rates and workforce levels

Disadvantages:

greater inventory investment is required increased overtime and idle time resource utilizations vary over time

Chase Aggregate Plans: Capacities (workforce levels, production schedules, output rates, etc.) are adjusted to match demand requirements over the planning horizon. Advantages:

anticipation inventory is not required, and investment in inventory is low labour utilization is kept high

Disadvantages:

expense of adjusting output rates and/or workforce levels alienation of workforce

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Hybrid Aggregate Plans: A hybrid aggregate plan will take advantage of a combination of "chasing" and "levelling." Basically, the current workforce will be used with demand fluctuations being handled by overtime. Should the levels of demand overreach the maximum labour output, back orders will be used. In this system, there is a greater probability of layoffs and large amounts of overtime. Hybrid planning is the most popular form of aggregate production planning.

EXAMPLE OF TYPE OF AGGREGATE PLANS Question:

Cost data Regular time labour cost per hour Overtime labour cost per hour

$ 12.50 $ 18.75

Sub contracting cost per unit (labour only) $ 125.00 Back order cost per unit per quarter

$ 25.00

Inventory holding cost per unit per quarter $ 10.00 Hiring cost per employee Firing cost per employee

$ 800 $ 500

Capacity data Beginning workforce Beginning inventory Production standard per unit (hours) Regular time available per period (hours) Overtime available per period (hours)

90 employees 0 units 8 hours of labour per unit 160 hours per period per employee 40 hours per period per employee

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Demand data Period Period Period Period 1 2 3 4 1920 units 2160 units 1440 units 1200 units Period 5 Period 6 Period 7 Period 8 2040 units 2400 units 1740 units 1500 units

Solution:

Plan A: Level Aggregate plan, Inventories and Back orders

Period Demand (units) Cumulative demand Period production Cumulative production End inventory Back orders

1 1920 1920 1800 1800 120

2 2160 4080 1800 3600 480

3 1440 5520 1800 5400 120

4 1200 6720 1800 7200 480 -

5 2040 8760 1800 9000 240 -

6 2400 11160 1800 10800 360

7 1740 12922 1800 12600 300

8 1500 14400 1800 14400 -

total 14400 14400 720 1380

Total cost calculation for plan A regular-time labour cost $ 1440000 12.50 per hour x 160 hours per period x 8 periods x 90 employees Inventory holding cost $ 7200 720 units x 10 per unit Back-order costs $ 34500 1380 units x 25 per unit Total cost $ 1481700

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Plan B: chase aggregate plan, using hiring and firing Period Demand (units) Employees needed Number of hires Number of fires 1 1920 96 6 2 2160 108 12 3 1440 72 36 4 1200 60 12 5 2040 102 42 6 2400 120 18 7 1740 87 33 8 1500 75 12 Total 14400 720 78 93

Total cost calculation for plan B Regular-time labour cost $ 1440000 12.50 per hour x 160 hours per period x 720 employees Firing costs $ 46500 93 employees x 500 each Hiring cost $ 62400 78 employees x 800 each Total cost $ 1548900 Plan C: Hybrid Aggregate Plan, initial workforce and overtime as needed Period Demand (units) Regular time units produced Overtime units produced Closing inventory 1 1920 1800 2 2160 1800 3 1440 1800 4 1200 1800 5 2040 1800 6 2400 1800 7 1740 1800 8 1500 1800 Total 14400 14400

120

360

480

360

960

720

120

180

480

2820

Total cost calculation of plan C Regular-time labour cost $ 1440000 12.50 per hour x 160 hours per period x 8 periods x 90employees Overtime labour cost $ 72000 18.75 per hour x 8 hours per unit x 480 units Holding costs $ 28200 2820 units x 10 per unit Total cost $ 1540200

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b. What are the advantages & disadvantages of using ERP? Enterprise Resource Planning is an important enterprise application that integrates all the individual departments/ functions in a single software application. ERP Systems make it easier to track the work-flow across various departments and reduce the operational costs involved in manually tracking, and perhaps duplicating data using individual & disparate systems. In this article, let us have a look at the advantages and dis-advantages of implementing ERP (Enterprise Resource Management) Systems. Advantages of ERP (Enterprise Resource Planning) System: 1. Complete visibility into all the important processes across various departments of an organization (especially for senior management personnel). 2. Automatic and coherent work-flow from one department / function to another to ensure smooth transition/ completion of processes. 3. A unified and single reporting system to analyze the statistics/ numbers/ status etc in real-time, across all the functions / departments. 4. Since same software is used across all departments this can avoid individual departments having to buy and maintain their own software systems. 5. Certain ERP vendors can extend their ERP systems to provide Business Intelligence functionalities as well. 6. Advanced e-commerce integration is possible with ERP systems that can handle web-based order tracking/ processing. 7. There are various modules in an ERP system like Finance/ Accounts, Human Resource Management, Manufacturing, Marketing / Sales, Supply Chain / Warehouse Management, CRM, Project Management, etc. 8. Since ERP is a modular software system, its possible to implement either a few modules (or) many modules based on the requirements of an organization. If more modules implemented, the integration between various departments might be better. 9. Single Database is implemented on the back-end to store all the information required by the ERP system and that enables centralized storage / back-up of all enterprise data. 10. ERP systems are more secure as centralized security policies can be applied to them and all the transactions happening via the ERP systems can be tracked. 11. ERP systems provide visibility faster collaboration across all the departments. and hence enable better/

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12. It is possible to integrate other systems (like bar-code reader, for example) to the ERP system through an API (Application Programming Interface). 13. ERP systems make it easier for order tracking, inventory tracking, revenue tracking, sales forecasting and related activities. 14. ERP systems are a boon for managing globally dispersed enterprise companies. Disadvantages of ERP (Enterprise Resource Planning) Systems: 1. The cost of ERP Software, planning, customization, configuration, testing, implementation, etc is too high. 2. ERP deployments take 1-3 years to get completed and fully functional. 3. Too little customization may not integrate the ERP system with the business process & too much customization may slow down the project and make it difficult to upgrade. 4. The cost savings/ payback may not be realized immediately after the ERP implementation & it is quite difficult to measure the same. 5. The participation of users is very important for successful implementation of ERP projects So, exhaustive user training and simple user interface might be critical. But ERP systems are generally difficult to use (and learn). 6. There maybe additional indirect costs like new IT infrastructure, upgrading the WAN links, etc. 7. Migration of existing data to the new ERP systems is always difficult to achieve as with integrating ERP systems with other stand alone software systems. 8. ERP implementations are difficult to achieve in decentralized organizations with disparate business processes and systems. 9. Once an ERP systems is implemented it becomes a single vendor lock-in for further upgrades, customizations etc.

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c. Explain terms like Reorder, safety stock, EoQ, Break even Analysis with example

Reorder level Stock reorder level indicates to the stock controller when it is necessary to reorder certain raw materials or components. The purpose of using this stock reorder level is to enable management to ensure there are sufficient stocks to meet demands from the production department. Formula=Maximum usage x Maximum lead time Example Company X which is a manufacturer has a maximum usage of 5,000 units of component TX1 per week. The supplier of this component has a maximum lead time of 5 weeks. Required: Compute the reorder level for component TX1. Solution: Reorder level=Maximum usage x Maximum lead time = 5,000 x 5= 25,000 units.

Safety stock Safety stock is the stock held by a company in excess of its requirement for the lead time. Companies hold safety stock to guard against stock-out. Safety stock is calculated using the following formula: Safety Stock = (Maximum Daily Usage Average Daily Usage) Lead Time Lead time is the time which supplier takes in ordering the items Example ABC Ltd. is engaged in production of tires. It purchases rims from DEL Ltd. an external supplier. DEL Ltd. takes 10 days in manufacturing and delivering an order. ABC's requires 10,000 units of rims. Its ordering cost is $1,000 per order and its carrying costs are $3 per unit per year. The maximum usage per day could be 50 per day. Calculate economic order quantity, reorder level and safety stock. Solution EOQ = SQRT (2 Annual Demand Ordering Cost Per Unit / Carrying Cost Per Unit) Maximum daily usage is 50 units and average daily usage is 27.4 (10,000 annual demand 365 days). Safety Stock = (50-27.4) 10 = 226 units. Reorder Level = Safety Stock + Average Daily Usage Lead Time Reorder Level = 226 units + 27.4 units 10 = 500 units.

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Economic order quantity (EOQ) Economic order quantity (EOQ) is the order quantity of inventory that minimizes the total cost of inventory management. Two most important categories of inventory costs are ordering costs and carrying costs. Ordering costs are costs that are incurred on obtaining additional inventories. They include costs incurred on communicating the order, transportation cost, etc. Carrying costs represent the costs incurred on holding inventory in hand. They include the opportunity cost of money held up in inventories, storage costs, spoilage costs, etc. Ordering costs and carrying costs are quite opposite to each other. If we need to minimize carrying costs we have to place small order which increases the ordering costs. If we want minimize our ordering costs we have to place few orders in a year and this requires placing large orders which in turn increases the total carrying costs for the period. We need to minimize the total inventory costs and EOQ model helps us just do that. Total inventory costs = Ordering costs + Holding costs By taking the first derivative of the function we find the following equation for minimum cost EOQ = SQRT (2 Quantity Cost per Order / Carrying Cost per Order) Example ABC Ltd. is engaged in sale of footballs. Its cost per order is $400 and its carrying cost unit is $10 per unit per annum. The company has a demand for 20,000 units per year. Calculate the order size, total orders required during a year, total carrying cost and total ordering cost for the year. Solution EOQ = SQRT (2 20,000 400/10) = 1,265 units Annual demand is 20,000 units so the company will have to place 16 orders (= annual demand of 20,000 divided by order size of 1,265). Total ordering cost is hence $64,000 ($400 multiplied by 16). Average inventory held is 632.5 ((0+1,265)/2) which means total carrying costs of $6,325 (i.e. 632.5 $10).

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Location Break-Even Analysis Method of cost-volume analysis used for industrial locations Break-even is the point of zero loss or profit. At break-even point, the revenues of the business are equal its total costs and its contribution margin equals its total fixed costs. Three steps in the method: 1. Determine fixed and variable costs for each location 2. Plot the cost for each location 3. Select location with lowest total cost for expected production volume Example: Mr A business tycoon is considering a site for new manufacturing plant in Mumbai, Gujarat and Karnataka Fixed costs per year are 50lakh, 40lakh and 35lakh respectively. Variable costs per year are 50, 75 and 100 respectively. Price per unit is Rs. 1000 What is the best location for an expected volume of 5000 units per year? Solution: Formula: px = vx + FC + Profit Where p is the price per unit, x is the number of units, v is variable cost per unit and FC is total fixed cost Total cost of Mumbai plant: 5000000 + (50 x 5000) = 5250000 Total cost of Gujarat plant: 4000000 + (75 x 5000) = 4375000 Total cost of Karnataka plant: 3500000 + (100 x 5000) =4000000 With an expected volume of 5000units per year Gujarat provides a low cost location the expected profit is: Total revenue Total cost = (1000 x 5000) 4000000 = 5000000 4000000 = 1000000

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BREAK EVEN ANALYSIS OF LOCATION

9000000 8000000 7000000 6000000

INCOME

REVENUE GENERATED

TC-M
5000000 4000000 3000000

TC-G TC-K BREAK EVEN POINT

2000000

LOSS
1000000 0 1 2 3 4 5

PROFIT

UNITS PRODUCED

Mumbai plant Gujarat plant Karnataka plant Revenue

Point P is called the break even point because at point P the total cost of the plant (Rs.5000000) = total revenue (Rs.5000000) generated by producing 5000 units a year. Also plant in Karnataka incurs a total cost of Rs. 4000000 by producing 5000 units a year which is less than the revenue earned by selling 5000 units a year and hence plant of Karnataka is considered for the purchase by Mr. A.

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d. Why seasonal variations to be considered in Forecasting (in brief)? Not every product sells at the same pace throughout the year, there are bound to be peaks and troughs on the sales graphs with the coming of different seasons and different months. This little fact creates problems when estimating future trends for a business and thats exactly where seasonal forecasting techniques step in to help entrepreneurs and businesses to understand and interpret these seasonal variables and plan accordingly. In the plainest of words seasonal forecasting is an estimation technique that gives due consideration to seasonal variances that affect the sales and operations of a business. The concept works around analyzing seasonal variances in historical data and using this as a basis for forecasting future trends. Example of Seasonal variation ina. Seasonal product line: A business that is into manufacturing woollen clothing is likely to see a surge in its sales as the winter season approaches, while the sales would nosedive as summers approach. Giving due importance to this fact during business forecasting will help the business to realign its operations and sales plans accordingly. b. Non seasonal product line: The case of Plasma TVs which should see a somewhat consistent sale throughout the year as their demand has nothing to do with weather or season changes. But during festive seasons the sales pitch up as many families like to keep such expensive purchases until the festive season arrives. No wonder most businesses see their sales sky rocketing around Christmas and New Years. By and large, 80% of businesses are affected by seasonal variances in demand.

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