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Open University of Mauritius

CEMBA [OUpm003]
CEMPA [OUpm004
MBA GENERAL [OUpm005]
MBA SPECIALISATION [OUpm006]
MBA EDUCATIONAL LEADERSHIP [OUpm007]

EXAMINATIONS FOR: May/June 2016 – Year 1 Semester 1

MODULE: C4 Operations Management


[OUpm0031102/OUpm0041102/ OUpm0051102
OUpm0061102/OUpm0071102]

DURATION: 3 HOURS

READING TIME: 15 Minutes

INSTRUCTIONS TO CANDIDATES
1. This question paper consists of Sections A and B.
2. Section A is compulsory.
3. Answer any TWO (2) questions from Section B.
4. Always start a new question on a fresh page.
5. Total marks: 100
6. Write your student ID on each answer sheet.

This question paper contains 4 questions and 8 pages.

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SECTION A
(COMPULSORY)

QUESTION 1: (50 MARKS)

Read the case carefully and then answer the questions which follow.

MEETING OPERATIONS MANAGEMENT CHALLENGES

Juicy Ltd. started operations in July 2008 on an old tea factory premises in Nouvelle
France. This site offered several advantages. The building was already present and it
had a vast yard. It just needed some upgrading, after which the equipment were
installed. The equipment were all imported from Germany and were of food grade. At
that time the village and the surrounding region had a number of unemployed, due to
the closing down of the tea factory, and also due to the fact that a number of
employees of the sugar industry had taken advantage of the Voluntary Retirement
Scheme. Electricity and water were readily available and the plant was not far from
the motorway. Besides, the region was served by buses of the National Transport
Corporation.

A juice bottling is a capital intensive plant. The vessels were all of stainless steel and
of food grade. Being a drink, and hence a food product, good hygienic practices should
be maintained at all stages of production. Unlike many beverages and foodstuffs, juice
requires only few ingredients: juice, essence, water and sugar.

The production of juice is first discussed.

Juice usually contains 95% water. The water quality determines the type of juice that
could be produced at a given location. The plant obtained the permission from the
Central Water Authority to make industrial use of underground water through a
borehole. The Nouvelle France region, being on the central plateau, is endowed with
excellent quality underground water.

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The concentrate and essence were imported from South Africa and PET bottles from
Libya. The process of production is quite simple. Water is pumped from the borehole
and filtered using charcoal as the filter aid. The water is irradiated with ultraviolet rays
in order to sterilize it. The sterilized water is stored in huge tanks. The amount of
ingredients for each batch of product is predetermined and printed on job cards.
Production planning for the following week is done on Friday, based on forecasted
figures, firm orders and amount of each product available in stock. The production
supervisor sends the request for materials to the store on the eve. The materials are
delivered to the production floor in the morning. The chief operator checks the amount
of delivered materials against those indicated on the job card. First the mixer is cleaned
and the required amount of water pumped into. The ingredients are added one by one
into the mixer. Mixing is done with an electric stirrer. When a homogeneous mixture is
obtained, stirring is stopped. The mixture is allowed to stand for 90 minutes. It is then
filtered using a Millipore filter into an already sterilised stainless steel tank. After one
lot has been produced the mixer is washed and a lot of another product can be
produced. A card with “ON HOLD” is affixed to the stainless steel tank. Samples are
tested for both physical and microbiological tests. If the lot passes the tests it is
released for bottling and another card with “QC PASSED” is displayed on the tank.

Bottling now takes place. The PET bottles are blown and they move along a conveyor
belt. An inspector sits next to the conveyor belt and inspects each bottle. Any non-
conforming one is removed and discarded. The bottles are automatically filled,
stoppered and the label affixed upon. They are packed in sets of six in polythene bags
and stored on crates to be loaded on lorries for distribution. One operation occurs after
the other. The factory employed 25 operators.

With the enforcement of the food Act in 2010, the organization had to implement a
food safety management system in 2011.The quality of the juice was good. It was
accepted by the local population. However, the organisation failed to make an inroad
into the hotels, which were the main customers. In Mauritius, the hotels are mostly
owned by the whites and they had long-term relationship with the Phoenix Beverages
Group and importers such as Scott and Panagora. It was impossible for Juicy to
penetrate this market. It recruited Valerie Toste as marketing manager. She personally
met the hotel owners and things improved slightly.
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The Mauritian market being small, Valerie prospected the regional market and did get
few orders from Madagascar and Mozambique. This enabled it to optimize capacity
utilization o a certain extent only. Trouble broke in Libya. The organization had to
search for a new source for PET bottles. It finally got a supplier from Saudi Arabia.

In order to reduce the incidence of diabetes the Government banned the advertising
of sweet drinks, including artificial juices. It was impossible to communicate with
customers using the mass media. The organisation found no answer to this problem.
Sales were not picking up. The organisation had invested heavily in equipment and
distribution vehicles. It could not optimize capacity utilization. It was making heavy
losses. It closed down in 2014.
(Written by B. Abacousnac for the MBA Exam)

Answer the questions below based on the above case:

a) Discuss the factors which have determined the location of the plant at
Nouvelle France. (8 marks)

b) With reference to examples from the case, differentiate between


transformed and transforming resources (8 marks)

c) (i) Discuss the importance of capacity utilization in such a plant. (5 marks)


(ii) What strategy could the organization have adopted to optimize
capacity utilization? (7 marks)

d) (i) Identify the production system used to bottle the juice. Justify
your answer (3 marks)
(ii) Discuss the characteristics of such a production system. (5 marks)

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e) Juicy Ltd requires a part X40 at the rate of 2000 units per week. Each unit costs
Rs100 when purchased from the current supplier. The ordering cost associated
with placing an order with the current supplier is Rs500. The interest rate is
assumed to be 20% per year and the warehousing costs associated with storage
and maintenance are Rs20 per unit per year.

(i) Calculate the Economic Order Quantity. (5 marks)

(ii) The current supplier is prepared to give the company three options for
ordering:
 To continue as at present with the EOQ; or
 To have a 10 percent reduction in the unit price if it orders at least 10,000
units per order; or
 To have a 15% reduction in the unit price if it orders at least 20,000 units in
each order.

Which of these options would you recommend? Give your reasons. (9 marks)

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SECTION B

ANSWER ANY TWO QUESTIONS

QUESTION 2 (25 MARKS)

(a) Forecasting is an important planning tool for managers. However often losses are
made due to poor forecasting.

Discuss the problems which can be caused by poor forecasting, indicating the
various scenarios possible.
(8 marks)

(b) There is almost always an error associated with forecasting. Discuss the reasons
why organizations use forecasting.
(7 marks)

(c) Two independent methods of forecasting have been prepared each month for the
past 10 months for Multicolor Ltd.

The forecasts and actual sales are as follows:

Month Sales Forecast 1 Forecast 2

1 970 971 969


2 989 985 987
3 994 990 992
4 980 984 998
5 968 970 974
6 972 968 970
7 960 961 959
8 975 971 975
9 986 984 988
10 990 988 988

(i) Compute the MAD for each forecast. Does either forecast seem superior?
Explain your answer. (6 marks)

(ii) Compute MAPD for each forecast and comment on your result.
(4 marks)

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QUESTION 3 (25 marks)

(a) Discuss the concept of level Production, highlighting its advantages and
disadvantages.
(10 marks)

(b) TFP has forecasted the sales for its sofa beds for 2017. At present it employs
80 workers. The Production manager feels the level production strategy is the
most appropriate one. The cost for employing an additional employee is Rs6
000, while the cost for making one worker redundant is Rs3 000. The cost for
keeping one unit of the item in stock at the end of the month is Rs30. Each
worker produces 100 units on a monthly basis.

The figures for demand forecast for 2017 are indicated in the table below:

Month Jan Feb Mar Apr May Jun


Demand forecast 7500 7400 7500 7400 7500 7400
Month Jly Aug Sep Oct Nov Dec
Demand forecast 7600 7500 7400 7500 7500 7800

(i) Construct the level production schedule for 2017. (10 marks)

(ii)Calculate the total cost for this schedule. (5 marks)

QUESTION 4 (25 marks)

(a) Discuss briefly the steps in involved in project management.


(5 marks)

(b) CMT Ltd is setting up a new plant in Bangladesh.

The Project Manager is proposing to use the Critical Path Method in order to
monitor the various activities constituting the project. The various activities,
precedence relationships and duration of each activity are indicated in the table
below:

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Activity Completion time (weeks)
A 1
B 4
C 2
D 6
E 2
F 5
G 3
H 6
I 1

The immediate precedence relationships are:


Activity Activity
A must be finished before C can start
B D,E,F
C E,F
D G
E H
F,G I

(i) Draw the network diagram for the above project.


(4 marks)
(ii) Calculate the earliest start time, earliest finish time, latest start time,
latest finish time and float for each activity.
(10 marks)
(iii) Identify the critical path and calculate the project completion time.
(2 marks)
(iv) How would the overall project completion time be affected if the
completion time for activity F is increased from 5 to 7 weeks and that
for activity H is decreased from 6 to four weeks?
(4 marks)

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