Operations management Mini cases

Operations management (IPP801/OSA812/OSM812)

Mini cases (Individual voting)

Mini case 1

Your company is currently selling widgets. It is the only product you sell. For those
who do not know, a widget is a thingamajig, a whatchamacallit; in short, anything you
want it to be. It does not matter what you are selling. You are currently selling your
widgets for R95-00 per unit and you are selling a large number of units a month. The
product cost for a widget at your current volume is R91-875 per unit. A new customer
comes along but is not prepared to pay R95-00 per unit. His perception of value
allows him to offer you R65-00 per unit i.e. he will buy from you at a selling price of
R65-00 or less and will not buy if the price is more than R65-00. On questioning him
you find out that he only wants one unit and that he does not intend buying from you
in future ever again i.e. selling this one unit at R65-00 WILL NOT get you any future
business directly or indirectly. Describe how you would respond to his offer. You
must be able to give reasons for your response.

For the purpose of the voting, you can choose one of the following options:
1) Sell the one unit to the new customer
2) Do not sell the one unit to the new customer
3) Conditionally sell

Mini case 2

Holding
company

Affiliate A Affiliate B Affiliate C

A holding company owns three affiliates, A, B and C. Management of the holding

company decides that it is a good idea to measure each affiliate according to its own
profit and loss statement and balance sheet, i.e. each has to be profitable in its own
right. This is the same (but just on a lower level) when profit centres are created
within a company. Non-profitable units are sourced out. Discuss the merits of this
approach. You must be able to give reasons for your response.

For the purpose of the voting, you can choose one of the following options:
1) Measure each part of the company independently
2) Do not measure each part of the company independently
3) Conditionally measure each part of the company independently

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Operations management Mini cases

Mini case 3

XY Enterprises
Demand Selling price
Product X 60 units/week R95-00/unit
Product Y 60 units/week R105-00/unit

The above table is the Master Production Schedule (a planned schedule of what to
produce) for the company based on information from marketing. The demand for the
products is absolutely stable, the customers will not change their minds with regards
to what they want and the quantity they want. The prices charged are at an optimum
as a cent increase in either of the selling prices will cause the demand to drop to
zero. Also, if a price drop is announced, the volume will stay exactly the same.

Product X Product Y

D-1 D-2
15 min/unit 5 min/unit
RM
R5-00
Unit

C-1 C-2 B-2

20 min/unit 5 min/unit 15 min/unit

A-1 B-1 A-2

20 min/unit 15 min/unit 10 min/unit

RM RM RM
R20-00 R20-00 R20-00
Unit Unit Unit

The above diagram indicates the processes required to produce X and Y. The
following additional information is available:

1. One of each resource A, B, C and D; they cannot substitute for each other.
2. Each resource is available for 2400 minutes per week. (No breakdowns, no
strikes, no setups whatsoever) and each resource performs two processes each,
which cannot be performed simultaneously.
3. Fixed cost is R1 500-00 per resource per week or R6 000-00 total cost per week.
4. There are no other overhead costs.
5. Raw material (RM) supply is instantaneous (zero lead time) and the quality is
perfect. The supplier will not raise the price of raw material.

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Operations management Mini cases

6. Each resource only works on one product and process at a time (e.g. delivery
from C-2 is either to product X or to product Y and cannot run simultaneous with
C-1). To supply one component to each final product C-2 thus has to be
performed twice. Processing time is constant (no process time variation).

Two engineers have been tasked to improve the productivity of the processes in the
organisation. After devoting time to this, they each come up with a proposal.

The first engineer’s proposal (Proposal 1)

Change process C (centre section) to take 8 (eight) minutes without compromising
quality instead of it taking 5 (five) minutes. Change process B (centre section) to take
14 (fourteen) minutes instead of 15 (fifteen) minutes. Total process time of the centre
section will increase from 20 (twenty) to 22 (twenty two) minutes. Total cost to
implement the change will be a once-off R5 000-00. All this will be done without
compromising quality!

The second engineer’s proposal (Proposal 2)

Reduce the processing times of process C and A in the left section to take 5 (five)
minutes for process C and 10 (ten) minutes for process A. Total process time of the
left section is reduced from 40 (forty) to 15 (fifteen) minutes. At the same time, the
processing time in the right section is reduced on process A to 5 (five) minutes. Total
process time of the right section is reduced from 25 (twenty five) to 20 (twenty)
minutes. Total cost to implement the change will be a once-off R3 000-00. This will
be also be done without compromising quality!

Which one of the two will you implement? You also have the option of implementing
both or neither of the two. You must be able to justify your answer.

For the purpose of the voting, you can choose one of the following options:
1) Implement proposal 1
2) Implement proposal 2
3) Implement proposal 1 and proposal 2
4) Do not implement any of the proposals

Which one of the two products, X or Y is the most profitable product for XY
enterprises? For the purpose of the voting, you can choose one of the following
options:
1) Product X is most profitable
2) Product Y is most profitable

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