OPERATIONAL AND PROJECT MANAGEMENT

Contents

Executive Summary 3
Introduction 5
Scenario 1 (Process Analysis) 5
Scenario 2 (Quality Issues) 7
Scenario 3 (Capacity Planning) 8
Scenario 4 (Inventory Management) 10
Scenario 5 (Logistics Management and Relocation) 12
Conclusion: 14
References 15
Executive Summary
A medium size company named Swindon security system (SSS) operates two different divisions
one is Large Systems and other is Off the Shelf Systems. Company is dealing with the
arrangements of a new consultancy contract. Because of this there are some areas which have
potential opportunities for improvements.

My assignment is to examine the data and give my suggestion for the improvement in their
operations performance of each department and also give some suggestions on how they can
increase the profit and value of their campay.

After examine carefully following five ares define the brief summary of all the sreach

These findings are as follows:

Process analysis for the large system divisions

● The large system division company has maximum capacity of production per week is 7
units.the bottleneck of the site survey team, currently the installation team of company
has minor capacity of completing 9 systems on the other hand the sale visit and
manufacturing team have also minor capacity they complete only 3 systems (Silver,
Pyke,and Peterson, 1998)

● £12 million is the gross annual profit generated by the business but at the same time
annual net profit that is generated is £7.5 million

● The demand for campay increases more than the final production and next 12 months this
demand increases more. To increase annual profit by £3.9 million the company has to call
up one additional site surveyor to get rid of the bottleneck process and to fulfil the
required demand of the company. On the other hand the installation team still has a
weekly minor capacity of dealing with 6 more systems.

Quality issues in off-the-shelf manufacturing

● Due to faulty systems the company is incurring currently £0.8 million as an annual cost.
Due to the faulty systems the Off the Shelf division is facing the quality issues(8%)

● Recruitment of a new quality control team is one option to lessen the cost of shipment
and minimise the issues related to quality but this also increases the cost by £0.13 million
per year.
● (TQM) total quality management also used to satisfy the customers and also to manage
the cost. philosophy of TQM reduces the cost of £0.475 million for the first five years
 afterwards reducing £0.54 million annually. By this philosophy of TQM the error rates of
faulty systems would be reduced form 8%to 2.5

Capacity planning in the call centre

● For dealing with the customer calls recruiting four permanent employees it would result
in the cost of £134,400 per year but the expected calls are more than the capacity of
permanent employees in different months.
● As the contract staff would cost £694 for every month but the cost of each permanent
staff is £3300.So the current plan of recruiting four employees permanently needs
correction.

● online call handling system also used by a reputable software company. For both contract
and permanent staff The online call handling system would increase the capacity of each
person to handle 10 more calls on each day. So this will of course the reduction of £
26400 per year.

Inventory management for cam units

● With no consistent policy of ordering the current per year cost of procuring cams amount
is £90,000..
From time to time orders are late and production delays
● Using Economic Order Quantity (EOQ), It would decrease the total annual cost of
procuring cams to £77,367.50 and also resolve the issue of late orders.
● Bulk purchases is another option. This option would reduce the cost of procuring cams to
£83,280 per year and these bulk purchases also offer many discounts as well.
Logistics planning for a new location
● The leasehold for off the shelf division(Swindon base) is almost expiring in a few
months. Company has shipments in all over the UK which is away from off the shelf
divisions. Which increase in the cost of shipments and as well as in fuel. There for before
renewal of leaseholders agreement the optimal location must be considered.
● The nearest best location is Nottingham which is the most ideal location for this
Kettering. The road infrastructure is not too good but it reduces the transportation cast
and fuel (Poirot,Philip, Schiffer-Mannioui, Le Clerre, Chion-Sotinel, Derniame, Potrel,
Bas, Lemaire, Galetto, and Lebuhotel, 2015)
● Location may b changed according to many other factors which are mentioned in the
relevant section.
Introduction
In this report no assumptions are used from outside. This report is totally prepared on the basis of
data which are provided. This report helps the Board of Directors to better understand the various
operational matters which helps on a factual basis. The scenario of each section is followed

Scenario 1 (Process Analysis)

Maximum Production Capacity (Weekly) of the Company:
The company has maximum production capacity (per week) of completing 7 systems as shown
by below table. As each system is individually designed and the site survey team is capable of
completing only 7 surveys that's why the extra capacity of other teams are not used

Table – 1

Site
Sales Manufacturin Installatio
Description Legends Survey
Team g Team n Team
Team

No. of staff A 2 3 5 12

No. of working days B 5 5 5 5

No. of hours for each

C 8 8 8 8
day

D=
Total available hours 80 120 200 480
A*B*C

No. of hours required

to complete 1 E 8 16 20 30
system’s working

Maximum Capacity
F = D/E 10 7.5 10 16
(equivalent systems)

Annual Capacity G = F * 50 500 375 500 800

Process Bottleneck:
“A bottleneck is one process in a chain of processes, such that its limited capacity reduces the
capacity of the whole chain” [1]. Bottleneck the mouth of a bottle. As the capacity to make
surveys of the site survey team is limited that's why it is a process bottleneck. Company
demanded 8-9 system weekly, the capacity of site survey team's of surveying is 7.5 sites that
make it impossible to fulfil the demand of customers and also limits the capacity of other teams
idle.

Calculation of Annual Gross Profit being generated:

Amount
Description Legends Working
British Pounds (£)
Units manufactured and A 7.5 units * 50 weeks = 375
sold
Sales Revenue B 375 * 160,000 60,000,000
Cost of units C 375 * 128,000 48,000,000
Gross Profit – Annual D=B–C 12,000,000
Fixed Overheads E 90,000 * 50 4,500,000
Net Profit - Annual F=D–E 7,500,000

Services of Employment Agency Used

With the available limited resources the current manufacturing and installation capacity of the
campay is 375 units. In the next year consider that the demand of customers would be around 10-
11 systems weekly(i.e assume 10 systems demand weekly, 500 units per year). A process
bottleneck for the team of site survey(I. E. Site surveying capacity is 375 systems ).

As shown in Table - 1 all other teams have enough resources to fulfil the demand of 500 units
every year. So now the company has to hire new staff for an employment agency on a temporary
basis to meet the demand of required units(500 units).at the cost of £400/days, For 250 days the
company has to involve one new surveyor(additional 125 units need 200 more hours I. E
2,000/8=250 days)

This new one surveyor's shall meet weekly requirements by adding 40 hours in a week

Calculation of extra annual profit

Additional sales revenue (125 * 160,000) £ 20,000,000

Additional Units manufacturing cost (125 * 128,000) £ 16,000,000

Additional surveyor salary cost (250 * 400) £ 100,000

So by recruiting one additional surveyor, extra annual profit would be £ 3,900,000.

Scenario 2 (Quality Issues)
Due to faulty units the company is facing many problems related to quality. Due to quality issues
it is very difficult to satisfy the customer so the dissatisfaction of customers damages the
goodness of the company and the company also has to bear the replacement cost of faulty units
which also affects the company cost. The calculation of Annual cost of quality issues is
mentioned in below table

Current Annual Cost of the Quality Issues:

Description Working
Units manufactured – annually (Nos.) 40 * 5 * 50 10,000
Faulty units (Nos.) 10,000 * 8% 800
Replacement cost (£) 800 * 800 640,000
Additional cost incurred (£) 200 * 800 160,000
Total annual cost of quality problems 640,000 + 160,000 800,000
(£)

Financial Impact of Proposal A:

The company paid customers to replace a new unit. The company may save £160000 by
recruiting a quality control team instead of replacing(as shown in above table)

For salaries the company has to incur £290000. Replacement coat shall remain unchanged

In nutshell,for each year the company has to incur an additional amount of £130000.

following may b advantages and disadvantages of this proposal

Advantages:
1. By this it would increase the campay goodness
2. Time required in the Replacement of faulty units shall be saved

3. As 0% faulty units. This would increase the customer confidence in the product and there
is no dissatisfaction of the customer.

Disadvantages:

1. As a salary cost of per year it would result in an extra cost of £130000.

 2. New recruitment increases the opportunity cost of the human resources team and also
results as an additional recruitment.

Value of Proposal B:
According to philosophy of total quality management refers, “quality is not an accident” [2],

Following financial benefits may b obtain by company

Decrease in cost of replacing faulty unit (A) (800-250) * 800 =£ 440,000

Decrease in cost of shipping (B) 550 * 200 = £110,000

Lump sum cost to be incurred (C) £75,000

Net benefit for first year (£) D = A + B - C £475,000

Net benefit for each year afterwards (£) – E = A + B – 10,000

£540,000

By using the philosophy of total quality management (TQM), total annual cost of quality issues
for the first year would be £325000 and total cost of each year afterwards is £260000
respectively.
Proposal A increasing the cost of £130000 as a salary cost of counter quality issues.
In this proposal the satisfaction of the customer shall be rare.
This current method is incurring £800000 as a cost of quality related issues and also
dissatisfaction of the customer .

In Nutshell, the best option for the campay is to choose proposal B. Because by B proposal there
would be reductions in cost of £475000 and £540000 for 1st year and afterwards each year
respectively .

Scenario 3 (Capacity Planning)

In this scenario the company decided to operate the call center with 3 permanent employees.
Company also arranged a contract with the agency for any extra calls.

Now the basis of assumed call data below is the analysis of the annual cost of all staff and staff
requirements .
Requirement of Agency Staff and Total Annual Cost of All Staff:
Permanent
Remaining Calls Cost of
Calls Staff New Staff
Month for New Recruit Agency Staff
Expected Monthly from Agency
(daily) (£)
Capacity
B = 3 * 40 * D = C / 30 E = D * 110 *
A C = (A – B)/30
30 (round off) 30
January 6,700 3,600 103.33 4 13,200
February 6,300 3,600 90.00 3 9,900
March 5,100 3,600 50.00 2 6,600
April 4,200 3,600 20.00 1 3,300
May 3,200 3,600 - 0 0
June 3,000 3,600 - 0 0
July 2,800 3,600 - 0 0
August 3,600 3,600 - 0 0
September 4,100 3,600 16.67 1 3,300
October 4,900 3,600 43.33 2 6,600
November 5,200 3,600 53.33 2 6,600
December 6,100 3,600 83.33 3 9,900
Total cost of agency staff 59,400
Permanent staff cost (25,000 * 3) 75,000
Total Annual Cost of All Staff 134,400

Refer to the new staff required in column D and total annual cost amounted to £134,400.

Assuming Call Handling System Availed:

Calls Permanent Remaining Calls Cost of

New Staff
Month Expecte Staff Monthly for New Recruit Agency Staff
from Agency
d Capacity (daily) (£)
D = C / 30 E = D * 110 *
A B = 3 * 50 * 30 C = (A – B)/30
(round off) 30
January 6,700 4,500 73.33 3 9,900
February 6,300 4,500 60.00 2 6,600
March 5,100 4,500 20.00 1 3,300
April 4,200 4,500 - 0 0
May 3,200 4,500 - 0 0
June 3,000 4,500 - 0 0
July 2,800 4,500 - 0 0
August 3,600 4,500 - 0 0
 Septembe
4,100 4,500 - 0 0
r
October 4,900 4,500 13.33 1 3,300
Novembe
5,200 4,500 23.33 1 3,300
r
December 6,100 4,500 53.33 2 6,600
Total cost of agency staff 33,000
Permanent staff cost (25,000 * 3) 75,000
Total Annual Cost of All Staff 108,000
Annual benefit of call handling system (134,400 – 108,000) 26,400

Differences between permanent staff and agency staff:

1. Cost of payroll:
Agency staff shall be paid by the company only if service is used or they achieved targets.
On the other hand a company has to pay salaries to its permanent staff whether required calls
targets are achieved or not.

In the hiring process of the permanent staff company has incurred their resources, training
cost and time. Companies bear training costs when any permanent employee resigns
(Banerjee, and Kim, 1995).

2. Efficiency of performing work:

Permanent staff is more cost and work efficient because as compared to contract staff of
the agency(having average monthly salary of £33000 for each staff) permanent staff is
capable to handle 10 extra calls per day with lowest cost(average salary of one permanent
employee of each month is £694444)

3. Customer satisfaction:

Companies may face lower quality services from the agency staff. Maybe the agency contract
staff ignore the satisfaction of the customers as compared to their permanent staff.company
don't have direct control over the agency staff as they directly control their permanent staff.

4. Dependability on agency contract may result in loss of business

It would result in legal implications, damage to goodwill of the business [3] and loss of business
as well. Agency staff may work on different jobs at one time unlike their permanent staff.
Agency staff may leave a contract if they have any other good option and also money. It is very
difficult to trust agency staff and trust that They will fulfil the requirements of campay. Agencies
staff may not be able to handle concerns properly.it would result in legal implications, damage to
goodness of the business [3] and loss of business.

Scenario 4 (Inventory Management)

The problem of mismanagement of cost of cams procuring is faced by the campay. There is no
policy for storage and procuring of cams. Due to this company has to incur more cost. Below we
will see which option is best and financially more feasible for the company

Total Annual Cost – Currently:

Current cost of procuring cams is £90,000 per annum.

Option of Economic Order Quantity (EOQ):

First, we shall calculate EOQ [4]

Formula = √ ((2 * Annual demand * ordering cost) / holding

cost)

= √ ((2 * 5,200 * 40) / 9)

EOQ = 215 units

No. of Orders = 5,200 / 215 = approximately 25 orders

Ordering Cost = 25 * 40

= £1,000

Holding Cost = Average Inventory * cost of holding one item per annum

= 215/2 * 9

= £967.50

Purchase Cost = 5,200 * 14.50

= £75,400

Total cost of procuring cams = 75,400 + 967.50 + 1,000

= £77,367.50

Option of Bulk Purchasing for Availing Discounts:

No. of Orders = 5,200 / 2,600 = approximately 2 orders

Ordering Cost = 2 * 40

= £80

Holding Cost = Average Inventory * cost of holding one item per annum

= 2,600/2 * 9

= £11,700

Purchase Cost = 5,200 * 13.75

= £71,500

Total cost of procuring cams = 71,500 + 11,700 + 80

= £83,280

Conclusion: Both options reduce the total annual cost of procuring cams according to the
above data. But the Economic order quantity(EOQ) method is the most good and feasible option
to procure cams. As compared to the current and bulk purchase option having cost £90000 and
£83280 respectively the EOQ method will cost a £77,367.50 annually.

Key Benefits of JIT Approach to Inventory Management:

Companies like to use JIT because it has been a more cost saving method of stock holding. Its
objective is to reduce the amount of goods you hold at any a time, and this has various benefits
as follows:

1. Need less space: JTI method no needed large storage space or warehouse to store
goods. By this company saving money also earned rental income through renting the
storage space.

Waste reduction:
This method reduces loss and damage of goods.It prevents the goods to become outdated.
By this company also saving some money which company can use for many other
objectives.unnecessary stock need not be prevented.

2. Smaller investments:JIT is best for small scale companies which have small
investment and this is also best option for those companies which don't have much funds
for warehouse and storage space.

3. First Time Right:

 JIT focuses on quality not quantity.As quality is priority in this method. To prevent goods
form wastage and demange campanoes work to get First time right for All goods

4. Shorter Lead time: JIT approach needs shorter lead time. So this approach may be
helpful and good for the company .JIT approach reduces move time and setup time.

5. Reliable vendors:
JIT deals with only a few vendors or suppliers to improve company delivery, quality and
strength on prices.

6. Continues improvement:
JIT approach is a never ending improvement process, in which new problems are
identified and existing problems are corrected if types of improvement are never ending
improvement.
7. Employeestronger relationship and satisfaction

The JIT system encourages the atmosphere of teamwork and multi-skilled workers.
It also encourages the good and strong relationship between company and customer

All of the above mentioned advantages will help to save money that could be used for many
other purposes.

Scenario 5 (Logistics Management and Relocation)

Finding Optimal Location by Using Centre of Gravity Method in Distribution
Location Centre:
The Center of Gravity Method [5] is an approach that seeks to compute geographic coordinates
for a potential single new facility that will minimise costs.

This method is beneficial because it’s (a) Simple to compute, (b) Considers existing facilities,
(c) Minimises costs

X-coordinates and Y-coordinates are given so by multiplying grid coordinates with the shipment
for each location and dividing it over total annual shipments, we received (Cx and Cy, CHEN,
LONG, YANG, and LIU, 2008)

Location Shipments per X-Coordinate Y- Cx Cy

year Coordinate
A B C D=A*B E=A*C
Bristol 170 2.2 0.4 374 68
London 360 9.9 0.6 3,564 216
Birmingha 290 4.5 5.7 1,305 1,653
 m
Liverpool 600 1 10.5 600 6,300
Mancheste 360 3.3 11 1,188 3,960
r
Sheffield 420 5.7 10.3 2,394 4,326
Nottingha 390 6.7 8 2,613 3,120
m
Cambridge 240 10.8 4.2 2,592 1,008
Total 2,830 14,630 20,651
Optimal Location (D/A & E/A) 5.17 7.30
Coordinates

We can see from the above table that the most optimal location to reduce transportation cost is
falling at 5.17 at X-coordinate and 7.30 at Y-coordinate. If we have to select any location among
the locations mentioned in the above table, then the most feasible location which may reduce
transportation cost would be Nottingham having coordinates (6.7, 8). Swindon is a location
which is located near to Bristol and London but locations of Liverpool, Manchester, Sheffield
and Nottingham are very far farlang. These cities have demand of 1770 shipments. So by
choosing Nottingham as a location to centre, there would be a lot of reduction in transportation
cost.
Considering Other Options for Optimal Location:
Using the center of gravity method,we can find that the best optimal location may b Kettering
according to the map. This method identifies location according to the cost of fuel.for choosing
the best location for a new facility is vital to your company success.

Sone factors must be considered for finalising the optimal location

1. Transportation
2. Geographic distribution strategy?
3. Labor
4. State and local government
5. Educational facilities
6. Zoning and planning
7. Transportation expenses both inbound and outbound
8. Crime rate
9. Community appearances
10. Quality of life
11. Construction and land costs
12. Availability of well educated labour
13. Competitors locations
14. Transport services and cost

Conclusion
My conclusions here as follows:

Process analysis for the large system divisions

● I would suggest that, to meet the requirements and demands of customers company
should recruit a one more site surveyor for the nxt 12 months

Quality issues in off-the-shelf manufacturing

● For reducing the cost I would like to recommend the philosophy of TQM. Error rate of
2.5% is quite bearable and manageable.

Capacity planning in the call centre

● Online call handling system is the best option. I conclude this system is best for use. This
online call handling system increases the capacity of contract and permanent staff.
Inventory management for cam units
● To manage the inventory Economic Order Quantity (EOQ) method should be used. I
conclude this method is best and optimal f pi r inventory management for cam units
(Covert, and Philip, 1973)

Logistics planning for a new location

My suggestion for an new location is Nottingham.
References
Banerjee, A. and Kim, S.L., 1995. An integrated JIT inventory model. International Journal of
Operations & Production Management.

Covert, R.P. and Philip, G.C., 1973. An EOQ model for items with Weibull distribution
deterioration. AIIE transactions, 5(4), pp.323-326.

Poirot, L., Philip, B., Schiffer-Mannioui, C., Le Clerre, D., Chion-Sotinel, I., Derniame, S.,
Potrel, P., Bas, C., Lemaire, L., Galetto, R. and Lebuhotel, C., 2015. Multiplex genome-edited T-
cell manufacturing platform for “off-the-shelf” adoptive T-cell immunotherapies. Cancer
research, 75(18), pp.3853-3864.

Silver, E.A., Pyke, D.F. and Peterson, R., 1998. Inventory management and production planning
and scheduling (Vol. 3, p. 30). New York: Wiley.

XU, Y., CHEN, Q.S., LONG, L., YANG, L.Z. and LIU, L.Y., 2008. Heuristics for container
relocation problem. Journal of System Simulation, 20(14), pp.3666-3669.