OM-II: One page summary

Operations Management –II course covers key aspects of operations planning. The main objective of
operations planning is to ensure supply meets the demand.

1. The course begins with teaching students understand demand, methods of estimating
independent demand various ways of measuring forecast accuracy. Top-down and bottom-up
approaches are used in organizations to fix sales targets.
2. Then, organizations estimate the level of resources required from departments such as sales,
marketing, HR, finance, operations, quality, maintenance etc that can satisfactorily meeting the
forecasted demand through a process called Sales and Operations Planning. Presence of senior
management is essential in these meetings to resolve any inter-departmental conflicts and also to
ensure commitments from individual departments. Taking the output of this high-level exercise
as inputs, individual departments make detailed plans at a granular resource level. (This step is
not covered in detail in OM-II course)
3. First stage of operations planning is called Aggregate Planning in which the managers identify
the level of operations resources such as people, equipment, storage, supplier agreements,
transportation etc required to meet the forecasted demand. In this stage, alternate plans are
evaluated based on the trade-off involved between customer service levels and the cost of the
plan.
4. One of the key elements of cost of plan is inventories. Thus an operations manager has to know
when and how much inventory to order (Economic Order Quantity) and also how frequently
should it be monitored. After understanding various costs associated with Finished Goods
inventories, students learn the relationship between inventory levels and service levels in 3
scenarios namely, (a) inventory can be ordered only once and perishes, once the season is over,
(b) inventory can be carried over to future ordering periods and is continuously monitored and
(c) inventory can be carried over to future ordering periods but is only periodically monitored.
Students also learn the implications of certain (deterministic) (Cycle Stock) and uncertain
demand (stochastic) (Safety Stock) in all the 3 scenarios.
5. Finished goods are built from components / raw materials. Such a list & usage of components /
raw materials needed to produce a finished good is called Bill of Materials (BoM). Thus the
demand for components / raw materials is derived from the demand of finished goods and
hence also is called as dependent demand. Students learn to estimate the quantities (called BoM
explosion) of components / raw materials that required meeting the production demand, and
also when and how much to order based on the delivery constraints. This process is called
Material Requirement Planning (MRP or MRP – I). Purchase orders are released for components
/ raw materials that are bought from suppliers and Production orders are released for
components / raw materials that are produced in-house.
6. Once Production Orders are received by the Manufacturing / Service Delivery department, they
will need to be scheduled based on resource availability and delivery due date. Students learn
various ways of scheduling production orders and the trade-offs associated in this process.
7. Software applications are now available to plan materials and production scheduling
simultaneously instead of hierarchically as described above. Such applications are called
Manufacturing Resources Planning (MRP-II) applications. Practitioner sessions are scheduled to
expose students to such emerging and sophisticated operations applications.
 OM-II: Group Project Guidelines

The objective of Group Project in Operations Management –II is to emulate the above steps for a chosen
product (category not a SKU e.g., not White Swift Dezire, but Sedan or not 50 ml Parachute coconut oil
bottle, but Parachute coconut oil as a category). Students should form groups of no more than 6 per
group and identify a product as a first step. The following are some guidelines in each stage of the
project.

1. Forecasting: Collect past 3 years data (Quarterly) from primary / secondary sources e.g, Prowess
(viz.,2017-18, 2018-19 & 2019-20). Creative reverse engineering e.g., “(revenue/average price) =
SKUs” sold methods are welcome. Based on this data, develop forecast for next year (2020-21).
Verify with your instructor to go to next stage.
2. SnOP – Ignore
3. Aggregate Planning: Collect salary data (regular & overtime) from industry labor data sources.
Look at the annual reports / websites of the companies to get head-count. Make assumptions in
terms of labor: manager mix. Assume capital equipment level is fixed and capacity is function of
labor only. Find-out / estimate direct labor content per product, from your previous process
analysis experience. Guesstimate hiring / firing, inventory and back-log costs. Develop optimal
production plan. Verify with your instructor to go to next stage.
4. Distributor Perspective: Chose a retailing city for your product and the corresponding slice of the
demand (Total demand / # of cities in India, where the product is sold OR in proportion of the
users, based on demographic data). Assume one distributor for this city. Estimate transportation
costs (assume 150% of this as ordering costs, to cover for loading/ unloading and GST/paper-
work costs) from factory to this retailing city and the lead-time (for a full truck load). Look at
some trucking sites for quotations. Estimate the variability of demand (say standard deviation of
last 12 months demand). Find out Economic Order quantity (EOQ), Reorder Quantity (ROQ) &
Reorder Point (ROP). Verify with your instructor to go to next stage.
5. Go back to organization level demand data. Get BOM for your product. Choose any 10
components / raw material. Get prices, suppliers, locations, transportation costs and thereby
EOQ for each of these 10 components / raw materials. Given your annual demand, develop a
MRP schedule for these 10 components / raw materials. Make final presentation.

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