INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

Post Graduate Program – Business Leadership

END-TERM EXAMINATION

Course Title Operations and Supply Chain Management

Instructor Prof. Arqum Mateen
Duration 3 hours
Maximum Marks 50
Term II
Academic Year 2020-21

Karthika Asha Warrier PGPBL0147

Name: Roll No.:

Instructions:
1. Mention your name and roll no. at the top in the space indicated.
2. This is an OPEN BOOK examination. You are allowed to consult your course textbooks
and the course handout and other reading material provided.
3. Use of calculators is permitted.
4. This question paper contains 7 pages.
5. Provide the answer in the space provided below the respective questions. Limit your
answers to the box. Answers written outside the box would NOT be evaluated. Keep
the font size legible. Keep your arguments concise and to the point.
6. Marks allotted to each question have been indicated at the appropriate place.
7. In case of missing information, make suitable assumptions, and clearly state the same.
8. The examination process works on an honor code. However, the instructor/institute
reserves the right to conduct a plagiarism check. In case it is detected, it would lead to
penalization which may include a fail grade in the course.

Page 1 of 7
Question 1. Take the example of any company and explain how its entire Sales &
Operations Planning process would be carried out. [10
Marks]

S&OP is a key component of effective SCM and getting it right can be an important source of
competitive advantage. Company: Walmart. Is considered the king of American retail market.

Collaborative planning, forecasting anf replenishment is done continuously and periodically.

Mainly 2 forecasting are followed: - Quantitative -> time series analysis (demand v/s past data
analysis)

Qualitative: - Decisions based on causal factors underlying sales and the effects of these causes in
the future.

Open data system is implemented by association with partners. CFPR method is followed by
Walmart for forecasting. High accuracy is achieved in it. Lost sales data is also collected and
analyzed.

Sophisticated barcode technology, hand held computer systems etc help flow of information and
can be accessed by every employee.

MPP is prepared using historical data of products they sell, market regions and customers. This is
based on purchasing plans of its largest relationship customers. MPP prepared is converted into
MRP. “The material requirements plan divides a projected level of output into a matrix of
different components, automated by the i2 ‘Trade matrix’ module.” – Spokesperson of Walmart
was heard quoting.

This matrix can be said to resemble a transaction table as an input/output analysis format.

WalMart mainly uses 3PL (Third Party Logistics) which helps sort out issues in handling and
supply chain integration in the flow of goods. Demand foecasting, requireement planing, and
transportation was developed through 3PL giving full visibility to inventories and rate of flow of
inventories.

The replenishment model or the MRP planning of Wal-Mart has the following key aspets:

1. Strategic relationships with suppliers: open book policy with the retailer, leads to a high
degree of mutual trust and thus long term strategic contracts can be bagged.
2. Information sharing: on real time basis, key point of sale data is generated each 2 hours
and shared with the suppliers. Shared data include rate of sale, volume of sale, available
shelf space, SKU. This helps them in replenishing the stock in a timely manner.
3. Material flow with minimal handoffs: suppliers do re-stocking the shelves without any
inspections
4. There is a separation between the accounting cycles and replenishment cycles. As the
payment to supplier occurs only when retailer sells products.

S &OP plan is done on a monthly basis generating an output of Demand and Supply plans
for the month using modern and advanced technological tools and strategic partnerships
with 3rd party vendors. The planning is done at a divisional level and for each product it
stocks individually. They follow a policy of Level strategy for production planning and
subcontracts workers during holiday season when there is a surge of demand.

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Question 2. Jade Metals Inc. (JM) is a supplier of a rare earth metal-based component to
various niches industries. It sources the metal (in sheets) from an international supplier. Their
purchasing department is trying to formulate an optimal procurement policy. It needs 200,000
sheets of this metal annually, and the supplier insists on a minimum order quantity of 1,000
sheets. It also offers a discount schedule as under:
Order Quantity Unit Price (per sheet)
1,000 – 9,999 $2.35
10,000 – 29,999 $2.20
30,000+ $2.15

JM estimates that it costs $300 to process each order, and its holding cost is set at 15%.
Determined the optimal order quantity and total cost (including purchasing cost).
[3+3 = 6 Marks]
Optimal Order Quantity: 19070 (upper cap of 19069.25)
Total Cost: $48245.21

Question 3. Woof! is the start-up that is a distributor of a popular dog food that it sells in
micro cans for INR 1.25 per can. It sells 500 cans per week, and orders these from National
Distributors (ND). ND sells these cans to Woof! at INR 0.50 per can, and charges a flat fee of
INR 20 per order for shipping and handling. Woof!’s annual holding cost is 25 percent
(assume 52 weeks per year).
(a) How many cans should Woof! order at a time? [2 Marks]

EOQ = 2885 (uppercap of 2884.44)

(b) If Woof! orders 6000 cans with each order, what is its inventory holding cost per can?
[4 Marks]
Tot inv cost = 375; Inv cost per can = $0.0625

Question 4. The following diagram contains the product structure, routing, and processing
time information for product A. The process flows from the bottom of the diagram upward.
Assume one unit of items B, C, and D are needed to make each A. The manufacture of each
item requires three operations at machine centers 1, 2, or 3. Each center contains only one
machine, and a machine set up time of 60 minutes occurs whenever a machine is switched
from one operation to another (within the same item or between items).

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(a) Identify the bottleneck (and give reason). [2 Marks]

Bottleneck for A is production of unit C (C3 -> 15 mins) as it takes maximum time among B,
C and D. It is the limiting factor that stands in the way. Machine centre 2 is the constraint.
B -> B2 -> 67 mins; C -> C3 -> 75 mins; D -> D3 -> 70 mins.

(b) Using TOC principles, design a schedule of production for each machine center that will
produce 100 A’s as quickly as possible. Also explain the logic of your analysis.
[4 Marks]
Take bottleneck for each system (B, C and D) based on loads placed on each resource by the
product that are scheduled through them.

Time required to produce one A = 75 (15 + 60)

Time required to produce 100 A’s = 75 *100 = 7500 min = 125 hours.

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Question 5. Discuss the supply chain strategy that an online-based furniture manufacturer
should follow. How can the choice between push and pull be made? [5 Marks]

Below Factors to be considered for SC strategy:

Demand Uncertainty – High -: Pull

Economies of Scale - High -: Push
So Hybrid strategy of push-pull SC needs to be realised with the boundary nearer to the Pull.
Push Pull
Objective Minimize cost Maximize service level
Complexity High Low
Focus Resource allocation Responsiveness
Lead time Long Short
Processes Supply chain planning Order fulfilment
A balance of both can be achieved at the push-pull boundary.
In the push portion, buffer inventory is part of the output generated by the tactical planning
Process. In the pull system, it represents the input to the fulfilment process.
Forecast based on historical data obtained from the pull portion. Used to drive the supply chain
planning process and determine the buffer inventory.

Lead time for online furniture manufacturer – Can be high (although ideally customers prefer
low lead times as it is online purchase)
So SC strategy online-based furniture manufacture should follow is "Inventory positioning".
The SC strategy ‘Pull’ can also be followed as it is an online furniture store.
As customers might prefer online furniture over store-bought to reduce delivery times.

Online-based furniture manufacturers need to have warehousing capacity to store parts of

furniture and assemble them when the order is placed. This will reduce the inventory cost
burden as the demand realisation can be as late as possible in the SC. This is postponement.
This will allow managing uncertain demand; achieving higher economies of scale,
and longish lead times can be cut short to an extent.

Question 6. Discuss the importance of product dis-positioning in extracting value in the

reverse supply chain. [3
Marks]

Product dis-positioning or pre-postponement is an important step in reverse SC which

means doing the value differentiation step as early as possible in the reverse SC.
Segregation at the source of the reverse SC helps identify the action (End of Use or End of
Life) to be taken with the returned product. This early on decision saves time on deciding
which reverse SC path to choose for each product dispositions like direct reuse, repair,
refurbishing, remanufacturing, cannibalization and scrap. This value differentiation step as
early as possible will help reduce the time where the product can add more value in the
forward SC for resale. In the five-step return process - When managed correctly, each
stage offers unique opportunities to reduce cost and create more value.
Repair and Refill -> Reusable item/commercial returns
Page 5 of 7
Refurbishment, cannibalization, remanufacturing -> economic reuse
Recycling -> End of life returns
Question 7. Calicut Book Store (CBS) is trying to decide on how many copies of a book to
purchase at the start of the upcoming selling season. The book retails at INR 280. The
publisher sells the book to CBS at INR 200. CBS will dispose of all of the unsold copies of
the book at 50% off the retail price, at the end of the season. CBS estimates that demand for
this book during the season is Normal with a mean of 1000 and a standard deviation of 250.
If CBS wants to maximize its expected profits from the sale of this book, how many copies
should it order from the publisher? Explain the analysis [5
Marks] NORMSINV(0.57) = 0.18; NORMSINV(0.43) = -0.17

Demand 1000
sigma D 250
Co 60
Cu 80
CF 0.5714285714
z 0.18
Number to order 1045
Here 1000 is the average demand expected and 45 is the safety stock and hence, CBS should
order 1045 copies for the next selling season.

Question 8. Consider two products A and B that have identical cost, retail price and demand
parameters and the same short selling season (the summer months from May through
August). The newsvendor model is used to manage inventory for both products. Product A is
to be discontinued at the end of the season this year, and the leftovers will be salvaged at 75%
of the cost. Product B will be re-offered next summer, so any leftovers this year can be
carried over to the next year while incurring a holding cost on each unit left over equal to
20% of the product's cost. How do the stocking quantities for these products compare?
[5 Marks]

Salvage value of Product A is 75% of its cost

Co is the difference between Product A’s cost and its salvage value:

100% - 75% =25% of cost.

Product B’s overage cost is 20% of its cost. Both products have the same Cu.

So Product A has the higher average cost, which means it has the lower critical fractile.

Both products have same demand distribution ->

Product A’s EOQ must be lower, or, Product B’s stocking quantity is higher. Page 6 of 7
Question 9. Athena Pharmacy replenishes Omezone (a best-selling drug) using a continuous
replenishment policy. Daily demand for the drug is estimated to be ~ N(300,100). The drug
supplier guarantees a lead time of 2 days. As per its current policy, Athena orders 1,500 units
when there are 750 units on hand. Estimate the CSL. [4 Marks]
NORMSDIST(1.5) = 0.93;

CSL = 85.56%

-----------------------------------------End of Questions------------------------------

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