Operation Management

April 2022 Examination

Q1. Discuss the various inventory management/control techniques prevalent in the

industry. Discuss how some of these techniques would be applicable to a retail store in the
FMCG sector for effective management of their inventories; i.e soaps, household supplies,
etc. (you can assume inventories of your choice to explain). (10 Marks)

Answer 1.

Introduction
Inventory management offers the management and motion of inventories. Inventories,
additionally referred to as shares, are tracked, recorded, labeled, analyzed, interpreted, and
managed effectively. Like accounting offers with the figures and calculations of numbers,
inventories deal with the procurement and measures of stocks. There are various strategies for
coping with shops. Relying on the industries and the control requirement, inventory control and
control procedures are adopted. Out of many stock systems, the maximum not unusual are FIFO,
LIFO, HIFO, simple average technique, weighted average method, and lots more. FIFO is the
most common inventory control device followed by organizations because it is straightforward
and calculation and management underneath this stock system are very smooth and minimum.
Thinking about FMCG (fast-shifting purchaser items), FIFO, LIFO, and on occasion, HIFO is
deemed a prudent choice. Moreover, this device depends upon the nature of the goods.

Concept and analysis

Items are taken into consideration as an asset to a corporation. Out of the six categories of assets,
it falls below current assets, which means a quick-term life cycle. The inventory control system
offers the management of goods, shares, and inventory. An awesome passes through many a
while and processes from its inception of production until its intake, i.e., from uncooked fabric to
its popularity because the final product passes through the diverse flow channel. In this cycle, the
management of the goods consumed shall hold their optimum excellent is managed under the
inventory management.

Based totally on the industry, age of products, and transport time, inventory management is
conducted. An interest is bought as a personal product or in lots within the FMCG zone. From
the factory where it is produced to the CNF (Carried and forwarding) to the wholesaler, and
lastly, to the store, the channel of the float of goods is managed meticulously such that no
interests need to expire. Diverse groups are allocated at every essential point of the inventory
flow to check the correctness and best of the drift. Within the FMCG region, the retail point has
its most stock movements than any other point as from right here, only the last supply occurs.

An FMCG industry opts from following methods while conducting inventory management in its
corporation,

LIFO (closing In First Out) – This inventory method is done in one's organization where goods
have a quick expiry date. It approaches those items which have arrived ultimately in the store are
launched first for consumption. Also, interests trade their style rapidly, and new ones demand.
Oils, Biscuits, and other quickly perishable items fall below this inventory control category. On
this, items that arrive at the godown or store within the last batch are forwarded first. The goods
with long expiry are considered in ultimate. Decreased fees of old products are declared as part
of the stock.

FIFO (First In First Out) – A corporation sells its old inventory first and ensures that the more
recent listing is maintained in their godown. That is finished to guarantee that the older stocks
have an extended expiry date while the more recent ones have a short expiry with great demand.
This higher price of older products is considered as part of the stock. Those goods which have
short expiry are released first for the final intake because the products for you to stay in godown
will attract losses.

HIFO (maximum In First Out) is a kind of inventory management device where items of a
higher value are launched for the first intake. That is accomplished to prevent a loss because the
better price could not make its equilibrium for a more extensive time. Hence, after the falling of
the charge, it might not be smooth to promote them or use them for intake. Suppose a new
release of a beauty product with a few versions attracted the purchasers and pushed the demand;
this may cause a rate rise. To eBook profits, the organization will increase the value of the
subsequent lot. This lot could be bought first as after some time, the taste and possibilities of a
consumer will alternate, and if it isn't controlled well, losses are inevitable.

Conclusion

The flow of the product is only primarily based on a few countable elements; demand is on the
top. More excellent markets will attract the extra flow of products and different flow manner
extra green control of products. For avoiding the products from expiry within the godown of on
the retail counter, flow is checked, and the quantity of the order is controlled that should be
positioned so that no goods make a scarcity blink on the reviews also no items must perish
without a sale. For carrying out such management, annual demand is calculated, and the quantity
of orders per week is calculated. Relying upon those factors' expenses is referred to as EOQ
(economic order amount).

Q2. List and explain in brief the various types of plant layout concepts in
operations management, highlighting the objective, considerations of a good layout design.
Give examples on where each of these types can be employed respectively. Briefly explain a
layout for a Banking branch operations (mention the type of layout applicable). (10
Marks)

Answer 2.
Introduction
Plant layout is a strategy for using assets for production products, selecting well-functioning and
possible machines, substances, humans, and many others within the floor space. It is a
complicated idea involving fields like engineering, business control, designing, etc., which
contains lots of technicalities and complexities. Managers worldwide have felt that it is better to
start developing the layout after the area for the plant is selected. Once the format is prepared,
the building must be constructed according to the plan set. The plant format has precise goals
like the drift of materials must be smooth. There needs to be almost no limitation, and the
materials should be dealt with in minimum amount, the manufacturing procedures have to be
nicely prepared, the arrangements and methods ought to be such that once in need, they will be
modified consistent with the occasions, the resources should be used accurately.

Concept and analysis

While developing a plant format needs to be based on positive concepts. Those standards make
sure an efficient plan. Resources must be transported at minimal distances, so that money and
time can be stored. The area to be had for the plant should ultimately be in use. The plan must be
such that it can accommodate changes. If the future region needs to be expanded or machinery
needs to be modified, the whole machine might not face many issues. It would be capable of
tackling these changes efficaciously. But, unbiased, the processes worried ought to be near one
another so that product needs to tour a minimum distance. All the plant operations need to be
synchronized nicely with each other to turn into a single working unit. The safety of workers
must not be compromised. Sources like hearth extinguishers, first helpful resource kits, and
many others. It should be available, and there need to be fireplace exits. The layout ought to be
developed to ensure the easy functioning of the plant without any pointless inconvenience. The
workers ought to be beneath supervision, making sure productiveness and protection. A nicely-
deliberate layout must be capable of encouraging the employees. They have to feel no longer
underpaid. They must now not be made to overwork as it can notably affect physical and
intellectual fitness.

Product layout and system format are two varieties of plant layouts. There is also a third kind.
However, it is a mixture of product and method layouts. Product layout is a plant format wherein
all the machines are sequentially organized to supply a product. It is also referred to as line
layout because the devices are located directly. From one end, raw materials enter, and from the
opposite end, finished goods are received. A procedure layout is a layout in which all machines
performing similar tasks are grouped.
Constant-position layout is the ultimate number one kind of plant format wherein guys,
materials, and machines are introduced to a degree where there may be no or minimum motion.
This layout is used by service companies in workplace locations where maximum matters are
stationary.

In banks, by and large, fixed position layouts are used. This layout is used simply because there
may be no want for rapid motion inside the premises in banks. Since it affords many services
interlinked, it is fixed because everyone, places are allotted, and they're stationary. Banks use
these layouts for a higher conducting of their operational activities. This format is deliberate
because the primary intention is to deviate from the mob and listen to it in advance. Since its
access, the reception table or I assistance is stored in front. If it is not there, then the institution
will be allotted here and there on-premises to create friction in operation.

The cash depositing and gathering work in a financial institution are one in every one of its
primary functions, and having them after the assist desk counter will tackle the mob into an area
in an organized way. Moreover, someone touring a bank may benefit as all queries can be dealt
with in one area. At the same time as considering different areas, The cash counters are also
located in columns; that is another way to prepare a mob efficiently.

Conclusion

The loan-supplying table and manager's cabin are kept in the third or core stages. The bank
operates and earns essentially from loans; therefore, the loan officer's desk is kept other than the
cash counter and close to the supervisor's cabin. This format is deliberate to ensure that the loan
processing work does not get delayed and the efficiency in employment does no longer loses its
grip. Those capabilities must be had when considering a set plant format underneath the diverse
simple plant layout structures a corporation follows. In brief, banks should use constant plant
layouts for hit operations in the bank.
Question 3. Assume you are a part of the Operations team in an automobile manufacturing
setup. You are also working in coordination with other departments. Discuss the following
aspects of the operations of your organization

a. Define Quality & list and discuss in brief the various dimensions of quality in operations
(5 Marks)

b. Discuss the concept of EOQ in brief. Using the data below, find EOQ, and the reorder
point. Annual Demand: 15,000 units; Weeks Operating: 50 weeks/year; Ordering Costs:
Rs. 60/order & Holding Costs: Rs. 7/unit/year; Lead-Time: 5 weeks & Safety Stock: 250
units (5 Marks)

Answer 3a.
Introduction
EOQ (Economic Order amount) is defined as an employer's amount to optimize its earnings and
sale. EOQ reduces the value of conserving, sporting, and calling to a far larger quantity, booking
income within the baggage of the corporation. EOQ follows optimistic assumptions, and its
implications are limited. This system yields high-quality results in which ordering and holding
expenses, including the demand, are steady.

Concept and analysis

The financial order quantity version became first evolved in 1913 by Ford W. Harris, and due to
the fact then, this production scheduling version has been delicate in times wished. Economic
Order quantity is beneficial for those companies wherein inventories cover a greater good-sized
volume than its human resources, which means that it is adequate to the companies concerned
inside the manufacturing, distribution, allocation, and supply to its final consumptions. Because
it helps save expenses, that amount may be similarly utilized in reserving big profits, including
investing in sports. As this method has its blessings, it additionally has a flaw that it's miles a hit
only in certain situations, like runs only while some factors are consistent. As the demand for any
product increases or installation, costs are driven up, and the financial order amount becomes
better. In contrast, as the holding charges of a corporation increases, the economic Order amount
received diminished.

EOQ is a tool for cash flow, and with the usage of this system, a company can decrease its
buying expenses because it reduces the fees of many elements that, without delay, affect the total
buying rate of a commodity. It also plays an important position in minimizing the inventory,
which again is helpful for an organization because lowering the list in godown approaches the
discount in retaining and godown costs. EOQ presents guidance wherein a person and an
organization are saved from placing small orders, which causes time and money loss. Also,
procurement of inventories and inventory charges will become higher after a positive point. It
may seem that these are pretty low for a month, and alertness of EOQ isn't beneficial; however,
seeing a larger picture, it yields excellent effects while is visible on a quarterly on annual degree.

The simple assumptions under a successful EOQ are,

1. Carrying cost and Ordering fee in line with order is thought, and they are fixed.

2. Anticipated utilization of substances is known.

3. Cost according to the unit of the product is thought and steady as well

4. The quantity of fabric ordered is received right away, i.e., the lead time must be 0.

Conclusion

The economic order amount is used as a vital device to place the most suitable order. It reduces
the general buy fee and allows the corporation to use it to reduce its inventory godown costs to
their minimum. It's far beneficial as, on the one hand, it reduces the ordering fee while on the
other, it minimizes the stock standard sporting value.

Answer 3b.

Introduction
The annual demand is 15,000 devices consistent with annum, and the employer works 50 weeks
out of 52 weeks in a year. Also, the ordering fee is Rs 60 in step with the order. The holding cost,
i.e., carrying an inventory in godown, is Rs 7 in keeping with the unit in line with the annum, and
the lead time that it takes in order is five weeks.

Concept and analysis

The corporation also, in prudence, keeps a stock of 250 gadgets as safety stocks. So, here,
economic Order quantity is wanted to be calculated, which will minimize the expenses and to
have a view over the variety of orders as correctly.

Annual demand = 15,000 units

Weeks Operating = 50 weeks/year

Ordering Costs = Rs 60/order

Holding Costs = RS 7/ unit/ Year

Lead Time = 5 weeks

Safety Stocks = 250 Units.

From the above details we are required to calculate the EOQ as well as the Re-Order Point.

So, EOQ = SQARE ROOT OF (2XACXOC/CC) pu.pa

= SQAURE ROOT OF (2 X 15,000 X 60/7) = 509 UNITS.

Here,

AC = Annual Consumption

OC = Ordering Costs
 CC= Carrying costs per unit per annum.

Also, Re – Order Level = Max usage/week x Max delivery period

= 300 x (15,000/50) x 5 = 1500 units.

Conclusion

From the above calculations, we may also say that if 509 units are being ordered per order, the
order positioned could be minimal, and it'll be at reduced purchased costs. Also, the order may
be surest on the subject of inventory management. Being economically sound, this order will, in
reality, decrease the godown costs. The Re-Order level can be 1500 units.