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STUDENT ID: 1910170

WORD COUNT: 2,835- (of theory-based

questions)

MODULE CODE: MN-1518

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MN-1518- Remote examination- May/June 2020

Student ID: 1910170

4 questions selected in this exam:

 Question 3
 Question 4
 Question 5
 Question 6

Question 3

a) Designing a process requires consideration of the production

strategy to be
employed, for example ‘Make-to-Stock’. Explain and provide
examples of all three common production strategies. (9 marks)

Make to stock- For this strategy standard products and services

are produced for immediate sale or delivery. These products are
based on sale forecasts and customer demands, any errors in
these sale forecasts can end up with a business having a
shortage or excess of stock (Reid, R. Dan/Sanders, Nada R..
Operations Management). Therefore, this could lead to
opportunity cost of that inventory not being used, higher storage
costs and stock turning perishable without being sold.

MTS example: (context food)- Food items are challenging to

stock. With expiry dates being a key factor, it is essential to
have it ready to go and sold instantly to customers in a shorter
frame of time. A fruit and vegetable grocery store could plan the
production of fresh fruits and vegetables according to factors
like holidays, climate conditions and the farming system. Usually
these food items are heavily discounted when their expiry date
approaches. Investopedia (2019)

Assemble-to-order strategy- For this strategy components are

designed and combined to meet customer needs and wants.
Customer demand plays a pivotal role in this process and until
the order arrives all the elements are kept at a standstill.
Examples are computer systems and vacation packages.

ASO example: (travel package)- Travel agents need to have the

correct mixture and combine all the factors such as flight tickets,
hotel reservations and entertainment tickets to provide
maximum satisfaction to its clients. They have to make
decisions like booking hotel rooms without having any
information on flight tickets.

Make-to-order strategy- In this strategy products are produced

matching customer specifications and usually for niche customer
bases after the customer has placed the order and been
received by the company. Delivery time is longest here and
product volumes are low. Examples include custom-made cakes,
custom-built homes, and custom-made cars.

MTO example-BMW the German car manufacturer allows its

customers to buy a car that they have been made. Customers
can then customise their vehicle according to their own likes and
dislikes. Depending on their requirements it can take a long time
for the carmaker to customise and deliver the desired car to the
customer.

b) The Bay Yacht Repair Centre has six yachts waiting to be

processed. All yachts are currently on site and awaiting the
repair schedule. The job information is shown in Table 1 below:
i) Determine the sequence the Bay Yacht Repair Centre should
follow if it uses the following two priority rules - EDD (Earliest
Due Date) and LPT (Longest Processing Time). (2 marks)

Sequences:
Earliest Due Date (Looked at second column of Table 1)- B, F, C,
E, A, D
Longest Processing Time (Looked at first column of Table 1) - D,
A, C, E, F, B

ii) Based on the sequence developed for LPT, calculate the

following performance measures (NOTE: Please round your
calculations to two decimal places). (14 marks)

Sequence of Longest Processing Time (LPT)- D, A, C, E, F, B

D is done at the end of= day 11- (Calculation D)

A is done at the end of= day 21- (Calculation (D+A)- 11+10)
C is done at the end of= day 30- (Calculation (D+A+C)-
11+10+9)
E is done at the end of= day 38- (Calculation (D+A+C+E)-
11+10+9+8)
F is done at the end of= day 45- (Calculation (D+A+C+E+F)-
11+10+9+8+7)
B is done at the end of= day 50- (Calculation (D+A+C+E+F+B)-
11+10+9+8+7+5)

Makespan- 10+5+9+11+8+7= 50 days

Mean job flowtime- Sum of job flow times)/ number of jobs

11+21+30+38+45+50= 195
195/6= 32.50 days (2 d.p.)

Average number of jobs in the system- Average number of

jobs in the system (sum job flow times)/ number of days to
complete batch

195/50 = 3.90 jobs (2 d.p.)

Job Completion Days Due Lateness Tardiness
date days
A 21 29 -8 0
B 50 9 41 41
C 30 23 7 7
D 11 39 -28 0
E 38 25 13 13
F 45 14 31 31
Total- (Sum 56 92
of lateness
and
tardiness)
Mean job lateness- Sum of lateness/ Number of days

56/6= 9.3 days- (the 3 is recurring)

Mean job tardiness- Sum of tardiness/ Number of days

92/6= 15.3 days- (the 3 is recurring)

Question 4

a) Compare and contrast the ‘Level’ and ‘Chase’ approaches to

reconciling
capacity/production, with patterns of variable customer demand.
Discuss the
implications of both approaches in your answer. (10 marks)

Level aggregate plan- This is a planning approach that produces

keeps the same number of employees and produces the same
quantity of products each time. Inventory and back orders are
used to absorb demand fluctuations.

The level aggregate plan has a negative effect on both the

organisation and the customers:

For the organisation- there is a buildup of inventory which uses

up more storage space and results in higher storage costs. This
also leads to a loss in profits for the firm as they have to deal
with these costs plus subcontracting or overtime costs this is
where more employees are hired or existing employees work
overtime to manage and organise this inventory. Even if the firm
makes customers wait they would suffer from backorders which
would have an impact on customer service standards. The
customer service standards or levels will fall and the business
would experience a loss in customers and sales as unsatisfied
customers would boycott your business and turn to rival
businesses.

For the customers- they suffer from delays/backlogs in receiving

what they have ordered for and not attended on time. They feel
unsatisfied and not valued enough so they leave the business
they are currently purchasing form and show loyalty to another
business where they will be valued, heard and their needs and
wants will be fulfilled.

Chase aggregate plan- This planning approach varies in

production to meet customer demand every time period period.

The chase aggregate plan also has a negative effect on both the
organisation and the customers:

The organisation- is constantly changing short term capacity

which creates issues for the human resource department who
need to then make decisions on aspects like hiring and firing,
overtime or subcontracting. All of this would result in costs such
as hiring costs, training costs and paying extra for overtime
which may have be taken out of the profits of the company. In
addition, these changes in number employees because of
changes in production could result in a loss of trust and morale
in existing employees working for the company as they may fear
their position being taken away.

b) An alternative strategy to absorbing demand is to try and

change demand itself. Using two examples, discuss the ‘Demand
Management’ approach.
(5 marks)

DEMAND MANAGEMENT- this is a type of approach where a

business or institution attempts to alter demand to fit capacity.

Example 1- NHS receives an influx of patients every year and

suffer from capacity issues as the number of beds are not
sufficient to meet this high demand. Therefore, NHS handles
capacity by increasing the use of their other health services,
hospitals will receive less patients which means they can focus
on the ones that need the utmost priority and attention. NHS
can implement adapted ambulances which allows patients to be
cared without having to even go to the hospital and use the
beds which are in shortage.
Example 2- Disney uses smartphone apps that give directions to
visitors to attractions and characters, and straightaway to the
nearest restaurant with the shortest wait. Disney is able to do
both maximise customer enjoyment and systematically increase
extra (overall) demand which fits their supply.

c) Explain how capacity can be typically measured used the

concepts of ‘design’ and ‘effective’ capacity (these should be
clearly defined). Discuss too, the notion of lost time in the
production process - ‘planned loss’ and ‘unplanned (or
avoidable) loss’. The use of utilisation and efficiency formulae,
along with a generic example, may be used to aid your
discussion. (5 marks)

Design capacity- this is the maximum output rate that can be

achieved by a business under ideal conditions. Design capacity
can only be maintained for a short period of time. A company
achieves the maximum output rate by using several measures
such as overstaffing, subcontracting and turning to capital
intensive production.

Effective capacity- this is the maximum output rate that can be

maintained under normal (basic) conditions. These conditions
include regular staff levels appropriate working conditions and
regular machine maintenance.

Production process losses classified:

Planned loss- these are losses which are unavoidable and not in
control of the operations department of a business. These can
be unexpected losses which result from market and technical
demands on an operation.

Unplanned (avoidable) loss- these are losses which can be

planned for and avoided at all costs as the firm has control over
this and can take certain measures to avoid these in the
production process. Machine breakdowns, low quality and
absenteeism are some avoidable problems and can have a
impact on the sales of a company.

Capacity utilization- this is a percentage measure which allows a

business to understand how well the available capacity is being
used.

Utilisation= Actual output rate

 Capacity × 100%

Efficieny= Work output

× 100%
Work input

Example of efficiency- Employee A which works 8 hours a day

and employee B which works 10 hours a day and spends 4 hours
socialising and works on different tasks instead of tasks which
are designated to him/her. Employee A proves to be more
efficient as he/she may work less hours but deliver the (results)
ouput they are expected without wasting time.

Question 5
KS Electricals Ltd. has recorded the sales figures of washing
machines for the purpose of making a forecast of future
demand. Table 2 lists the unit sales figures for months January
through to May.

a) Make a forecast for June using a three-period moving average

and a four-period moving average. (Clearly show all formulas
and calculations and round to one decimal place). (5 marks)

Month Unit sales Forecast (3 Forecast

figure period (4 period
 moving moving
average) average)
January 14 × ×
February 16 × ×
March 23 × ×
April 25 17.7 ×
May 24 21.3 19.5
June 24.0 22.0

Formula used for moving average:

F  A t/n
t 1
b) Using the data presented in Table 2, what will be the forecast
for July (using both the three-period moving average and four-
period moving average) if the actual unit sales figure for June
turns out to be 20? (Clearly show all formulas and calculations
and round to one decimal place). (5 marks)

Month Unit sales Forecast (3 Forecast

figure period (4 period
moving moving
average) average)
January 14 × ×
February 16 × ×
March 23 × ×
April 25 17.7 ×
May 24 21.3 19.5
June 20 24.0 22.0
July 23.0 23.0

Formula used for moving average:

F  A t/n
t 1
c) Using the data presented in Table 2, what will be the forecasts
for June and July using the exponential smoothing method?
Compile two different forecasts for both months (four forecasts
in all) using alpha values of 0.1 and 0.6 and with a forecast
value for May of 23; actual sales for June would be 20. (Clearly
show all formulas and calculations and round to one decimal
place). (9 marks)
Formula used for exponential smoothing:
Ft= Last period´s forecast
At= Last period´s actual value
= this smoothing coefficient is between 0 and 1

F t1  α A t  1  α  F t
Month Unit sales Alpha value Alpha
figure 0.1 value 0.6
January 14 × ×
February 16 × ×
March 23 × ×
April 25 × ×
May 24 23.0 23.0
June 20 23.1 23.6
July 22.8 21.4

June- (0.1×24) + (0.9×23) = 23.1 and (0.6×24) + (0.4×23) =

23.6
July- (0.1×20) + (0.9×23.1) = 22.8 and (0.6×20) + (0.4×23.6) =
21.4

d) Discuss the common, key principles of forecasting and also,

why under or
over-forecasting can prove problematic for an organisation. (6
marks)

The 3 key principals or fundamentals of forecasting are:

 Forecasts are rarely perfect- it is impossible to execute

these forecasts with a high degree of accuracy. There will
always be some kind of errors or miscalculations that is
why they are predictions of future or long-term events.
Therefore, these forecasters should aim to carry out
forecasting on a regular basis for a long time to perfect
their technique and reduce the mistakes involved in
forecasts.

 Forecasts are more accurate for grouped data than for

individual data-When data for items is grouped together,
 this data is seen as a whole unit and can be easily
identified plus their individual high and low values also can
cancel each other out. Consequently, groups of items
guarantee more stability and reliability than individual
items

 Forecasts are more accurate for shorter time periods than

longer time periods- The shorter the time frame of the
forecast, the lower the degree of uncertainty. However, the
longer the forecast period the lower the degree of accuracy
as long-term forecasts will definitely experience changes
over time because of internal and external influences. For
example, there is a greater level of difficulty involved for
forecasters to predict sales of a product two years from
now than to predict sales of a product two weeks from now.

Under-forecasting and Over-forecasting are both detrimental to

an organization:

Under-forecasting- can result in the business missing out on key

opportunities (certain products) where it can capitalise like a gap
in the market. This would result in a loss of sales and revenue as
the competitors would take advantage of this and attract
customers whereas your business would lose “potential and
loyal” customers.

Over-forecasting- this happens when the forecaster is too

optimistic and assumes and predicts much in advance without
knowing there will be unprecedented events. Evaluation of or
assumptions that certain products or services in the future will
definitely work and result in high returns is like setting up for
failure and some of the common consequences include
opportunity cost of those products is wasted, products may
become obsolete and a excess of inventory occupying space
resulting in higher storage costs.

Question 6

a) Define Supply Chain Management, explaining in detail the

various components which constitute a typical chain (provide an
illustrative example). (10 marks)

Supply chain management- is a business function that

coordinates and manages all the activities of the supply chain.
This means it coordinates the movement of goods through the
supply chain from suppliers to manufacturers to distributors, and
till customers. This is a team based task with various business
functions such as marketing, purchasing and engineering all
working together to reduce costs and increase satisfied and
loyal customers. Reid, R. Dan/Sanders, Nada R.. Operations
Management (2012)

Reid, R. Dan Sanders, Nada R.. Operations Management (2012)

Example- 1st part shows a traditional coffee (longer-more

intermediaries) supply chain and 2nd part shows a (shorter-less
intermediaries) supply chain. Kivu noir (2020)

These six components in the SCM are essential and constitute a

typical chain which can help a business deliver results on time
and be cost-effective or economically viable. Reid, R. Dan (2009)

1- Planning

This step is really important and usually starts with the decision
whether the company will to manufacture the components itself
or buy them from a supplier. Decisions like manufacture
domestically or internationally and buy supplies from a domestic
or international supplier can be tough to make as these can
heavily impact the costs and sales of the firm.

2- Sourcing

The next component of the SCM is sourcing. This is about

identifying, evaluating and bringing suppliers that will provide
with goods and services and this depends on the needs of the
business. A business should properly evaluate all materials,
services and financial requirements of the suppliers before
signing a deal and entering in an agreement with these
suppliers.

3- Demand and Inventory

Inventory needs to be well maintained and managed,

components and raw materials need to be ready for products to
be delivered on time and meet unexpected changes in demand.
Manufacturing becomes really difficult if these two elements are
not considered if the demand for the product is high, then
inventory should also be high as well, if the demand for the
product is low, then any excess inventory cut as it would the
opportunity cost of that capital and use up storage space
increasing your storage costs. Accurate forecasting by
forecasters is the essential here.

4- Production

The business needs to decide whether to keep its operations and

production capital intensive or labour intensive. Products and
services need to be produced in order to sell them to customers
so every component of the SCM revolves around this step
everything before it leads directly to it and everything following
it picks up after it.

5- Warehouse and Transportation

Warehousing and transportation are two other important

components of the SCM. The business needs to store the
product somewhere so this is where the warehouse plays its role
but inventory should be managed properly so it doesn’t take up
too much warehouse space. Secondly these products need to be
transported and delivered from the manufacturing centre or
warehouse to the retail store and the customer (this would be in
the case of a short supply chain).

Transportation should be carried out in a safe manner so

products are not harmed because the customer wants to get the
product as they expect to get when they place the order, they
would not like to receive it in a defective state.

6- Return of Goods

Although products could reach the buyer in a defective state so

the firm should apologise for inconveniences and accept the
return. The business should already have clear rules on what can
be returned and what not and how the returned goods will be
managed.

b) Discuss ‘The Bullwhip Effect’ and why it proves problematic in

attempts to manage supply chains efficiently. Consider too,
causes of the phenomena along with counteractive measures.
(15 marks)

Bullwhip effect- in SCM refers to the increasing fluctuations in

inventory in response to changes in customer demand. As the
diagram below shows, stock level swings and shows bigger and
bigger "waves" in response to customer demand, which acts as
the handle of the whip. The largest "wave" of the whip hits the
manufacturer of raw materials and they see the biggest
variation in demand in customer demand. Reid, R. Dan Sanders,
Nada R. Operations Management (2012)
The bullwhip effect can prove to be really problematic and have
serious negative consequences throughout the business:

Inventory in excess- this is to prevent the second consequence

stockouts (unfulfilled orders) but this means opportunity cost of
that capital is held and can be used somewhere else so this
leads to lower storage space, increased inventory storage costs
and stock getting expired without being sold. The business could
suffer from diseconomies of scale.

Unfulfilled orders- customers would not be receiving what they

have ordered and would be left unsatisfied which leads to poor
customer service and them turning away from their current
service provider to buy from other firms that can fulfill their
needs and wants. This has a knock-on effect on the revenue of
the firm which is lost. Huge impact on customer loyalty and the
business would miss out on those sales.

Tense Supplier Relationships- Unexpected high levels of demand

could mean putting more pressure and asking suppliers to
quickly produce or ship high levels of inventory right away.
Suppliers may get frustrated and would not be willing to
engage in further deals and negotiate with them in the future.
This may force the business to look for other suppliers which is
costly and time-consuming. Plus, it also takes a long time to
develop positive and healthy relationships with a new supplier.
Causes:
Demand forecast updating- each party involved in the supply
chain carries out demand forecasting the orders placed with the
manufacturer end up replenishing each level of the supply chain
instead of being directly linked to end-customer demand). Reid,
R. DanSanders, Nada R. Operations Management (2012)

Order batching- this is when a business places orders in bulk but

waits for some time and adds up the number of products sold,
only then places the order. This causes a change in product
demand which goes from regular to periods of no demand in the
supply chain. Reid, R. DanSanders, Nada R. Operations
Management (2012).

Price fluctuations- this is when firms purchase products before

they need them. Price fluctuations include special promotions
like price discounts, quantity discounts, coupons, and rebates.
When prices decrease, participants in the supply chain to buy in
bulk whereas when prices increase order quantities also
decrease. Demand constantly keeps changing and prices and
order quantities have a inversely proportional relationship. Reid,
R. DanSanders, Nada R.. Operations Management (2012).

Rationing and shortage gaming- this happens when product

demand exceeds supply and products are rationed to members
of the supply chain. The manufacturer rations products to
customers in the supply chain. Retailers and customers usually
exaggerate their needs. In this rationing game parties of the
supply chain follow each other and play the rationing game with
the manufacturer to obtain large portions of the supply. If a
member such as wholesaler is not able to get the quantity of
supply they require successfully then this continues up in the
bullwhip effect. Reid, R. Dan/Sanders, Nada R. Operations
Management (2012)

Ways to counteract the bullwhip effect:

Change the way suppliers forecast product demand- by making

this information available from the retailer to all levels of the
supply chain. This allows all the members of the supply chain to
have the same information. Longer lead-times can increase the
uncertainty of forecasting for future demands and “consequently
the variability of order quantity increases” (Agrawal et al.,
2007).
Eliminate order batching- Companies typically usually order in
bulk because it costs more to place a small order. Supply chain
partners can reduce these ordering costs by using electronic
data interchange (EDI) to transmit information. Therefore, this
would prevent the need order in large batches and smaller batch
sizes can be placed. Reid, R. Dan/Sanders, Nada R.. Operations
Management

Stabilise prices- this process of high-low pricing causes results in

price fluctuations so according to (Lee et al., 1997a)
“discounting is the simplest way to control the bullwhip effect”.
Alongside discounting other pricing strategies must be used
because discounting can make customers purchase from you as
you are providing the same product for a lower price but in the
long term customers could see this as a reduction in the quality
of the firm´s products and decrease profits.

Eliminate gaming- manufacturers can allocate and supply

products on the basis of past sales records. Dejonckheera et al.
(2002) recognises
an order-up-to policy is appropiate as it minimises the expected
holding and shortage costs.