Operations Management

June 2022 Exams

Question1.
Answer 1.
Introduction:
Inventory management aids business in determining which kind of goods and how many
quantities of goods needs to be kept in stock. This helps in keeping track of products from the
purchase of raw materials to sales of the finished goods. The term inventory stands for the
resources kept in kept which can lead to generating revenue in the coming future. Hence it
needs to be tracked properly so that excessive inventory may not lead to sales with discounts
or losses. Inventory management incorporates helpful tools, strategies, and planning techniques
that can be used while storing, tracking, delivering, and ordering goods. With help of inventory
management techniques, businesses can understand the inventory turnover which means if the
goods are sold in inventory it will lead to revenue generation. Also, it will help to understand
the shelf life of the goods, goods available in stock, and whether they are excess in numbers or
there is a shortage of goods. There are different ways of inventory management which are
described below:
Concept and Application:
The major concept of inventory management is to plan a layout which can be utilized for the
preparation of a road map for purchasing goods and sales of goods. It limits the stocking of
goods with low revenue output and allows businesses to forecast the goods required for sales.
It helps in the control of the production of parts in a random manner since in the Automobile
industry due to heavy competition one needs to focus more on quality rather than quantity.
Managing inventory in a controlled way helps reduce waste and focus more on utilizing each
aspect of production thoroughly. There are different ways for implementing inventory
management which can yield good results for a business, they are listed below in detail:

• ABC Analysis:
In ABC inventory management, the method of classifying products and goods as per
their value is done and according to their value classification, necessary actions for their
stocking are done. Considering a fact that all products have different values and
different qualities, hence each product has a different way of the proposition. It means
if a particular product has a value which contributes to profit most will be categorized
in the A category, and the other products which have a middle range of value and have
a decent number of sales generated will be put in the B category and the third category
i.e., C will be for the products which are low in value but can generate can the high
number of sales.

• Economic Ordering Quantity (EOQ)

 The Economic Ordering Quantity stands for the quantity which an organization must
order which can control the inventory costs and also fulfil the demands of consumers.
The EOQ complies with the ideal quantity to be ordered by a business entity to reduce
the costs such as holding costs, shortage costs, and ordering costs. There is a formula
for calculation of EOQ which can help to find the exact number to be ordered.
EOQ (Q*) = (2CoD/ Cc) 1/2
Here,
Q* Is the economic ordering quantity
D is the demand for product in units.
Co is the ordering cost per purchase order
Cc is the holding cost per unit per year

Once we find the EOQ it can also help find out the optimal number of orders and when
to order the next batch.
Optimal number orders = Demand / Economic ordering quantity
Time between orders = Economic ordering quantity / Demand

• Demand Forecasting:
Demand forecasting is a technique of inventory management which uses the demand
estimation of a product or good in future and prepares the inventory according to it. In
this technique, sales figures from previous records are taken, and these quantities are
referred to as a base while preparing the estimation of the number of products or raw
materials to be ordered for inventory. The demand forecasting is totally based on
previous sales records and market research such as selling prices, quantities of product
sold, which type of product has the highest numbers of sales, and previous advertising
and marketing strategy. All this type of data is collected and based on this a decision is
made for demand forecasting and helps to predict the customer demand.

• FSN Classification:
FSN classification refers to the categorization of inventory based on the type of
movement in the market. They are classified as Fast-moving, Slow-moving and Non-
moving. In the FSN technique, products are differentiated on the basis of their
consumption rate in the market, the number of units sold in the market and how soon
they are consumed in the market is analysed and according to the results the products
are put in the FSN category and their further inventory is planned as per the rate of
consumption of these products. Hence it can be said that a product which is under the
Fast-moving category is a product which has high consumption and hence the inventory
for this product has to be monitored closely so that there may no shortage of such
products in inventory to meet customer demands. Slow-moving refers to the category
in which the slow usage rate and sales percentage of such products are low and they lay
in stock for long period. And the last category is Non-moving which has movement
only at a specific duration and has rare movement. Based on this analysis, the decision
for a product which needs more attention and can generate high sales value and products
shall be discarded since they are hardly giving any results can be done easily. It helps
to find out those products which are hardly giving any revenue for the business and
inventory of such products can be reduced. This technique also helps to make fasting
 moving products more space in inventory and also make them more accessible in the
market by expanding the supply chain.

• Just-In-Time (JIT):
The Just-In-Time technique involves keeping inventory as low as possible. In this type
of inventory management goods or raw materials are purchased based on the quantity
needed and consumed as it arrives. This type of inventory management lowers the risk
of keeping stock at the company end and also controls the cost. However, to maintain
the consumer demand satisfied, one needs to do proper planning of the supply chain so
that the delivery schedule is done as per the required time. This also reduces warehouse
costs for the company since the raw material or goods are purchased as per the plan of
production or supply only. To implement a successful Just in Time inventory technique,
the company needs to set up a strong supplier backing and delivery system which
should be in sync with the consumer market as well as supplier, so that the delivery
system should achieve its target of delivery of products to customers on time.
Conclusion:
As above discussed, the technique has their benefit as per the business requirements. In
the case of the Automobile industry, inventory management entails tracking and
managing goods from suppliers, through the manufacturing process, and into the hands
of customers, as well as knowing how much inventory you have in stock. Holding too
much inventory leads to discounting and outmoded merchandise, as well as tying up
capital that could be better spent elsewhere. Due to stock-outs, not having adequate
inventory results in lost revenue and unsatisfied customers. It can be tough to strike the
appropriate balance between having too much inventory and not having enough. In
order to, overcome such kind of situation it is suggested to plan and research first the
demand in the consumer market. By implementing Demand forecasting this can be
achieved and an understanding of which product has more demand and which has less
can be obtained. This will help to prepare the inventory according to market demand,
and relatively this will result in high sales figures and also reduce the inventory costs,
especially on products which have low sales volume.

Question 2:
Answer 2:

Introduction:

Plant layout planning is a method of arranging equipment, processes, and plant services
within a factory to produce the highest feasible quantity of high-quality output at the
lowest possible total cost of production. Hence, layout Planning is very crucial for the
successful operations of a business entity. The main target of layout planning is to
achieve optimum utilization of available space, equipment, instruments and technology
according to the stream of the business. An effective layout will make sure the
equipment should be placed in such a manner it may not take time for an employee to
reach a certain equipment from their sitting position. Also, it ensures that the costs for
the process are low in such a manner that their daily operations have a minimum lead
 time. There are four different types of layouts planning they are Process layout, Product
layout, Group Technology, and Fixed Position Layout. All these layouts are discussed
below in detail.

Concept and Application:

• Process Layout:
The type of Layout where the resources and required instruments are placed in such a
manner where they follow a certain path of order or they follow certain steps of
operation one after another in a sequence, then such type of layout is known as Process
Layout or Functional Layout. It could be understood by considering the processes
required for the manufacturing of a particular product. For example, the very first
process will be the processing of raw materials where they are segregated and moved
further to the next step which involves the conversion of raw materials to finished
goods. A later step could be the labelling of finished goods, followed by the step of
quality check of the product. And final step could be the packaging of the product.
Hence, it can be said that it involves a number of processes to manufacture a product,
from raw material and convert it into a finished good. However, if a single step is
neglected or has an error it could yield further issues in the following up process and
also, result in errors in the product as well.

Example: A factory which manufactures the LED TV that has an assembly line. The
first process will be raw material segregation, next process will involve the assembling
of all parts of LED TV followed by the process of labelling, along with a process
including quality check. The final process will be the packaging of the product. Hence,
one process is followed up by another process.

Advantages of Process Layout:

• The process layout provides the company flexibility in working patterns and it can meet
a large range of processing requirements.
• The operational and functional activities in the process layout are cost-effective.
• This type of Layout allows utilizing of the resources such as equipment, and manpower
at most, which improves the overall efficiency of the organization.

Disadvantages of Process Layout:

• Since the operations are linked to one another, hence till the time work is completed
from the department it cannot be transferred to the next level of the process.
• Continuous monitoring is required to maintain efficiency.
• Large space is required for the set-up of the process-based layout so that equipment can
be installed as per their processes. Also, for bulk material handling large space is
required.
Product Layout:
The layout is called the product type of layout where the equipment and machinery used
are positioned as per the product's sequence of activities. The Product or line layout is
mostly suitable for the business which is into manufacturing or providing service of one or
similar kind of product. A product layout is used to ensure that large numbers of products
or customers have efficient and quick transactions through a system. This is mostly suitable
for specific products or services that demand highly standardization, and repetitive
processing activities are where required. A procedure is divided down into a sequence of
defined tasks, allowing for labour and equipment specialisation. Because of the large
numbers handled by these systems, it is frequently cost-effective to invest significant sums
of money in equipment and task design.
Example:
A manufacturing line for packed drinking water is an example of the product or line layout,
where each process is specific and significant to the product only. The product is placed on
a conveyor belt and it goes from one step to another. Similarly in the car manufacturing
industry, a product layout is generally used where the product moves to the next stage when
required operations are performed on the product.
Advantages of Product Layout:
• Helps in achieving cost-effective production.
• Helps in effective utilization of raw materials, equipment, operational areas, and
human resources.
• Saves production time, and helps in providing required stock as required.
Disadvantages of Product Layout:
• This layout requires heavy capital investment to set up the infrastructure.
• Since this is product specific layout it is less flexible if a new product has to be
added.

Group Technology Layout:

The Group Technology Layout is a manufacturing method that focuses on grouping similar
and recurrent problems or processes to increase production efficiency. This is also known
as Cellular manufacturing, wherein common features of components are identified and
based on their common features they are formed into groups. Once these groups are formed
which are also known as part families, they are put to various operations as required for
production and each component is utilised to the fullest. This group technology layout is a
hybrid version of product layout and process layout, wherein a large number of products
with a certain process can be done along with utilizing each component in manufacturing.
This saves time and also avoids duplication during the manufacturing process. In most of
the manufacturing industry, this type of layout is used for efficient working.
Example:
 Group technology layout is used in industries which are involved in soap manufacturing,
where the product is placed in one line assembly and moves through the group of certain
procedures. Similarly, this layout is useful for the hardware industry for products such as
hacksaws, wooden saws,
Advantages of GT Layout:
• GT layout reduces the operational costs.
• This layout results in outputs with efficiency since continuous monitoring is done.
• Each component is utilized and duplicity is avoided.
• Less material wastage and error-free production process.

Disadvantages of GT Layout:
• Making new changes in the existing layout becomes costly.
• Addition of new products may take a lot of time and analysis.

Fixed Position Layout:

In the Fixed Position layout, one major component is kept fixed and, other necessary tools
are brought near to it. The fixed-position layout is also called a Project Layout. Most of the
material parts remain in a fixed place with this configuration. However, the parts such as
necessary accessories, auxiliary materials, machinery, equipment, tools, and manpower are
transported to the worksite. As a result, the product remains in one spot due to its mass or
weight. Hence, until the product is ready for shipping, the location of the principal assembly
is not disturbed. This type of layout is used for the manufacturing of products which are
bulky, and heavy for transferring for each process or operation and the quantity of such
products is also less in quantity. The infrastructure, equipment and manpower required for
such kind of production should be highly efficient.
Example:
In the manufacturing unit of ships, such kind of layout is utilised, where most of the
assembly is done at a fixed position. Similarly, in the case of reactors, boilers, aircraft, and
turbines such kind of layout is used. Even construction project work is also similar where
the project land is fixed and the rest of the important required components for construction
are brought to it.
Advantages of Fixed Position Layout:
• This layout allows maximum flexibility of movement of materials and changes in
the process as required.
• Reduction in use of excess material and wastage.
• Minimum movement of product from one process to another.
Disadvantages of Fixed Position Layout:
• In a fixed-position layout, the cost is very high for handling the material and equipment.
 • Operations need to be handled by skilled and experienced manpower to achieve quality.

In a Retail store business, a customer will walk into the store and will choose the particular
product which he intends to buy, post comparing other products and also viewing some other
product which he might buy just spontaneously. Also, the space available for the store should
be used efficiently. Hence it is recommended to select a layout which can offer both ease of
operation and a product-based layout, which can be done by Group Technology Layout. By
implementing, group technology, each material or product can be segregated along with similar
kinds of products and groups can be formed based on their similarity. Products can be
categorized and arranged in separate cells as per their categories. This will make sure that each
product is displayed according to its division of group or classification, hence once a customer
walks into the store can easily check the products displayed as per their classification.
Below are the highlights of using the GT layout in a Retail Store:
• This layout will help in optimum utilization of space which is very crucial for a retail
store.
• Each product in a retail store can get visibility and will have high sales potential.
• Ease of product supervision and quality standards can be maintained easily since
material handling can be done smoothly by staff at the retail store.
• Less capital investment in the setup of this type of layout.
• This layout will help to maintain a proper tracking system for the available stock in the
store and which stock needs to be ordered again.

Conclusion:
From the above discussion, it can be understood that each layout has some specific role to play
for different types of businesses and industries requirements. Thus, the important part is the
selection of a suitable design layout as per the needs of the business, to achieve efficient and
sustainable operations. The selection should be done based on some criteria as per the business
standards such as space utilization, inventory, material transition, material handling, lead time
for a process, operational cost, initial investment for setup, utilization of resources, and
interdepartmental movements, monitoring of the process.

Question 3:
Answer 3 (a):
Introduction:
One of the most important factors in a restaurant's success is its location. A fantastic restaurant
location is ideal since it may assure initial footfall while also saving money on marketing costs
because it provides better visibility and accessibility to your restaurant. A great restaurant
location would bring in more customers; after all, no customers equal no business. The location
of a restaurant has an impact on many areas of its functioning, including the menu and dining
room design. If you have a specific restaurant location in mind, don't get too attached until you
know if it meets all of the necessary criteria for success.
Concept and Application:
To select the perfect location for restaurants some key points must be taken into consideration
before finalizing the location. Such as location should have enough space so that people can
feel comfortable, ease of commutation, and growth prospects of the business. All such points
are discussed below for better understanding:
• Demographics: Demographics will help you figure out who is your target customer,
while psychographics will add colour and nuance to the image, ensuring that all of your
placement and marketing decisions are made with your target audience in mind. If you
sit down and design the restaurant to appeal to your target market after the launch, you'll
have a better chance of success.

• Visibility: As the term visibility stands for being visible, people must be aware of your
restaurant by physical means as well as online means. They provide a high level of
visibility that might result in a lot of foot traffic. To improve your presence across
various types of media, consider using search engines and social media to place ads.

• Accessibility: The location must be such that it should have ease of access whether in
terms of ambience or facilities for customers such as ease of entrance, and parking
facilities.

• Safety and Security: A location having a high crime rate could lead to zero footfall
of customers since people will not prefer to visit the area from safety prospects. Hence
proper survey and research must be done in terms of the security of the area.

• Competition: Area survey is a must in terms of checking the competition as well since
this helps to understand the available restaurants in particular and the type of food and
service they offer. If similar categories of offerings are already available in a particular
area, then it could lead to heavy competition and will take a lot of time to increase
footfall in your restaurant.

All these criteria must be set and a planned survey must be done before finalizing the
location. For finalizing a location in the city of New Delhi, all such parameters can be
analysed and then a final call be taken. The area could be near to the market or a metro
station where people can easily find the restaurant. People could easily get attracted to
restaurants at such since post shopping in a market or after travelling in the metro
hunger strikes people and they may want to sit, relax and enjoy a proper meal.
 Conclusion: Hence from the above discussion we can determine that for a successful
and growing business even in the food industry, location plays a crucial part. And a
detailed survey and research of location can lead to fruitful business results.
Answer 3(b): Introduction:
The Aggregate Operation Planning is considered as overall planning done for the operations
for running the business at its fullest, considering all required analysis, calculations, research,
strategy building, time analysis for delivery and processing, inventory management and
quantitative study for providing a sustainable and continuous deliver products and services to
customers. Hence, aggregate planning comprises creating, maintaining, and analysing a
company's estimated scope of operations. Targeted sales estimates, inventory levels, and
production levels are frequently included. Aggregate planning determines capacity and then
balances costs against that capacity to reduce costs. It is a marketing activity that is carried out
ahead of time to identify the cost of manufacturing and the procurement of other necessary
materials to reduce a company's operating costs.

Concept and Application:

Aggregate planning is defined as long-term (as opposed to short-term) planning. As a result,
most comprehensive programmes last three to eighteen months. Aggregate plans lay the
groundwork for future short-term planning, such as production scheduling, sequencing, and
loading. This planning involves identification, forecasting of demanding and analysing of the
capacity of production. And the final aim of aggregate planning is to make a balance between
demand and capacity, to achieve cost-effective operations. There are three strategies for
implementing the aggregate operations planning, which is described below:
• Level Strategy: The level strategy is the kind of planning which involves maintaining
the ongoing operations same and focusing on inventory management is more. A level
strategy seeks to create a plan that keeps output or employment rates consistent. When
demand is low, the corporation uses this method to keep its personnel and output
consistent, allowing it to stock more inventory than is required. This is especially useful
as demand grows since the corporation can maintain a consistent flow of personnel and
productivity while also absorbing the increased demand with extra suppliers. As a
result, the organisation may operate effectively at no additional cost.
• Chase Strategy: Demand and capacity must be matched period by period in a chasing
strategy. This could lead to a large number of people being hired, fired, or laid off;
insecure and disgruntled workers; higher inventory carrying costs; labour union issues;
and unpredictable plant and equipment utilisation. It also signifies that the company is
adaptable. A chase strategy's main benefit is that it permits inventory to be held at the
lowest possible level, which can save a lot of money for some businesses.
• Hybrid / Mixed Strategy: In hybrid or Mixed strategy, both level and chase strategies
are combined to achieve the operations planning. The main focus is on obtaining an
optimum balance between demand and capacity and building a strong inventory over
the period. It could be hiring a certain number of manpower in the initial stage of
production and maintaining the operation at a certain quantity which is as per
forecasting of demand, and when demand is high same inventory can be used,
 Similarly, in other scenarios number of manpower remain same only the working hour
during an operational shift can be changed as per the demand, so that inventory and
demand can be balanced.

Hence, based on the above discussion we can say that for a given period of a year,
operations can be planned as per the mixed strategy, where inventory can be balanced
as per the demand. It can be achieved by combining the level and chase strategies both.
Inventory can be increased or decreased as per the demand by changing the working
hours of employees. Even, if the inventory is less than demand then employees can be
hired on the contract basis. So, by implementing the mixed strategy, optimum
aggregated operation planning can be done, which can lead to successful results during
the given time frame.
Conclusion:
As per the above-described details for planning required for a sustainable business, and to
finalize a proper planning basic understanding of needs of business, forecasting of demand
and inventory capacity analysis is very important. Based on detailed and accurate data only
effective aggregate operational planning can be implemented in the business, which can
provide the desired outputs for the business.