PROJECT

PROGRAMME Bachelor of Commerce Honours in Supply Chain Management

Postgraduate Diploma in Business Management

MODULE Operations Management

YEAR ONE (1)

INTAKE July 2022

TOTAL MARKS 100

FORMATIVE ASSESSMENT 2 [100 MARKS]

Refer to the insert provided and answer ALL questions.

PepsiCo operates about 8 plants and hires an estimated 8,000 employees across the Southern Africa region. Several of
their brands exceed R1 billion in annual sales revenue: Fritos, Lay’s, Simba and Doritos just to name a few. Operations
management is the focus of the firm—from designing products for new markets, to meeting changing consumer
preferences, to adjusting to rising commodity costs, to subtle issues involving flavours and preservatives. The operations
management function is under constant cost, time and market pressure.
Extracted from PepsiCo company website: https://www.pepsico.com/

You have been invited by the Operations Executive of PepsiCo Tumisang Matsheka to attend a conference organised
and sponsored by the organisation entitled “Advancing competitiveness through Operational Excellence in emerging
economies”. Your task is to prepare reports that will be presented and discussed by delegates during the 3-day
conference. You have been given the following guidelines.

Question 1 (20 marks)

With reference to the production processes of PepsiCo critically discuss how each of the operations management decision
areas can be managed to improve its competitive advantage. You need to make use of practical examples and concepts.

Question 2 (20 marks)

You have been informed that the conference will also include a few delegates from the service sector and therefore you are
expected to examine the concept of productivity and provide recommendations on the strategies that need to be considered
by operations managers to improve productivity. Your recommendations should be relevant to all the delegates.

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Question 3 (20 marks)

PepsiCo is contemplating locating its state-of-the-art factory in any of these three sites Durban (A), Bulawayo (B) and
Gaborone (C). The goal is to locate the factory at a minimum cost site, where cost is measured by annual fixed plus variable
costs of production. The following information has been presented to you,

SITE ANNUALISED FIXED COST VARIABLE COST PER PRODUCT

PRODUCED
A R10,000,000 R2,500
B R20,000,000 R2,000
C R25,000,000 R1,000

PepsiCo knows that it will produce between 0 and 60 000 units at the new plant each year, but this is the available knowledge
regarding its production plans thus far. Provide advice using a relevant diagram on what values of volume of production if
any is site C a recommended site? What volume indicates site A is optimal and over what range of volume is site B optimal
and why. (Show all necessary calculations in your report).

Question 4 (20 marks)

As an expert in operations management one of the delegates has requested that you provide a presentation on the
significance of process analysis and to provide recommendations on how this could be effectively executed in the context of
PepsiCo.

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Question 5 (20 marks)

5.1 The accountant for one of the PepsiCo factories in Palapye has provided you a list with six items in inventory along with
their unit costs and annual demand in units. He has requested that you should assist him apply the ABC analysis to
determine which item(s) should be carefully controlled using a quantitative inventory technique and which item(s) should
not be closely controlled. (10 marks)
Code Unit Cost (R) Annual Demand
XX1 5.84 1,200
B66 5.40 1,110
3CPO 1.12 896
33CP 74.54 1,104
R2D2 2.00 1,110
RMS 2.08 961

5.2 In addition, this same factory shop uses 10 brackets per day during the year. The brackets are purchased from a supplier
90km away. The costs incurred include holding costs per bracket per year: R1.50, order cost per order: R18.75, Lead
time is 2 days, working days per year is 250 days. What would be the economic order quantity? The annual inventory
holding costs. How many orders would be made each year? What would be the annual order cost? What is the time
between orders and the reorder point (ROP)? (10 marks)

THE END