INDIAN INSTITUTE OF MANAGEMENT

BANGALORE
Operations Management
Mid Term, PGP (2020-21), DATE
Maximum marks: 40 Time: 2 hours

 This is an open book exam.

 There are 4 questions. Each question carries 10 marks.

Question 1

Consider a subway sandwich shop that sells four types of sandwiches: Paneer, Paneer-Cheese,
Chicken, Chicken-Cheese. These are produced as follows: First the bread is heated which takes 2
minutes per bread. The cheese is added to the bread if it is requested. It takes 4 minutes to add
cheese per bread. Next onion, tomato and cucumber (vegetables) are added to the bread which
takes 3 minutes per bread. After that, either paneer or chicken is added depending on what is
requested. It takes 2 minutes to add paneer and 4 minutes to add chicken. The finished sandwich
is then wrapped and served which takes 1 minute per sandwich. Assume that each resource is
staffed with one worker.

The shop operates for 12 hours in a day and receives the following demand per hour:

 Paneer sandwich: 4
 Paneer-Cheese sandwich: 8
 Chicken sandwich: 8
 Chicken-Cheese sandwich: 4

1) Draw the process flow diagram of sandwich production. (2 marks)

Add
Cheese
(4 min) Add
Add paneer
Heat Bread Wrap and
vegetables (2 min)
Serve
(2 min) (3 min)
Add (1 min)
chicken
(4 min)
2) Where is the bottleneck in the process? (3 marks)

Demand

Processing Capacity P PC C CC Total Demand /Capacity

time
(minutes) (sandwich/hour)
Heating 2 30 4 8 8 4 24 80%

Add 4 15 0 8 0 4 12 80%
Cheese
Add 3 20 4 8 8 4 24 120%
vegetables
Add 2 30 4 8 0 0 12 40%
paneer
Add 4 15 0 0 8 4 12 75%
chicken
Wrap and 1 60 4 8 8 4 24 40%
serve

Adding vegetables is the bottleneck (Demand is greater than capacity).

3) The shop has hired additional workers such that time for adding cheese as well as adding
vegetables are reduced to 2 minutes. To increase the demand, the shop plans to put one
poster outside the shop of either paneer or chicken sandwich. It is predicted that this
poster will increase the demand of such products by 50% (for example, a paneer sandwich
poster will increase the demand of both paneer and paneer-cheese sandwich by 50%).
Assuming the profits (in rupees/sandwich) for the sandwiches are 20, 30, 25 and 35
respectively, which poster should the shop opt for? (5 marks)

Option 1 (Paneer poster)

Demand

Processing Capacity P PC C CC Total Demand/ Capacity

time
(minutes) (sandwich/hour)

Heating 2 30 6 12 8 4 30 100%

Add 2 30 0 12 0 4 16 53.33%
Cheese
 Add 2 30 6 12 8 4 30 100%
vegetables
Add 2 30 6 12 0 0 18 60%
paneer
Add 4 15 0 0 8 4 12 80%
chicken
Wrap and 1 60 6 12 8 4 30 50%
serve

Here the shop is not supply/resource constrained and all the demand could be satisfied
Profit=6*20+12*30+8*25+4*35=Rs 820/hour

Option 2 (Chicken poster)

Demand

Processing Capacity P PC C CC Total Demand /Capacity

time
(minutes) (sandwich/hour)

Heating 2 30 4 8 12 6 30 100%

Add 2 30 0 8 0 6 13 46.67%
Cheese
Add 2 30 4 8 12 6 30 100%
vegetables
Add 2 30 4 8 0 0 12 50%
paneer
Add 4 15 0 0 12 6 18 120%
chicken
Wrap and 1 60 4 8 12 6 30 50%
serve

Here the shop is supply constrained: Only 15 Chicken sandwiches could be produced.
Therefore, maximum possible profit=4*20+8*30+9*25+6*35=Rs755/hour

Thus, the shop should opt for paneer poster.

Question 2
Priya and Riya jointly own 100 square meters of land where they wish grow rice. The land
gives a yield of 3 Kg per square meter. Per kg of rice costs around Rs 8 (including labor
cost, seed cost and manure). They can sell this rice locally (Village A) at market price which
is estimated to be around Rs 15 per Kg. They can also take this rice to sell at nearby village
(Village B) where the market price is estimated to be Rs 18. Transporting the rice to the
nearby village costs roughly Rs 3 per kg. Following demand forecasts are available. Any
rice unsold at regular market can be salvaged at Rs 1 per Kg.

Demand (Kgs) Probability (Village A) Probability (Village B)

120 10% 20%

140 10% 20%

160 15% 30%

180 25% 10%

200 20% 8%

220 20% 12%

1) How much land should Riya and Priya use to produce if they decide only to sell in
Village A? (3 marks)

Demand Probability Cumulative Probability Cumulative

(Village A) Probability (Village B) Probability
(Village A) (Village B)

120 10% 10% 20% 20%

140 10% 20% 20% 40%

160 15% 35% 30% 70%

180 25% 60% 10% 80%

200 20% 80% 8% 88%

220 20% 100% 12% 100%

Cu=p-c =7, Co=c-s=7, Cu+Co=14

Critical ratio (Village A) = 7/14=50%

Possible orders: 160 and 180

Profit = Revenue from sales + Revenue from salvage - Purchasing cost

Profit (at 160 Kgs) = 15*(0.1 *120+0.1*140+0.15*160)+(1-0.35)*15*160+1*(0.1*20+0.1*40)

- 8*160
= (750+1560)+6-1280=1036

Profit (at 180 Kgs) = 15*(0.1 *120+0.1*140+0.15*160+0.25*180)+(1-

0.6)*15*180+1*(0.2*20+0.1*40+0.1*60) - 8*180
=(1425+1080)+13-1440=1078
Ans: 180 Kgs (60 square meters land)

Or based on interpolation: 172 Kgs or 57.33 square meters

2) How much land should Riya and Priya use to produce if they decide only to sell in
Village B? (3 marks)

Per Unit cost, c=8+3=11, price, p=18

Cu=p-c =7, Co=c-s=10, Cu+Co=17

Critical ratio (Village B) = 7/17=41.18%

Possible orders: 140 and 160

Profit = Revenue from sales + Revenue from salvage - Purchasing cost

Profit (at 140 Kgs) = 18*(0.2 *120+0.2*140)+(1-0.4)*18*140+1*(0.2*20) - (8+3)*140

=(936+1512)+4--1540=912

Profit (at 160 Kgs)= 18*(0.2 *120+0.2*140+0.3*160)+(1-0.7)*15*160+1*(0.2*20+0.2*40)-

(8+3)*160
=(1800+720)+12--1760=772
Ans: 140 Kgs (46.67 square meters land)

Or based on interpolation: 140.8 Kgs or 46.93 square meters

3) If Riya and Priya decide to use 60 square meters of land for village A and 40 squares
meters for village B, what is total expected sales lost (in numbers)? (2 marks)
Village A: 180 Kgs. Lost sales=0.2*20+0.2*40=12Kgs
Village B. 120 Kgs. Lost sales=0.2*20+0.3*40+0.1*60+0.08*80+0.12*100=40.4 kg
Total=12+40.4=52.4 Kgs

4) If Riya and Priya decide to use 60 square meters of land for village A and 40 square
meters for village B, what is total expected inventory leftover (to be salvaged) (in
numbers)? (2 marks)
Village A: 180 Kgs. Inventory Leftover=0.1*60+0.1*40+0.15*20=13Kgs
Village B. 120 Kgs. Lost sales=0 kg
Total=13+0=13 Kgs
 Question 3
Consider a bicycle manufacturing company that was closed for maintenance where all the
WIP inventory was removed. The manufacturing plant recently opened up. The plant has
the following assembly line.

Task 1 (50 s): Cut plastic tube for the frame

Task 2 (40 s): Tube is put together
Task 3 (30 s): Frame is glued together
Task 4 (25 s): Frame is cleaned
Task 5 (35 s): Frame is painted
Task 6 (20 s): Wheels are assembled
Task 7 (20 s): All other parts are assembled to the frame

There are 5 workers which are allocated to stations as below:

 Worker 1: Tasks 1,2
 Worker 2: Tasks 3,4
 Worker 3: Task 5
 Worker 4: Task 6
 Worker 5: Task 7

The assembly line is operated for 8 hours in 1 shift (1 shift, 5 days a week). Workers are paid Rs
120 per hour

1) What is the capacity of the assemble line per shift on the first day? What is the capacity of
the assemble line per shift in the steady state? (2 marks)
Bottleneck- Worker 1
Cycle time=90s
Capacity (First Day)=1+(8*60*60-220)/90=318.56 bicycles/shift
Capacity (Steady State)=(8*60*60)/90=320 bicycles/shift

2) What is the cost of direct labor in the steady state? (2 mark)

Total wages=5*120Rs/hour=600 Rs/hour
Flow rate=1/90 bicycle/s=40 bicycles/hour
Cost of direct labor=Total wages/flow rate=600/40=15 Rs/bicycle

3) What is the average labor utilization in the steady state? (1 mark)

Labor content=90+55+35+20+20=220s
Total time=90*5=450s
Average labor utilization=Labor content/ Total time =220/450=48.9%

Or

Worker 1: utilization=90/90=1
Worker 2: utilization=55/90=0.61
 Worker 3: utilization=35/90=0.39
Worker 4: utilization=20/90=0.22
Worker 5: utilization=20/90=0.22
Average labor utilization=(1+0.61+0.39+0.22+0.22)/5=48.9%

4) How to relocate the workers to achieve maximum possible capacity? What is the steady
state labor utilization in this case? Assume that a worker can be assigned only adjacent
tasks. Also, assume that sequence of tasks cannot be changed. (3 marks)
Worker 1: Task 1 (50s)
Worker 2: Task 2 (40s)
Worker 3: Tasks 3 and 4 (55s)
Worker 4: Tasks 5 (35s)
Worker 5: Task 6 and 7 (40s)
Cycle time=55s
Labor content=50+40+55+35+40=220s
Total time=55*5=275s
Average labor utilization=Labor content/ Total time =220/275=80%

5) Demand is forecasted to be 1500 units/week. How many workers can be removed without
affecting the capacity to meet the demand? Assume that a worker can be assigned only
adjacent tasks. Also, assume that sequence of tasks cannot be changed. (2 marks)
Best configuration with 3 workers:
Worker 1: Task 1,2 (90s)
Worker 2: Tasks 3,4 (55s)
Worker 3: Tasks 5,6,7 (75s)

Maximum available capacity with 3 workers=8*60*60*5/90=1600 bicycles/week

Thus, two workers can be removed without affecting the capacity to meet the demand.

Question 4

Consider a Big Bazaar which experiences a demand of 5 customers per minute during the peak
time of 5 pm-10 pm. The standard deviation in the interarrival time is 21 seconds. The
checkout time per customer averages at 90 seconds with a standard deviation of 90 seconds.
There are 10 employees (servers) staffed during these peak hours.

1) What is the average wait time a customer face? (3 marks)

Inter-arrival time=1 minute/5 customers=12 seconds/customer
Utilization= u=90/(12*10)=75%
CVa=21/12=1.75
CVp=90/90=1
Average waiting time=(90/10)*(0. 75−1+√2(10+1) /(1 − 0.75))*(12 + 1.752 )/2=25.29s

2) What is the average queue length (including people getting service)? (2 marks)
 25.29/12=2.1 customers in queue
10*0.75=7.5 customers in service
Total 9.6 customers in the system

3) An employee can also be used for unpacking newly arrived inventory. It takes 1 minute per
employee to unpack one unit of inventory. The value generated from unpacking is Rs 40
per unit of unpacking. Also, the loss generated during the entire shift from increased wait
time is roughly Rs 8000 per minute of increase in average waiting time. Is it beneficial to
assign one employee for unpacking? (5 marks)

With 9 employees (servers), average waiting time=64.71 s (using same calculations as done
in part 1).
Loss generated=Rs 8000 * increase in average waiting time = 8000*(64.71-25.29)/60)
=Rs5256

Number of unpacking in 5 hours=5*60*1=300 units.

Total value generated= 40*300=Rs 12000
Therefore, it is beneficial to assign one employee for unpacking.