OPERATIONS MANAGEMENT SEM 2

Q1.

Answer -

INTRODUCTION

Location decision: Location decision means choosing a location for setting up a business. The
main aim of location decision is to find the best alternative from other available sites. Location
decision is vital for each organization irrespective of size and structure. The main objective of
location decision is to maintain a balance between three things; these are potential revenue
from location, operation costs, and consumer service that a business wants to provide.

Along with the balance in these three things, location decision also keeps in mind the
accessibility of the location, competition prevailing in the market, operating expenses of a site,
and tax and regulation that the owner has to pay for the location.

CONCEPT AND APPLICATION

Before choosing a location for extensive hospitality set up like a resort, one must consider some
vital factors for better results and profits.

• Proximity to the market: If the business location is closer to the customer, there will be more
chances that they will prefer your business and will buy again from you. For hospitality set up
like a resort, the closest location will be near the airports, railway stations, bus stops, etc. In this
way, the customer can easily reach the business setup, and there will be greater chances that
they will prefer the location every time. Rent price: More central location includes higher
pricing. If the business's budget is not reasonable, then they should go for a site with a low rent
price. Otherwise, the firm will face money issues from the very beginning of the business. For
business setups like a resort, a central location is essential, but if the owner does not have that
much investment, they should go for a location with a lower rent price.

• Analyze the demographics: Demographics means the requirement of different products

according to age, gender, marital status, etc. Analyzing a location with the demographics is very
important for the organization. It is of no use if you locate your business in an area where the
customer does not want the product. For example, there is no use in setting up a resort where
there is no tourism.

• Infrastructure and accessibility: While choosing a location for the business, it is necessary to
check the location's infrastructure or surroundings. Consider the accessibility of the location for
every person who will be coming there. If you are on a busy street, is it easy for cars to get in
 OPERATIONS MANAGEMENT SEM 2

and out of your parking lot? Your facility also needs to be accessible to people with disabilities.
Which sort of deliveries are you likely to receive, and will your suppliers be able to access the
facility easily?

• Competition: A person can also set up the firm by considering the competition. If the owner
wants to be closer to his or her competitor, they will select the location according to that or
vice versa. For example, suppose a location for a resort has surplus customers, and there are
plenty of them you can attract by opening your resort beside the competitor. In that case, it is
good to set up the business closer to the competitor.

• Image and history of the site: The history of the location you want to start your business is
crucial. Suppose the area has a horrible past, then there will be fewer customers. In a country
like India, people are very superstitious, and if someone heard some bad omen about a place,
then the location will be terrible for attracting more customers.

• Utilities and other costs: Along with rent, other costs matter for selecting a business setup
location. If someone wants to start a resort in a location with a high price and high taxes, it
would not be an optimum location for the business, and he or she should reconsider the
location.

• Potential for growth: Will the premises be able to accommodate business growth or a spike in
demand? Moving premises is a big upheaval and can be time consuming and costly. A decision
needs to be made as to whether the premise you are choosing is a short-term location or if you
would like to stay there for the long haul. Consequently, a location’s flexibility could be a very
important factor regarding the premises’ suitability for your business needs.

CONCLUSION

Certain factors affect the selection of a location for setting up a business. One should keep in
mind every element while selecting the location for business setup. Otherwise, the firm will not
gain maximum profit, and it won't be an optimum and best decision.

Therefore, if someone wants to set up a large hospitality business, they should consider all the
factors mentioned above. Only then is it possible to run the business successfully with excellent
growth potential.
 OPERATIONS MANAGEMENT SEM 2

Q2.

Answer -

INTRODUCTION

Inventory management refers to the process of ordering, storing and using a company's
inventory. This includes the management of raw materials, components and finished products,
as well as warehousing and processing such items. An appropriate inventory management
strategy depends on the type of industry. Hence, the method changes with the change in style
and structure of an organization. It is challenging to balance the risk of inventory shortage and
excessiveness in organizations with complex supply chains and manufacturing processes.

CONCEPT AND APPLICATION

The most common inventory management techniques for an organization are as follows:

• Bulk shipment: This technique believes that it is always cheaper to purchase and ship goods in
bulk quantity. This technique is beneficial for industries whose product is always high in
demand. But, an organization has to spend extra money on warehousing of bulk goods. Bulk
shipment will create a high potential for profitability and a low shipping cost as there will be
less shipment. This technique also works for goods that have predictable demand and has a
long life.

• ABC inventory management: In this technique, all the goods are sorted into categories as per
their importance. A category contains high-importance goods, B category has goods with
moderate importance, and C category includes goods with less or no importance. Here,
quantity does not matter. Instead, the value of the good is significant. This technique helps in
demand forecasting by analyzing the product's popularity and determining a better customer
service approach. ABC inventory technique enables inventory accuracy and helps in fostering
strategic pricing. The main drawback of this technique is that it requires time and human
resources.

• Just in time (JIT) inventory management: It is a risky technique as it involves purchasing

inventory a few days before one need for distribution and sales. But it lowers the on-hand
inventory volume of the business. As the merchandise is purchased few days before issuance, it
saves money on holding costs and reduces dead stock risk. But, there is a problem with JIT. It
does not always ensure the fulfillment of orders on time.

• Safety stock inventory: Safety stock inventory management is extra inventory being ordered
beyond expected demand. This technique is used to prevent stock outs typically caused by
incorrect forecasting or unforeseen changes in customer demand.
 OPERATIONS MANAGEMENT SEM 2

• Drop shipping and cross-docking: In drop shipping technique, the seller transfers the
customer orders and shipment details directly to the manufacturer or wholesaler, who ships
the goods at the given location. It deducts the holding inventory cost altogether. Similarly, in
the cross-docking technique, the goods are moved directly from one transport vehicle to
another without putting it in a warehouse. Hence, it involves no or less holding cost of
inventory.

• Minimum order quantity: On the supplier side, minimum order quantity (MOQ) is the smallest
amount of set stock a supplier is willing to sell. If retailers are unable to purchase the MOQ of a
product, the supplier won’t sell it to you. For example, inventory items that cost more to
produce typically have a smaller MOQ as opposed to cheaper items that are easier and more
cost effective to make.

• Batch tracking: Batch tracking is a quality control inventory management technique wherein
users can group and monitor a set of stock with similar traits. This method helps to track the
expiration of inventory or trace defective items back to their original batch.

Among these techniques, ABC inventory management will be the best inventory management
technique for a medical store to keep medical supplies effectively. With ABC inventory
management's help, the medical store will focus on goods with high importance and maintain
its stock. The store can accurately manage the medical supplies.

Cross docking can also be helpful for a medical store. In this technique, the medical store can
reduce the holding cost by transferring the medical supplies from one transport to another. But
it requires an extensive network of transport vehicles for the cross-docking process to work.

Another technique which can be effective is batch tracking as medicines have an expiry and it is
very essential to track their expiries in order to maintain a healthy batch of products.

CONCLUSION

One will usually need a mix of inventory management strategies to get the most comprehensive
and effective business method. Hence, the medical store can either use one inventory
management technique or a combination of more than one approach to better and efficiently
manage the firm.

Ultimately, we can say that inventory management techniques can help an organization reduce
costs at various levels and increase the firm's profit.
 OPERATIONS MANAGEMENT SEM 2

Q3a.

Answer -

INTRODUCTION

Quality: Quality is the collection of all the features in a product or service, which helps influence
the ability of the product that will ultimately satisfy the customer's demand. Quality starts with
the product design; as per the consumer's specifications, a product is first of all designed by
using proper quality material and method.

CONCEPT AND APPLICATION

Let us discuss various dimensions of quality concerning a restaurant business.

• Performance: One can measure performance as to whether the product or service is doing
what it is supposed to do within the tolerance defined. For example, in a restaurant business,
whether the manager is providing the best quality food and services or not is the performance
of a restaurant. This performance will determine the profitability and revenue of the business.

• Features: The previous dimension does not talk about the features of a product or service.
Hence, this dimension discusses the characteristics that a product or service should possess as
per the targeted customer's requirement. For example, the restaurant owner would have to lay
down the food and service features they will provide to maintain a closer relationship with the
customer.

• Reliability: The business's product or service should be reliable as it contributes majorly to the
brand image. Similarly, a restaurant should also consider reliability while performing the
business as it is a significant dimension of quality for almost every consumer.

• Conformance: This dimension talks about conformation, i.e., whether the product is being
performed as the owner has specified. In a restaurant business, conformance is a must. If the
restaurant's food and service are not as exact as they have specified to the market earlier, it can
cause a massive downfall in the business's revenue and image.

• Aesthetics: It is essential for a consumer the way a product looks. Hence, aesthetics helps in
building a company's brand and identity. For example, if the food is not served on the plates in
the way the consumer wants in a restaurant, they will have themselves an unhappy and
unsatisfied consumer.

• Perception: Perception means reality. It means that it does not matter if the product is of high
quality if the product's services are not of good quality. For example, in a restaurant, high-
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quality and tasty food would not matter to the consumer if the service is poor or served the
food in dirty utensils.

CONCLUSION

It is evident from the dimensions mentioned earlier that it is crucial for a restaurant and every
other business to maintain the quality of a product or service in every aspect. Otherwise, there
will be a massive problem for the business's profits and revenue.

Various factors affect the quality of products and services. Nine of the fundamental elements
are money, market, management, motivation, men, machines, materials, and mechanization.
Hence, we can say that quality does not only mean the product's quality. Instead, it means the
quality in the process, men, material, machines, and many more valuable things.
 OPERATIONS MANAGEMENT SEM 2

Q3b. Bill of Material (BOM) (5 Marks)

Answer -

INTRODUCTION:

Bill of Materials (BOM): The list of components, raw materials, and required instructions for
constructing or repairing a product or service forms a Bill of Materials (BOM). There is a
hierarchical format in which the business firms prepare the list. The highest level of the bill of
materials shows the finished product, and the lowest level offers then individual materials and
components of the product or service. BOM varies from business to business.

CONCEPT AND APPLICATION

Bill of materials is a complete list of everything that is required to manufacture a product. A bill
of materials is also known as product structure, production recipe, or assembly component list.
A well-defined bill of materials (BOM) helps an organization plan the purchase of the raw
materials, estimate the material cost, gain inventory control, track and plan material
requirements, maintain accurate records, and ensure the robustness of supply and reduction in
waste. The two methods in which a bill of material can be presented are a single-level bill of
materials and a multi-level bill of materials.

For example, suppose you are starting a Chinese restaurant business and want to track the
inventory of noodles, soya sauce, vinegar, onion, tomatoes, flour, etc. For this, you have to
define the material recipe of all the dishes you will be serving in your restaurant in terms of the
material required for preparing one item of each word. Now, every time you sell a dish, the
system will automatically deduct the ingredients accordingly. One should keep a thing in mind
that not every ingredient has to be recorded in the system for inventory control. You can only
put those ingredients whose inventory you want to track. For example, in noodles, you do not
want to keep track of the leaves used for garnishing. So you can just put other items in the
recipe that are of significant importance.

In this way, the restaurant owner can keep track of all the ingredients, i.e., inventory required
for the preparation of the final product they want to sell. It helps in maintaining the cost of the
product efficiently and effectively.

A well-defined BOM helps companies:

 Plan purchases of raw materials

 Estimate material costs
 Gain inventory control
 Track and plan material requirements
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 Maintain accurate records

 Ensure supply robustness and reduce waste

CONCLUSION

 We cannot imagine a product without its BOM. It is the BOM that specifies all the
components.
 Preparing a BOM is the most crucial aspect since anything which is not specified in the
BOM will not be acquired.
 BOM helps to identify the basic cost of components required to manufacture the end
product.
 Once we have the cost of components, we can identify the assemblies we can get from
a vendor instead of manufacturing them ourselves.
 It also helps to identify wasteful items that can be avoided.
 BOM helps in better decision making whether to manufacture or buy it.
 It makes the manufacturing process a little cost-effective.