MBA Operation Management Problem-Solving - Essay Example

MBA PROBLEM SOLVING Why do firms offering more customized, low-volume products tend a) compete less on short delivery times and low costs b) be less capital intensive a) The firms offering more customized, low-volume products tend to compete less on short customer delivery times and low costs. It is explained by the following. First of all, the concept of a focused factory should be regarded. This concept stands for an enterprise, the manufacturing of which is concentrated on one or several principal customers. This can be exemplified in Focus Packaging Inc case. The factory with 21 workers produces soap boxes for Colgate-Palmolive Company, namely 18 different carton kinds, and nothing else [12]. It allows the enterprise to spare costs on new customers search and new markets winning strategies development. Besides it, the stable cooperation with a reliable customer allows to simplify the supply chain management (the product, information and finance flows) and minimize the possible chain uncertainties like canceled orders, wrong forecasts or late deliveries [9]. b) The lower capital intensity of the mentioned type of firms is explained by the stability of working processes when serving a focus customer. Crews do not need retraining because they do the same thing, for the same customer, all of the time. The machinery factor is also to be regarded: for example, the folding and gluing machine at Focus Packaging handles only one size box, so it never has to be reset. The press stops only to install a new roll of the thin cardboard on which it prints [12]. Why do firms with a product focus tend to: a) plan production and inventory levels further into the future b) have more formalized supplier relationships c) have less inventory accumulate at the work-in-process stage a) The necessity of the firms with a product focus to plan production and inventory levels further into the future is explained by the vitality of the production plan and inventories for successful supply chain management. It is necessary to plan thoroughly the production basing on the demand forecasts and according to this to make up the corresponding inventories. For the firms with focused production it is especially essential, because their performance depends on demands of particular customers, or one major customer [12]. b) All the above mentioned relates also to the necessity to have more formalized supplier relationships. In order for the firm to secure the manufactured product's future sale it is essential to develop clear terms of supplier/customer relationship and validate it formally. c) The low level of inventory accumulation at the work-in-process stage is explained by the simplified scheme of supply chain affording to avoid the overloading of the warehouses by unsold goods (the firm knows more or less precisely what number of goods it should produce). Describe four multi-plant location strategies The four principal location approaches are as follows: Land Use - optimal agricultural land uses based on transport costs to market; optimal distances of residential and commercial land uses from CBD; Industrial Location / Production Orientation - transport-cost minimizing location, profit maximization, optimal combination of inputs & optimal level of production at optimal location (allowing for scale economies and substitutability at any one level of production); Central Places / Market Areas - optimal market areas choosing; Spatial Competition - optimal response in the face of locational competition [11]. Why Colgate Palmolive, and not Campbell Soup be concerned about NAFTA The North American Free Trade Agreement, known usually as NAFTA, is a free trade agreement among Canada, the United States, and Mexico [7]. Colgate-Palmolive Company (NYSE: CL) is a multinational corporation in the business of the provision of products such as soaps, detergents, and oral hygiene products such as toothpaste and toothbrushes. Under its "Hill's" brand, it is also a manufacturer of veterinary products [3]. Campbell Soup Company (NYSE: CPB) (also known as Campbell's) is a well-known producer of canned soups and related products. Campbell's products are sold in 120 countries around the world. It is headquartered in Camden, New Jersey [2]. Campbell's should not be concerned about NAFTA. Just the opposite, being a food enterprise, it has got access to the cheaper foodstuff and labor force from Mexico. Colgate Palmolive could be concerned about NAFTA because it provides wider possibilities for the companies of the North American countries to sue "Parties" (governments and corporations), which may result in antidumping lawsuits. The increased competition on the side of Canadian and Mexican chemical industry is also to be regarded. The stricter procedures of environmental protection may also influence the Colgate-Palmolive production lines. Describe some factors that affect vertical integration decision Vertically integrated firms are defined as those that either do satisfy or are able to satisfy some or all of the inputs for their production ors services internally (from within the firm). For example, an aircraft manufacturer may purchase another firm that has various capabilities, including a division that supplies aircraft to third parties. The aircraft manufacturer is now able to produce its own avionics subsystems without going to outside suppliers. The main factors that affect vertical integration decisions are necessity to reduce transaction costs, striving for independence from external suppliers, intention to increase barriers to market entry etc. [10] Sampling involves two types of risks. What are they Explain Sampling is that part of statistical practice concerned with the selection of individual observations intended to yield some knowledge about a population of concern, especially for the purposes of statistical inference. In particular, results from probability theory and statistical theory are employed to guide practice [8]. Sampling is widely used to assess the commodity quality. In this case we usually speak of acceptance sampling. Typically, we seek to take action on some population, for example when a batch of material from production must be released to the customer or sentenced for scrap or rework. However, sampling is not free of risks. The principal of them is that a sample may not adequately represent the population (but with random sampling there is a large body of statistical theory which quantifies the risk and thus enables an appropriate sample size to be chosen). Another risk consists in the possibility to misjudge the sampling results, making the wrong conlusions about the sample quality. What is ABC Analysis and describe how it can be used to control inventory ABC-approach means the inventory classification according to complex parameters taking into consideration the importance, price, shortage etc. For each category its own management methods are applied. The three-grade classification is usually used: A-class (important, critical commodities), B-class (subsidiary, come-at-able) and C-class (middle variant). The different control levels are applied to each category. The ABC-approach is based on the principle claiming that control over a small number of components means control over situation in general [1]. Explain why EOQ method cannot be used to control raw and packing materials. Economic Order Quantity (also known as the Wilson EOQ Model or simply the EOQ Model) is a model that defines the optimal quantity to order that minimizes total variable costs required to order and hold inventory. It has the following underlying assumptions: 1. The demand for the item is known; 2. The lead time is known and fixed; 3. The receipt of the order occurs in a single instant; 4. Quantity discounts are not calculated as part of the model; 5. Shortages or stockouts do not occur [5]. It is not possible to use EOQ to control raw or packing materials because in this case not all the above mentioned conditions are observed. E.g. it is not always possible to evaluate the demand for raw and packing materials and the lead time. Why do companies prefer built to order rather than built to stock strategy What are its advantages and disadvantages Describe characteristics of built to order strategy. The built to order strategy consists in manufacturing goods according to a previous arrangement, defining the demand and consequently, the necessity to produce certain number of goods. The advantage of this strategy is in the reduction of warehouse costs and simplifying the supply chain process, as well as the process of inventory planning and other operational procedures. The built to stock strategy consists in producing goods without a previous order. It gives the opportunity to have the product available in case of unforeseen consequences, e.g. when an urgent order takes place. Its disadvantage is high warehouse costs. In this aspect it is possible to introduce an example of Dell Company. Dell Inc. is a United States-based computer hardware company that develops, manufactures, supports and markets a wide range of personal computers, servers, data storage devices, network switches, personal digital assistants (PDAs), software, peripherals and more. It employs more than 63,700 people worldwide as of 2006, and is the world's largest manufacturer of computers. According to the Forbes 500 2005 list, Dell ranks as the 28th-largest company in the United States by revenue. In 2005, Fortune magazine ranked Dell as No. 1 on its annual list of the most-admired companies in the United States, displacing Wal-Mart, which had held the top spot for the previous two years and which fell to No.4. Dell Inc. has its corporate headquarters in Round Rock, Texas in the United States [4]. This success is in many respects the result of the company's performance according to the built to order strategy. The company waits for the customers to order its production, and only then starts the production line. Describe factors you will consider in deciding capacity cushion in service industry After deciding what products/services should be offered and how they should be made, management must plan the capacity of its processes. Capacity is the maximum rate of output for a process. The capacity should meet current and future demands. Long-term capacity plans deal with investments in new facilities and equipment. Short-term capacity plans focus on workforce size, overtime budgets, and inventories. This activity is central to the long-term success of an organization. Too much capacity can be as problematic as too little. Capacity cushion is an amount of reserve capacity that a firm maintains to handle sudden increases in demand or temporary loss of production capacity. As far as service industry is concerned, the following factors should be taken into consideration in deciding capacity cushion: Demand forecast taking into consideration the possible demand increments; Market situation, including the competitors' strategies assessment; Availability of necessary resources (human, immobility etc.); However, in service industry it is much easier to decide capacity cushion than in manufacturing. Namely, no goods are produced by service industry, and the services are usually provided according to orders. So there is no danger of overproducing, and the built to stock strategy can not be applied. Describe Activity based accounting system and its application in operation management Activity based accounting system is a part of management accounting. Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to assist management making decisions and managerial control functions. Unlike financial accountancy information (which, for the most part, is public information), management accounting information is used within an organization and is usually confidential. Contemporary managerial accounting systems are focusing more on the activities that occur at all levels of the organization. Activity-based costing (ABC) recognizes that, in modern factories, most manufacturing costs are determined by the amount of "activities" (e.g., the number of production runs per month, and the amount of production equipment idle time) and that the key to effective cost control is therefore optimizing the efficiency of these activities. Activity-based accounting is also known as Cause and Effect accounting. Activity-based costing also deemphasizes direct labor as a cost driver and concentrates instead on activities that drive costs, such as the provision of a service or the production of a product component [6]. A company has to decide the number of warehouses it should have. Describe factors you would consider in deciding the number of warehouses. Also indicate how gas prices and interest rate will affect the number of warehouses In order to decide the number of warehouses a company should have, it is necessary to evaluate the factors which play crucial roles: 1) The predicted growth and variability of primary demand - the larger the predicted growth, the more warehouses it is advisable to have. 2) The costs of building and maintaining warehouses of different sizes - the larger the costs, the fewer number of warehouses it is expedient to create, enlarging instead of this the existing ones. 3) The rate and direction of technological innovation - it is necessary to take this factor into consideration as it may allow making the building cheaper or the supply chain simpler. 4) The likely behavior of competitors - it is advisable to try to win new markets by placing as much warehouses as possible in the areas not yet controlled by the competitors. 5) The anticipated effects of international competitors, markets, and resources of supply - the warehouses should be built in accessibility of resources of raw materials and manufacturing plants. Besides, the general market conditions should be regarded. The gas prices also influence the decision: the lower they are, the fewer warehouses the company needs, because in this case it is expedient to deliver goods directly to retailers. If the gas prices go up, it may become cheaper to deliver a large batch of goods at once and then distribute it to retailers from a local warehouse. The interest rate is another crucial factor. The higher it is the less advisable is the extension of the warehouses' number because in this case the company will have to pay for more sites. List of sources 1. ABC- approach. http://www.cfin.ru/itm/kis/mrp_inventory.shtml 2. Campbell Soup Company. 3. Colgate-Palmolive. 4. Dell, Inc. http://en.wikipedia.org/wiki/Dell%2C_Inc. 5. Economic order quantity http://en.wikipedia.org/wiki/Economic_order_quantity 6. Master the 'ABCs' of Activity-Based Costing. 7. North American Free Trade Agreement. 8. Sampling. 9. Supply Chain Management. 10. Task Force on Vertical Integration and Supplier Decisions. Washington: Office of the Secretary of Defense. May 1997. P. 2 11. The Four Classical Traditions in Location Theory. 12. When that buyer is Colgate-Palmolive, one is quite enough. Strategosinc. 04 May 2006 Read More