Operations Management

Final Examinations
1st Semester SY 2014-2015

MFTP Cement Incorporated

MFTP Incorporated is a manufacturing business that specializes in producing cement for both local consumption and
exporting. They have an annual demand of 500,000 bags and the business operates from Monday to Saturday from 7:00 A.M to
5:00 P.M. They have 5 production workers and the labor cost is 500.00 per day. Electricity cost is P .20 per bag and bag cost is
P.10 per bag.
A.

The Manufacturing process of cement:

Material
A. Calcium
Limestone
Marl
Calcite
Aragonite
Sea Shells
Cement Kiln Dust
B. Silicon
Clay
Sand
C. Aluminum
Shale
D. Iron
Mill scale
Fly Ash

Needed to Produce
one Bag of Cement (in
grams)

Unit
Cost/gr
am

200
50
20
32
30
10

.34
.20
.14
.55
.14
.03

300
300

.8
.20

500

.02

10
100

.9
.001

The most common way to manufacture cement is through a dry method. The first step is to quarry the principal raw
materials, mainly limestone, clay, and other materials (Activity A). After quarrying the rock is crushed. This involves several
stages. The first crushing reduces the rock to a maximum size of about 6 inches (Activity B) The rock then goes to secondary
crushers or hammer mills for reduction to about 3 inches or smaller (Activity C)
The crushed rock is combined with other ingredients such as iron ore or fly ash and ground, mixed, and fed to a cement kiln.
(Activity D)
The cement kiln heats all the ingredients to about 2,700 degrees Fahrenheit in huge cylindrical steel rotary kilns lined with
special firebrick. Kilns are frequently as much as 12 feet in diameterlarge enough to accommodate an automobile and longer in
many instances than the height of a 40-story building. The large kilns are mounted with the axis inclined slightly from the
horizontal (Activity E)
The finely ground raw material or the slurry is fed into the higher end. At the lower end is a roaring blast of flame, produced by
precisely controlled burning of powdered coal, oil, alternative fuels, or gas under forced draft (Activity F).

As the material moves through the kiln, certain elements are driven off in the form of gases. The remaining elements unite to
form a new substance called clinker. Clinker comes out of the kiln as grey balls, about the size of marbles (Activity G)
Clinker is discharged red-hot from the lower end of the kiln and generally is brought down to handling temperature in
various types of coolers. The heated air from the coolers is returned to the kilns, a process that saves fuel and increases burning
efficiency. After the clinker is cooled, cement plants grind it and mix it with small amounts of gypsum and limestone. Cement is
so fine that 1 pound of cement contains 150 billion grains. The cement is now ready for transport to ready-mix concrete
companies to be used in a variety of construction projects. (Activity H).
Activity
Preceding
A
-B
C
-D
A, B
E
B
F
C
G
D, E
H
F

Times are given in hours.

B.

Optimistic
5
3
6
3
4
6
2
3

Probable
11
3
10
5
6
8
4
3

Pessimistic
14
9
14
7
11
13
6
9

Monthly Meeting held last September:

During a strategic monthly meeting of the group, the operations manager have reported the following problems related
to operations:

Reason for Defective Cement Product

Frequency

Defect A
Defect B
Defect C
Defect D
Defect E
Defect F

27
4
9
34
2
3

Moreover, during the meeting, the consultant suggested that if they will buy a new equipment, production of cement
bags will increase by 510, but will need additional 4 workers with the same salary payment.
When the finance officers turn to report, Mr. MDM, said that their sales are increasing for the past 10 months and that
their 7 stores are with the following sales and profit figure:
Store
1
2
3
4
5
6
7

Profits
14
11
15
16
24
28
22

Sales
6
3
5
5
15
18
17

C.

Supplier ESDC

The company purchases the clay at P0.80 per gram. The holding cost is P 0.01 per gram per year and ordering cost is P
0.40 per 100 grams. The companys supplier, ESDC, decides to offer price concessions in order to attract larger orders. The price
structure is shown below:
Quantity Purchased
1-10,000,000 grams
10,000,001-80,000,000 grams
80,000,001 + grams

Price/gram
.8
.65
.50

D.

1.

The Problems: MFTP Inc. hired you as their junior consultant and would like for you to provide the following
solutions in time for their next monthly meeting:
Productivity
a.
b.
c.

2.

Compute for the multi-factor productivity before the new equipment is purchased. (5points)
Compute for the multi-factor productivity if the company decides to purchase the new equipment proposed.
(5points)
What is the percentage change in productivity?(10points)

PERT-CPM
a.
b.
c.
d.

Draw the network diagram. (5points)

Calculate the expected duration and variance of each activity. (5points)
Calculate the expected duration and variance of the critical path. (5points)
Calculate the probability that the project will be completed in less than 16 hours. (5points)

3.

Forecasting
a. Calculate a regression line for the data. (10points)
b. What is your forecast of profit for a store with sales of P14 million? (5pounts)
c. What is your forecast of profit for a store with sales $12 million? (5points)

4.

TQM
a. Perform a Pareto analysis on the defects (10points)

5.

Inventory Management
a.
b.

6.

What is the optimal order quantity and minimum annual cost for MFTP Cement Incorporated to order, purchase
and hold the clay raw material? (10points)
MTFP Cement wishes to use a holding cost of 10% instead of the fixed holding cost. What is the optimal order
quantity and what is the optimal annual cost? (10points)

Global Strategy and Operations Management

a.

For MFTP, what is the best basic global operations strategy they should use? Explain. (10points)
BONUS:
Perform an ABC Analysis of the company (10points).

E.

The formulas:

Annual setup cost =

D
S
Q
2

Expected time = (a+4m+b)/6

a y bx

Q*
b

= (variances of activities
on critical path)

2 DS
H

xy nx y
x nx
2

=Due dateExpected time/

p

y a bx
Productivity = Output/Input

Annual holding cost =

Q
H
2

v = [(b a)/6]2

Summary of Answers:

1.
2.

a. _____________
a.

b.
3.
4.

___________
a. ____________
a.

b. _____________

c. __________
b. __________

c. ______________

d. ____________
c.____________

5.
6.

a. __________
b.__________
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Bonus: