Running head: OPERATIONS MANAGEMENT 1

Operations Management

Prof Mohanasundaram

Kakali Kayal

Reg. No. 1801016190155

Alliance University
OPERATIONS MANAGEMENT 2

Operations Management

Q1. Briefly mention the challenges and opportunities face by the Operations Managers’ in the
current scenario

Ans.

Challenges faced by Operations Managers’:

 Competitive Pressures due to economic reforms
o Tariff reduction has exposed Indian companies to global competition
o Abolition licensing policies had enabled several new players to enter into business
increasing domestic competition and capacity build up
o Indian customers are more demanding in terms of quality, cost and delivery of goods
& services
 Growing customer expectations
o Customers tend to demand more and refine their expectations
o Manufacturing & Service organizations must learn to respond to these expectations
o Need to develop capabilities to bring newer products and services faster and yet
profitably
o Indian customers are more demanding in terms of quality, cost and delivery of goods
& services

 Today’s businesses are constantly challenged by the rapid technological advancements

o Example: ATMs & Internet Banking. Customers need not visit a bank branch. Drafts
and cheques replaced with electronic payment gateways & fund transfer
mechanisms.
OR New Product Development. A team of design personnel from across different
geographical locations can participate in new product development using
technological tools.
 Environmental Issues
o When Government of India announced a scheme for special economic zones (SEZs),
it generated controversies and social concerns.
o Growing industrialization raises concerns regarding the depletion of natural resources
and the waste generated from production systems and end-of-life products.
o Growing urbanization creates societal problems arising out of scarcity of available
resources and generation of solid wastes.
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o Consumption of energy and water in countries like India is on the rise. Such a situation
requires better practices and newer methods of addressing these requirements using
better operational practices.
o Increasingly, firms are under pressure to take responsibility of restoring, sustaining,
and expanding the planet’s ecosystem instead of merely exploiting it.
 OM practices must address environmental concerns in order to ensure a sustainable world.

Opportunity for Operation Managers:

 Globalization
o Is a challenge as well as an opportunity
o Demand of product and service increasing globally
o Market is expanding as people getting more access to the products
o As market is expanding the profit is maximizing
 Automation
o Reduce repetitive task, which reducing time and saves money
o As time is reduced factories can produce more units of goods in same time, which
reducing the manufacturing cost
o As a result price of the product is reducing and demand is increasing
 Technology
o Current technologies like artificial intelligence gives better understanding on
customer behaviour and need, which helps in forecasting the future demand
o Technologies like data warehouse, stores tons of data safe and secure and helps to
generate business reports like sales, marketing etc and also forecast the future
demand, which helps top management to make future strategy

Q2. Explain the recent technologies used in product and service design.

Ans.
Recent Technology used in Product and Service design are:
Computer-Aided Design (CAD) is product design using computer graphics.
• increases productivity of designers, 3 to 10 times
• creates a database for manufacturing information on product specifications
• provides possibility of engineering and cost analysis on proposed designs
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• assists in creation, modification, and analysis of a design

Computer-aided engineering (CAE)
• tests and analyses designs on computer screen
Computer-aided manufacturing (CAD/CAM)
• ultimate design-to-manufacture connection
Product life cycle management (PLM)
• managing entire lifecycle of a product
Collaborative Product Design (CPD)
• A software system for collaborative design and development among trading partners
• With PLM, manages product data, sets up project workspaces, and follows life cycle of the
product
• Accelerates product development, helps to resolve product launch issues, and improves quality
of design
• Designers can conduct virtual review sessions, test “what if” scenarios, assign and track design
issues, communicate with multiple tiers of suppliers, create, store, and manage project
documents
Artificial Intelligence (AI)
• Artificial intelligence gives better understanding on customer behaviour and need, which
helps in forecasting the future demand
• Based on customer browse behaviour using AI companies advertise their product, offer,
promotion etc on customer’s browser, which attracts customer to buy.
• AI have low error rate compared to humans
• Complete critical task and solve complex problems
• Easily can detect fraud
• Can assess people 24*7

Block chain
• Most discussed and blooming technology
• Provide more security for critical data
• Very difficult manipulate data

Q3. Michael’s Engineering, Inc. manufactures components for the ever-changing notebook
computer business. He is considering moving from a small custom design facility to an operation
capable of much more rapid design of components. This means that Michael must consider
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upgrading his CAD equipment. Option 1 is to purchase two new desktop CAD systems at $100,000
each. Option 2 is to purchase an integrated system and the related server at $500,000. Michael’s
sales manager has estimated that if the market for notebook computers continues to expand, sales
over the life of either system will be $1,000,000. He places the odds of this happening at 40%. He
thinks the likelihood of the market having already peaked to be 60% and future sales to be only
$700,000. What do you suggest Michael do and what is the EMV of this decision?
Ans.
Option 1: purchase two new desktop CAD systems at $100,000 each = $200,000
Option 2: purchase an integrated system and the related server at $500,000

Sales of $1,000,000 @ 40% demand; High performance Payoff:

Sales of $700,000 @ 60% demand; Low demand 1000,000-200,000
=$800,000

Investment:
$200,000
Payoff:
700,000-200,000
=$500,000

Payoff:
1000,000-500,000
=$500,000

Payoff:
700,000-500,000
Investment: =$200,000
$500,000

Expected Monitory Value (EMV) Calculation:

EMV(Desktop): 0.4*(800,000) + 0.6*(500,000)
= 320,000 + 300,000
= $ 620,000
EMV(Integrated System): 0.4*(500,000) + 0.6(200,000)
= 200,000 + 120,000
= $ 320,000
Conclusion: As Expected monitory value (EMV) for desktop is higher than integrated system, so
investment on desktop is suggestable.
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Q4. Medanalysis, Inc., provides medical laboratory services to patients of Health Providers, a group
of 10 family practice doctors associated with a new health maintenance program. Managers are
interested in forecasting the number of blood analysis requests per week. Recent publicity about
the damaging effects of cholesterol on the heart has caused a national increase in requests for
standard blood tests. The arrivals over the last 16 weeks are given below.
Week Arrivals
1 28
2 27
3 44
4 37
5 35
6 53
7 38
8 57
9 61
10 39
11 55
12 54
13 52
14 60
15 60
16 75

a. Calculate the forecast for the next period using

i. Naive
In Naïve method Forecast for any period equals the previous period’s actual value. So
forecast for 17th week should be same as previous week’s actual value which is 75.

ii. Moving average (considering 3 period)

Moving avg = sum(demand in previous n period)/n
So Moving average (considering 3 period) of above is (60+60+75)/3 = 65
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iii. Exponential smoothing ( alpha as 0.4)

Ft = Ft – 1 + α(At – 1 - Ft – 1)
So F17 = F16 + α (A16 – F16)
= 57.07617+0.4(75-57.07617) = 64.2457
Week Arrivals Forecast
1 28
2 27 28
3 44 27.6
4 37 34.16
5 35 35.296
6 53 35.1776
7 38 42.30656
8 57 40.58394
9 61 47.15036
10 39 52.69022
11 55 47.21413
12 54 50.32848
13 52 51.79709
14 60 51.87825
15 60 55.12695
16 75 57.07617
17 64.2457

b. Calculate the next three period forecast using linear regression method.
Linear method
Week Arrivals
X^2 XY
(X) (Y)
1 1 28 28
2 4 27 54
3 9 44 132
4 16 37 148
5 25 35 175
6 36 53 318
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7 49 38 266
8 64 57 456
9 81 61 549
10 100 39 390
11 121 55 605
12 144 54 648
13 169 52 676
14 196 60 840
15 225 60 900
16 256 75 1200

∑(X^2) = 1496; ∑ (XY) = 7385; 𝑋=∑ (X)/n= 8.5; 𝑌=∑ (Y)/n= 48.4375
So, b=(∑ (XY)-n𝑋 𝑌)/( ∑ (X^2)-n𝑋^2)= 2.345588235
And a=𝑌- b𝑋= 28.5
So, linear equation should be Y = 28.5 + 2.35X
so, Y(17)=a+bX=68.375
so, Y(18)=a+bX=70.72059
so, Y(19)=a+bX=73.06618

c. Use forecast accuracy methods (MAD, MSE, MAPE and tracking signal) for the all the methods and
suggest the method of forecasting for the above data.

Forecast error calculation

Naive Method

Week Arrivals (A) Forecast (A-F)

(F) Error |Error| Error^2 [|Error|/Actual]*100
1 28 28 0 0 0 0
2 27 28 -1 1 1 3.703703704
3 44 27 17 17 289 38.63636364
4 37 44 -7 7 49 18.91891892
5 35 37 -2 2 4 5.714285714
6 53 35 18 18 324 33.96226415
7 38 53 -15 15 225 39.47368421
8 57 38 19 19 361 33.33333333
9 61 57 4 4 16 6.557377049
10 39 61 -22 22 484 56.41025641
11 55 39 16 16 256 29.09090909
12 54 55 -1 1 1 1.851851852
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13 52 54 -2 2 4 3.846153846
14 60 52 8 8 64 13.33333333
15 60 60 0 0 0 0
16 75 60 15 15 225 20
Sum 47 147 2303 304.8324352
n=16 n-1=15 n=16
Tracking Signal = MAD MSE MAPE
Sum(A-F)/MAD = 5.115646 9.1875 153.5333 19.0520272

Forecast error calculation

Moving Average Method(3 weeks)
Arrivals Forecast
Week
(A) (F) (A-F) Error |Error| Error^2 [|Error|/Actual]*100
1 28 28 0 0 0 0
2 27 28 -1 1 1 3.703703704
3 44 27.5 16.5 16.5 272.25 37.5
4 37 33 4 4 16 10.81081081
5 35 36 -1 1 1 2.857142857
6 53 38.66667 14.3333333 14.333333 205.4444 27.04402509
7 38 41.66667 -3.6666667 3.6666667 13.44444 9.649122895
8 57 42 15 15 225 26.31578947
9 61 49.33333 11.6666667 11.666667 136.1111 19.12568311
10 39 52 -13 13 169 33.33333333
11 55 52.33333 2.66666667 2.6666667 7.111111 4.848484909
12 54 51.66667 2.33333333 2.3333333 5.444444 4.320987593
13 52 49.33333 2.66666667 2.6666667 7.111111 5.128205192
14 60 53.66667 6.33333333 6.3333333 40.11111 10.5555555
15 60 55.33333 4.66666667 4.6666667 21.77778 7.777777833
16 75 57.33333 17.6666667 17.666667 312.1111 23.5555556
Sum 79.1666667 116.5 1432.917 226.5261779
n=16 n-1=15 n=16
Tracking Signal = MAD MSE MAPE
Sum(A-F)/MAD = 10.87268 7.28125 95.52778 14.15788612

Forecast error calculation

Exponential Method(α=0.4)

Week Arrivals (A)

Forecast (F) (A-F) Error |Error| Error^2 [|Error|/Actual]*100
1 28 28 0 0 0 0
2 27 28 -1 1 1 3.703703704
3 44 27.6 16.4 16.4 268.96 37.27272727
4 37 34.16 2.84 2.84 8.0656 7.675675676
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5 35 35.296 -0.296 0.296 0.087616 0.845714286

6 53 35.1776 17.8224 17.8224 317.6379418 33.62716981
7 38 42.30656 -4.30656 4.30656 18.54645903 11.33305263
8 57 40.583936 16.416064 16.416064 269.4871573 28.80011228
9 61 47.1503616 13.8496384 13.849638 191.8124727 22.70432459
10 39 52.690217 -13.690217 13.690217 187.4220415 35.10312051
11 55 47.2141302 7.78586982 7.7858698 60.61976854 14.15612691
12 54 50.3284781 3.67152189 3.6715219 13.48007306 6.79911463
13 52 51.7970869 0.20291314 0.2019131 0.0407689 0.388294423
14 60 51.8782521 8.12174788 8.1217479 65.96278895 13.5362465
15 60 55.1269513 4.87304873 4.8730487 23.74660363 8.121747833
16 75 57.0761708 17.9238292 17.923829 321.263646 23.89843867
Sum 90.6142561 129.1988094 1748.132937 247.9655697
n=16 n-1=15 n=16
Tracking Signal = MAD MSE MAPE
Sum(A-F)/MAD = 11.2216831 8.074925588 116.5421958 15.49784811

Based on the linear equation we found in section b. Y = 28.5 + 2.35X

Forecast error calculation

Linear Regression Method Y = 28.5 + 2.35X

Week(X) Arrivals(A) Forecast[F]

(A-F) Error |Error| Error^2 [|Error|/Actual]*100
1 28 30.85 -2.85 2.85 8.1225 22.96296296
2 27 33.2 -6.2 6.2 38.44 22.96296296
3 44 35.55 8.45 8.45 71.4025 19.20454545
4 37 37.9 -0.9 0.9 0.81 2.432432432
5 35 40.25 -5.25 5.25 27.5625 15
6 53 42.6 10.4 10.4 108.16 19.62264151
7 38 44.95 -6.95 6.95 48.3025 18.28947368
8 57 47.3 9.7 9.7 94.09 17.01754386
9 61 49.65 11.35 11.35 128.8225 18.60655738
10 39 52 -13 13 169 33.33333333
11 55 54.35 0.65 0.65 0.4225 1.181818182
12 54 56.7 -2.7 2.7 7.29 5
13 52 59.05 -7.05 7.05 49.7025 13.55769231
14 60 61.4 -1.4 1.4 1.96 2.333333333
15 60 63.75 -3.75 3.75 14.0625 6.25
16 75 66.1 8.9 8.9 79.21 11.86666667
Sum -0.6 99.5 847.36 229.6219641
n=16 n-1=15 n=16
Tracking Signal = MAD MSE MAPE
Sum(A-F)/MAD = -0.096482 6.21875 56.49066667 14.35137275
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Linear method Y=28.5+2.35X

Arrivals(A) Forecast[F]

80
Arrival(A) & Forecast(F)

60

40

20

0
0 2 4 6 8 10 12 14 16 18 20
Week (X)

Following are the formulas for MAD, MSE, MAPE and Tracking Signal:

Method MAD MSE MAPE Tracking Signal

Naive 9.1875 153.5333 19.05203 5.115646
Moving Average 7.28125 95.52778 14.15789 10.87268
Exponential 8.074926 116.5422 15.49785 11.2216831
Linear Regression 6.21875 56.49067 14.35137 -0.096482

Tracking Signal Values can be positive or negative. A value of zero would be ideal; limits of +/-6 are
often used for a range of acceptable values of the TS.
If a value outside the acceptable range occurs, that would be taken as a signal that there is bias in the
forecast and that corrective action is needed.
Conclusion: The tracking signal value for Linear method is -0.096482, which is more acceptable as in
b/w limit +/-6, and more close to 0. So Linear method is suggested for forecasting of above data.
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References

1) Class video and PPT