Operations Management

June 2021 Examination

1. What are various decision criteria for deciding a location for a business setup? Explain
these decision criteria with reference to a location decision for setting up operations of a
Large Hospitality Setup (like a Resort. etc). (10 Marks)

Answer 1.

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 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. Let us discuss these factors in detail.
 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. Some critical factors for
infrastructure and accessibility are water supply, road conditions, parking space, locality,
etc. For instance, if a resort is set up at a place where there is a shortage of supply and the
locality is dangerous, there will be no or fewer customers. Hence, the business will fail
drastically.
 Remote business location: Remote business location can help a business in a very
flexible manner. For instance, for hospitality set up like a resort, if the location is remote,
it will help the ow to maintain business with the resort's supplies. It will benefit him or
her in accessing and working with any location worldwide. 
 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. 
  Growth potential: Future growth is crucial for the success of every business. If the
location does not have any potential for the business's development, then it is not a good
idea to open up a business in that location. It would not be a good idea to set up a resort
with no growth potential.

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. 

2. List down briefly the various inventory management techniques prevalent in the
industry. Discuss how some of these techniques would be applicable to a Medical Store in
effective management of their inventories, i.e medical supplies. (10 Marks)

Answer 2.

INTRODUCTION

Inventory Management: The process of ordering, storing, and using the inventory of an

organization is known as inventory management. The management part of the inventory
management involves raw material, work-in-progress and finished product. Along with these
three things, it also includes warehousing and processing of the 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.
 Backordering: Backordering is a company's decision technique for taking orders and
receiving payments for out-of-stock products. It helps in increasing sales and cash flow.
This technique is flexible for small businesses and includes low holding costs and
overstock risk. But, it may also bring high customer dissatisfaction and may require long
fulfilment times.
 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 fulfilment of orders on time.
 Consignment: In this inventory management technique, a wholesaler places the stocks in
the retailer's hands and keeps the ownership of the stocks in his own hands until the sale
of the product. At the time of sale, the retailer will purchase the consumed stock. From
the retailer's point of view, consignment involves demand uncertainty at a high level.
 Whereas, from the wholesaler's point of view, there is a high level of confidence. The
consignment will offer a wide variety of products to the consumer while the retailer does
not have to maintain colossal capital. The retailers can also return the unsold goods at no
cost as they haven't yet purchased the goods.
 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.
 Inventory cycle counting: In this inventory management technique, a small inventory is
counted on a particular day. There is no need to do a complete manual stock take. This
technique makes sure that the customers are getting what they want and when they want
it. Along with it, inventory cycle counting also keeps inventory holding costs as minimal
as possible.

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.

Another method that can be helpful for a medical store is cross-docking. 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.

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. 

3. Many business organizations have operations in which operations management is a daily

and constant process. Managing a Restaurant is one such business, wherein the
procurement and managing various resources is a very strategic process. Explain the
following concepts (with atleast one example) in Operations of a Restaurant business, and
conclude how relevant is it in the business?

a. Define Quality and list and discuss in brief the various dimensions of quality in
operations (5 Marks)

Answer 3a.

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-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.
b. Bill of Material (BOM) (5 Marks)

Answer 3b.

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.  

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. There are three types of bill of materials: the manufacturing bill of materials, the second is
engineering bill of materials, and the last one is the sales bill of materials. And 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.

CONCLUSION
The example mentioned earlier explains why a bill of materials is essential and how it can help
an organization reduce cost and efficiently manage inventory. This bill of materials can be
displayed in two ways: the implosion display and the other is the explosion display. A firm can
use any of the methods as per their choice and requirement.