OPM-620: OPERATIONS MANAGEMENT
SPRING 2022 INDIVIDUAL CASE STUDY #1
MANDEXOR MEMORY
I n November 1999, Mat Frankel was
promoted to the post of Operations Manager
of the company’s European Disk Drive
Division, located just outside Dublin. An
American, he had been given the job for two
reasons. First, the parent company in the USA
was concerned at the poor record of the Dublin
plant in terms of meeting production targets
which, it was felt, he could improve. Second,
the whole of the European operation was about
to reorganise. The reorganisation would take
away each division’s sales and marketing
function and centralise them into a Marketing
Division. It was hoped that this new division
would rationalise distribution, reduce overall
stock investment and improve the quality of
sales forecasts. Each manufacturing division
would then sell to the sales division at cost, plus
a small percentage.
The Marketing Division would take
responsibility for all finished goods stocks. This
form of organisation had been used by the US
company for some years and it particularly
wanted an American Operations Manager
during the changeover period. Previously, Mat
had been the Production Controller of an
equivalent plant in the USA. His experiences
there had developed his ideas on how operations
should be run. At his first management meeting
in December 1999 he addressed his new team.
‘The main problem with running a plant like
this, especially in the Computer business, is that
there is such a lot that we don’t know. Of
course, we never know what sales are going to
be. Sure, we have forecasts, but I suspect that
our forecasters do little more than guess. And
who can blame them? With so much technical
innovation, who knows what lies around the
corner? But it is not only external unknowns
that are the problem.
We are not even sure of the true cost of our
actions. For example, what is the real cost of
holding inventory? A million dollars’ worth of
inventory can halve in value overnight if the
technology changes. At other times, its value
can actually increase if there is a shortage in the
market. Nor do we have any real idea of the true
cost of lost sales if we run out of inventory, or
the cost to our reputation if we fail to meet
delivery dates. ‘I know what you might say.
“How can we find out true costs when we are
continually changing schedules because the
forecasts are changing?” Well, while I have
some sympathy with that, we cannot always
blame other people. I know better forecasts
would help us significantly, but we must also
put more effort into both planning to cope with
inaccurate forecasts and being able to respond
flexibly when we need to. Also, what is the use
of complaining when it is the very nature of
management to cope with some fundamental
tensions? Different parts of the business have
always wanted different things. The finance
people are concerned with minimising inventory
levels so that they can cut our levels of working
capital. Marketing are only concerned with
having plenty of product to sell at any time. In
operations, we like to minimise our own costs
by minimising any disruption to our production
plans. ‘But from now on we are going to take a
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lead. We are going to plan the production levels
for our factory in such a way as to give
everybody what they want. From now on we
schedule in such a way as to minimise our own
costs, give marketing the goods they want when
they want them, and keep inventory levels at a
minimum. I know that’s one hell of a task, but if
we don’t do it, no one else can.’
● MARKETING CONSIDERATIONS
Mandexor Memory produced and sold three
basic ranges of disk drive, Modified only
slightly for different markets. The first range of
products was known as the ‘Consumer’ range.
These products were relatively small disk drives
which were sold into the consumer market as
added memory products. Some were intended
for external use while others were mounted
internally. Also, both external and internal
drives were made with different storage
capacities. However, there was a very high
degree of parts commonality between the
different types and every model within the range
could be manufactured on the same production
line, without modification. The products in the
second range, known as the ‘PC Drive’ range,
were large disk drives sold to personal computer
manufacturers for assembly into their products.
Again, these came in different sizes and with
slightly different specifications, but had a very
high degree of similarity and parts
commonality. The third range was known as the
‘Professional’ range. These were stand-alone
drives of very high capacity mounted within
their own enclosures and sold to a wide range of
professional information technology (IT) users.
The Consumer product range was sold primarily
through large computer retailers, both physical
retailers and Internet retailers. More recently,
Mandexor had started selling direct to the public
through its own Internet site. As yet, this only
accounted for three to four per cent of total
Consumer range sales. The PC Drives were sold
to computer manufacturers under short and
medium-term contracts.
Typically, a computer manufacturer would place
an order for several thousands drives of various
types to be delivered on specified dates. Usually
this contract allowed the PC manufacturer to
vary quantities and delivery times at relatively
short notice without compensation. Although
there was considerable price competition in this
market, Mandexor realised good margins on its
PC range. This was because it had an excellent
reputation for the quality and reliability of its
products. The top-end PC manufacturers were
willing to pay slightly more for Mandexor
drives because of their proven reliability. The
Professional range of disk drives was sold
through a variety of channels. Some were sold
directly through the company’s Internet site,
some to the larger computer manufacturers for
installation as part of their own systems, but
most were sold through specialist IT systems
suppliers.
Mandexor sold disk drive products from stock
all over the world; because of this
market fluctuations were, to some extent,
smoothed out. However, forecasting was
notoriously difficult for three reasons. First,
computer sales as a whole were dependent on
overall economic growth. While this had been
strong in most markets throughout the late
1990s, regional economic downturns could still
impact on Mandexor’s sales. Second,
technology was continually shifting both in
terms of disk drives themselves and in other
aspects of computing. Although technology
changes had not had any major impact on the
company for several years, press speculation
surrounding technology change could cause
fluctuations in the supply chain.
Third, there was market seasonality in disk drive
sales. This was a result of the Christmas gift
market and, more significantly, financial year
end points. Typically, the August low point was
around 60 per cent of the December peak. The
actual retail sales for 1999 are given in
Appendix 1. Forecasts of the orders for each
range were made every month for the next four-
month period. Also, every quarter a four-quarter
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forecast was made and occasionally a 12 month
forecast was made. At the monthly
sales/production meeting, these forecasts were
used to agree a month-by-month production
plan with the Operations Manager.
● MANUFACTURING CONSIDERATIONS
Manufacturing at the plant consisted of parts
fabrication and assembly. Parts fabrication
operations included metal shaping and forming
which were done in batches on various
machines. Unusually, Mandexor also produced
some of their ‘disk media’. This was the coated
surface on which information was stored. The
reason for this was partly historical, but was
also justified in terms of keeping close to the
technical developments in the media-coating
process. Assembly operations were line-based,
with the lines carefully balanced using standard
times. More and more assembly and inspection
jobs were being automated as cost reduction
opportunities became evident. Mat Frankel had
said his plant now had a five-day capacity of
about 16 500 drives per week. After the monthly
sales/production meeting, the Plant Manager
would translate the production plan into its
‘standard hours’ equivalent. This was the unit of
production which enabled production to be
aggregated and the loading on the plant
calculated. The standard hours for each product
was derived from the number of direct labour
hours needed to manufacture it, and
incorporated various allowances.
Thus the monthly forecast for each product type
was multiplied by its standard hour equivalent
and summed to obtain the factory loading.
Appendix 2 shows the four-month forecasts and
the actual factory loadings at each monthly
meeting during 1999. Normally the model mix
produced consisted of about two Consumer
range products to three PC range products to
one Professional range product. The standard
hours content of the Consumer range products
was 80 per cent of the content of the PC range
products; the Professional range products was
120 per cent of the standard hours content of the
PC range products. If mix changes occurred,
assembly lines could be rearranged. Operators
were transferred among the three production
lines with only marginal loss of efficiency –
about half the assembly personnel had been
employed for at least four years, and they had
developed a versatility in working on the
different models. Many parts were
interchangeable among the models and parts
were made in job lots so that product mix
changes did not significantly affect labour loads
in the parts machining and processing
departments. Because of this and the recent
stability of the product mix,
manufacturing personnel usually described
output in terms of ‘unit drives’ rather than
‘standard hours’.
The plant was heavily unionised but labour
relations had been generally good for the last
few years. The company’s employment record
had been good, with no redundancies and a
minimum of four weeks’ notice given for any
working practice change or overtime. Wage
rates were about average for the area, but fringe
benefits were better than average. The whole
plant shut down for the last two weeks in July
and the first week in August.
● FIXING THE PRODUCTION PROGRAMME
January 2000 saw the Sales Division formed
and Mat’s first production budget meeting. This
was the meeting at which the guidelines would
be agreed between Production and Sales for
production volumes over the coming year, and a
preliminary overall production plan pencilled in.
Mat rather shocked the meeting by making what
some regarded as a ‘delaying’ proposal.
‘I am firmly convinced that we could save
considerable amount of money by examining
our production schedules. I propose that we set
up a small working party to examine the costs
involved in adopting a number of strategies,
namely:
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 ● keeping production levels constant and
absorbing demand fluctuations by varying
finished goods stocks
● using overtime on an extensive basis in peak
periods and allowing underutilisation of labour
during slack periods
● hiring an extra shift for peak production and
laying them off later in the year, if necessary
● subcontracting out some of our parts
fabrication over to assembly.’
Rather reluctantly, the meeting agreed to
postpone any decisions for two weeks
while the working party examined Mat’s
alternative ‘strategies’.
● THE WORKING PARTY
The working party met five days later and
consisted of one representative from each of
Production Control, Accounts, Sales and
Marketing, and Distribution (now in the
Marketing Division). They had two documents
for consideration – a sales forecast for 2000 and
some brief information prepared by the
Accounts Department concerning each strategy.
These two documents are shown in Appendices
3 and 4. In addition, the production control
representative tabled a preliminary analysis of
production requirements based on the 2000
forecast. This is shown in Appendix 5.
The production control representative put his
view of the problem:
‘We have to tackle this problem in the right
order. First we need to look at the actual level of
output that will be needed over the year, then we
can decide how, ideally, we might like to meet
this output requirement. Lastly we need to have
some idea of how to increase or decrease output
if our forecasts change, and under what
circumstances we would break away from the
production plan.’

CASE QUESTIONS

1) From Operations point of view, distinguish between capacity planning and control.

2) How would the operations manager of Mandexor plan the capacity levels and control the capacity levels?

3) What level of output will be required each month for the plant to meet its demand?

4) What combination of ‘strategies’ would you recommend in order to meet the production plan?

5) How might production levels be changed in the light of changes in the forecast demand?

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 APPENDICES

Appendix 1

Appendix 2

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 Appendix 3

Appendix 4: Preliminary Costings

Cost of stock
Finished goods stocks are no longer a factory item. Previously we have charged at an
annual rate of 20 per cent of factory cost to include all warehousing and handling costs.
Current warehouse capacity is 20 000 drives. Occasionally extra storage space is rented.
Overtime
Current union agreements require four weeks’ notice for any overtime. However, in
practice some weekday overtime can be arranged at shorter notice. Up to two hours a day
can be worked over the eight-hour weekday shift. Weekday and Saturday overtime rates
are 150 per cent of standard rates. Sunday rates are 200 per cent of standard rates.
Hire temporary workers
Recruitment would incur costs but much of the ‘personnel’ effort required could come
from existing resources. Productivity of new workers would also be low, but again this is
difficult to quantify.
Subcontracting
We have put out some work to local subcontractors before – usually simple parts fabrication
work. We generally expect to pay subcontract prices of between 120 per cent and 125 per
cent of our own factory costs

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Appendix 5

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Guidelines for Analyzing Case Studies

While there is no “formula” for analyzing case studies, the following guidelines are recommended;

1. Define the goals and objectives for your analysis. What questions are you trying to answer? What issues are
you trying to resolve?
2. Rapidly skim through the case study and get a sense for how the case study has been structured.
3. Read through the case study with paper and pencil and make notes as you go along
4. Structure the information in the case study: this is the key step.
a. Think of the information given in the case study as “raw data” that you have gathered to
help you answer the questions and resolve the issues in Step 1 above.
b. You need to structure this data in order to resolve the issues.
Here are some useful dimensions along which you can structure the given information chronologically:
i. Evolution of the industry in which the enterprise operates (changes in technology,
customer needs, competitive landscape, etc.)
ii. Evolution of strategy - business, technology, and market - of the enterprise
iii. Evolution of technology (including manufacturing), product platforms, and product lines
of the enterprise
iv. The technology, product, and process development process within the enterprise
v. Growth (or decline) of the enterprise with respect to of market share, revenues, costs,
profits, etc.
vi. Organizational structure of the enterprise
vii. Key decisions made at different stages in the life of enterprise, and the drivers for these
decisions
viii. The interconnections and relationships between all the above factors
ix. Make extensive use of figures, tables, trees, etc. to shape your thinking during the
structuring process.
x. Perform any necessary analysis, for example, revenues or costs associated with different
design options
5. Draw conclusions, answer questions, resolve issues, and make recommendations using the structured
information in Step 4.
6. Use the case questions to structure your paper. In order words don’t quote the questions and provide
answers, rather formulate titles and subtitles with the case questions in an essay format.

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