QUESTION 1

PART A

“A firm’s manager must decide whether to make or buy a certain item used in the

production of Smart TV. Making the item would involve annual lease costs of $250,000.

Cost and volume estimates are as follow

Given these numbers, should the firm make or buy this item? Justify your decision.”

Solution:

Make Option

Annual fixed cost = $ 250000

Variable cost per unit = $ 90

Annual volume = 15000 units

Annual variable cost for 15000 units = 15000 * 90 = $ 135,0000

Total cost for make option = 135,0000 + 250000 = $ 1600,000

Buy Option

Total cost = 15000 * 100 = $ 1500, 000

Since buying option is cheaper in comparison to make option, it is better that company opt for

buying option for 15,000 units.

 QUESTION 1

PART B

SERVICE CAPACITY

Service capacity is defined as the number or volume of the service while maintaining the quality

and performance of the business. The service capacity of the business is affected by the standard

of the volume that is being set. This is said to be major problem which is faced by the businesses

regarding the increase in the volume of the standard quantity which is determined by the

businesses (Li et al., 2014).

In order to overcome this problem, certain techniques and approaches are introduced by the

professionals which helps the businesses in these types of situations. This can be easily

understood by taking the example of the call centers, seating capacity in outdoor business,

requests on a particular website etc. the performance of the business is indirectly associated with

the capacity of the services (Li et al., 2014).

If the seating arrangement of any particular outdoor business is for 500 people, if the people

exceed more than 500 people then the performance of the business would gradually decrease with

the increase in the people. The reason behind is that when the people will increase, the number of

the waiters would be constant and those can only handle 500 people. They will not be able to

entertain the increased 100 people so automatically the performance would be decreased. If the

performance of the business would decrease, the customers would complain regarding the
decrease in the performance of the business and the revenue of the business would be affected (Li

et al., 2014).

The other example can be taken of the call center which takes about 50 calls per minute, if the

number of the calls exceeds than 50 calls then the agent wouldn’t be able to control the flood of

calls and automatically the agent would start doing blunders even though the agent is used to do

such type of the work. The agent is not trained to take more than 50 calls or in other word the

agent’s capacity is not more than 50 calls per minute. There is proper capacity management

introduced in the business so that the owners and management would have knowledge to handle

the situations when the volume of the services exceeds more than the standards. There are proper

trainings that are introduced in the business regarding the management and supervisors regarding

the increase in the volume and how to handle the situations without effecting the performance of

the business. There are new software and approaches introduced regarding this situation.
 QUESTION 2

PART A

“Explain THREE (3) types of process layouts in service environment.”

TYPES OF PROCESS LAYOUTS IN SERVICE ENVIRONMENT

PRODUCT

Product is said to be the main factor in any business either it’s a manufacturing business or it’s a

servicing business. The process and services of any business or agency depend upon the type and

nature of the product. If there is a servicing business, then the services which are given to the

agency would be different as compared to the other product because the nature of the product is

different. The products which are similar in manufacturing should be kept together and those of

the products which are different in nature and different in manufacturing processes should be kept

on other side. This would help in reducing the chances of errors because of the separation of the

products having different production processes. The strategies used in the service environment

regarding the product would be different as the product’s consumers would be different and they

have a different mentality. In order to pitch the right people for the product, the strategies and

approaches that are used would be different as compared to the other product. If the pitching that

is done in order to attract the customers is not prolonged and continuous, then such pitching

would be useless (Job, Joseph & Pillai, 2011).

FIXED POSITION

Fixed position is defined as the permanent position given to the individual doing its job and he

cannot be replaced with any other person because of the experience of doing work. For example, a

plumber, engineer, site engineer, machine operator are those people that cannot be replaced with
any other person doing job is the factory because the work that is being done by people can only

be done by who are certified and have experience of this work. So there has to be a permanent

fixed position given to these people so that they can never be replaced, and the working of the

process can never stop. If such people having the knowledge of these technicalities are replace,

then there would be problems arise in all the concerned departments which can cause hurdles in

achieving goals and objectives (Job, Joseph & Pillai, 2011).

CELLULAR

Cellular layout is defined as the mix of both product and fixed position layouts. In the cellular

layouts, the product and fixed position are combined in order to complete the manufacturing

process to some extent. There are rooms made in which specialists’ people are making the same

products in order to increase the products. This will not only help in increasing the products, but it

will also help in working as a team which would lead to increase the teamwork in the

manufacturing process. The use of cellular layout is frequently used by China in small

manufacturing businesses and big companies. It requires less time, and the output is more. The

age varies in this layout because of the specialties of the people working on the same product is

the factory. There are some companies who have made cellular layouts on the basis of age and

gender, according to them this increases the production and decreases the time (Job, Joseph &
Pillai, 2011).
 QUESTION 2

PART B

“Assuming you are a Business Consultant, your client plans to open a car repair shop and

an automatic car wash shop. You are required to advise your client on the selection of

process types for these two businesses and explain the advantages and the disadvantages of

the process types.”

CAR REPAIR SHOP

In car repair shop there should be fixed position layout used because car repair shop requires

experienced and specialist’s people. On the other hand, if the people who are hired for working in

the car repair shop wouldn’t be specialists, then they would do a lot of mistakes and the clients

would become unsatisfied. For example, the repair of tires, changing of engine oil and break

shows requires specialist’s people. All the work done in this shop requires specialists so fixed

position layout would be most suitable for this (Shivasankaran et al., 2013).

ADVANTAGES

1. The work would be done by professionals so there wouldn’t be any chance of errors and

mistakes by the staff.

2. The professionals can train new staff and as a result more staff could be trained for

increasing in setup.

3. There would be latest technology used in the business and as a result there would be

increase in the customers. The increase in customers would lead to increase in the revenue

for the business.

 4. There would be a lot of services under one roof so the customer wouldn’t have to search

for more shops regarding the service of the car.

DISADVANTAGES

1. There would be a problem if any of the professional leaves the work as a result of

discrepancy between staff or owner.

2. When the workers would know about their value then they might ask for increase in the

wages as a result new problem could arise in the business.

3. The professionals might not train the new staff because if the new staff would be trained

well, the older staff might lose their value.

AUTOMATIC CAR WASH

As car wash is said to be very easy and can be done by any person so in this shop cellular would

be most suitable. The reason behind is that there would be small room made for the people to

work as a team. In this way not only, the work would be done in a very short time but also

teamwork would be appreciated. The more work would be done; the more clients would be

handled by the shop owner. In order to increase the business, there is introduction of the latest

technology, and more capital is needed in the business so that the business could grow, and the

revenue of the business could be increased. Tools and techniques are needed for this business
(Cahyadi & Siregar, 2021).

ADVANTAGES

1. There would be professionals as well as new staff which would help in increase in the

customers as more customers would be deal at one time.

 2. This requires no professionalism so if the professional is not available the new staff could

also take care of the work.

3. The chances of errors and mistakes are less in this as it is not a manual activity.

DISADVANTAGES

1. Less introduction of technology in this business.

2. Low wage of the work would lead to less interest of the employees.

3. Low space in the business would lead to congesting and breathing problems.

4. Required a lot of effort to attract the customers.

 QUESTION 3

PART A

“Explain the concept of lean operation”

LEAN OPERATION

Lean operation is a type of business strategy which tells about getting maximum output with

minimum input. In other words, lean strategy is defined as the strategy which tell to do business

in such a way that less resources are used, and the output is more than the input. In lean operation

the business understands the customer’s values and make sure that the business is kept on

increasing the quality of goods and services in very short time (Shou et al., 2021).

One of the biggest advantages of lean operation is that there is zero wastage in this operation. This

means that the quality of the products and the processes of the business are so efficient that there

is zero wastage of the resources of the business. If we talk about the goal of the lean operation, the

goal of the lean operation is to provide the best value of the customers through the creation of

perfect value with zero wastage of the resources. In lean operation the expenses are cut as well as

the energy and the time resources. The most expensive resource is the time, when the time is

properly maintained and used, then the business could be able to achieve its goals and objectives

in very short period of time (Shou et al., 2021).

Lean operation helps to tell us how to decrease the expenses of the business and be more cost-

effective in order be more profitable by utilizing the minimum resources. For example, there is a

decrease in the overproduce items, the inventory is not held for long only that much inventory is

held which can be feasible for the current time. The task of the business is given to the employees
and similar tasks are given in form of teams so that more tasks could be done in less time without

any mistake and errors. As a result of decreasing the expenses of the business, there is decrease in

the price of the product and services, the company can improve the price of the products and as a

result the company can compete with the competitors (Shou et al., 2021).

There are a lot of companies which are using lean operations in their core business for example,

Toyota company is using lean operations and the wastage of the company is almost very less as

compared to its competitors. Other brands like NIKE which had a lot of wastage is now using

lean operations in the company. The wastage is very less of this brand because of the lean

operations and the prices of the products which are offered by NIKE is also very less as compared

to its competitors.
 QUESTION 3

PART B

“Evaluate THREE (3) benefits and THREE (3) risks of lean operation.”

Lean Manufacturing has several advantages but also comes with a few drawbacks some of which

have been discussed below.

BENEFITS OF LEAN OPERATIONS

Following are the advantages of lean production.

1. Satisfied Customers

Significant increase in the number of customers satisfied. The core foundation of lean operations

is based on recognizing the priority of the client. Making use of Lean operations allows you to

find yourself under the specific conditions which make you capable of making an offer that the

customer needs almost every single time. Your business will no doubt turn into a huge success, if

you are always able to provide the client with best quality products as well as services on time at

the proper location. Executing lean operations will bring you back these satisfied customers for

further business granting you the option to even grow and maintain your business (Lucato et al.,
2014).

2. Profit Improvement

Lean manufacturing allows you to drive down the cost for your products which in return enables

you to save more for higher profit. Implementing this strategy assists in making remarkable cost

savings as compared to most other companies which work on increasing selling price to earn
profits which in turn repel customers as selling price is dependent on market and if your prices are

higher than the market price, then the customers will stop buying from you (Lucato et al., 2014).

3. Minimized waste

The most important advantage of Lean is that it also allows to effectively reduce waste in an

industrial unit. This waste includes over-processing, transportation, defects, overproduction,

waiting, inventory, motion and more. Furthermore, doing so will also decrease the expenses in the

operation (Lucato et al., 2014).

DISADVANTAGES OF LEAN OPERATIONS

Following are the disadvantages of lean production

1. Failure of equipment

There are a few chances for error in Lean. Failure in labor or equipment may result in significant

inconsistencies which can result in the whole operation falling behind. As compared to other

production facilities where workers have the option to switch machines in case of equipment

failure, lean doesn’t allow this option as everything in the operation is being used. Due to this, it

is important to regularly maintain and inspect equipment (Lucato et al., 2014).

2. Dissatisfaction of Employees

Implementing lean manufacturing methods makes it necessary for employees to adopt to the

change which is switching to effective production processes for the best quality of products. If

employees are uncomfortable and face difficulties in adapting to these changes, there is a risk that

they may reject these new strategies. However, it will be helpful to have a good manager who is

able to persuade and support the change from one method to another (Lucato et al., 2014).
 3. Inconsistencies in delivery

Lean manufacturing also faces the risk of inconsistencies in delivery in correlation with failure of

equipment. Adopting to lean comes with a smaller error margin that is you will not be able to

match your clients’ needs if you do not have the required raw materials because of late supply

deliveries. Consequently, this can damage your revenue as well as disturb customer relationships

and force your clients towards your rival businesses (Lucato et al., 2014).
 QUESTION 4

PART A

“Use example to differentiate between dependent-demand items and independent-demand

items.”

DEPENDENT DEMAND ITEMS

Dependent items are those items whose demand depend on the other items of the equipment of

machines. Dependent demand items are further divided into two parts. First are those whose

demand arises without being depending on the other items and the second items are those whose

demand arises by depending on the other items in the manufacturing process. Dependent demand

items are generally called raw materials, services of any product and products itself. The demand

arises as a result of one by one calculation of the products that are being used in the processes.

Dependent demand items can be understood by taking the example of the raw materials that are

being used in the manufacturing processes, the use of raw material in the manufacturing processes

arises the demand of labor and machinery because without these two factors it is almost very

difficult to manufacture the product. Dependent demand items are said to be very important for

the manufacturing process because without these items it is almost very difficult to manufacture

any product in the business. The requirements of these items are calculated based on the demand

itself and these items are always there to be fulfilled in any business. There are some special cases

in the dependent demand items that is about the parts of the equipment or the machinery that is

being used in the manufacturing process (Zhou & Yang, 2005).

INDEPENDENT DEMAND ITEMS

Independent demand items are some items in the factory who have nothing to do with the rest of

the items that are in the factory. Furthermore, independent demand items are divided in to two

parts. First are those items whose demand occurs independently on the other items and other

items are those whose demand changes while being depending on the other items. They are said

to be independent and have no relationship with the rest of the items of the factory. These are the

items which are frequently used by the selling department to sell the product and services to the

customers for example, the advertisement expenses, the commissions given to the salesmen and

other type of expenses. Independent demand items are mostly used for the planning and

forecasting purposes due to their importance and effectiveness in the business. It not only helps in

forecasting and planning, but it also helps the businesses to attract more customers by increasing

the sales of the business. The demand of the item in depending upon the individual so this is why

it has to dependency on the other items in the business. In order to get best results in the business,

independent demand items are being used for the planning purposes so that the planning could

become more effective, and the forecasting would also become helpful for the business in order to

arrange the future expenses and control the sale demand complications in the business. If there is

no use of independent demand items in the business, then the controlling of the future expenses

and the future production would create problems for the businessmen as well as for the suppliers
(Zhou & Yang, 2005).
 QUESTION 4

PART B

“Explain FIVE (5) main functions of inventory.”

Main Functions of Inventory

The following discussion provides a detailed description of how inventory is useful.

1) DEVELOPPING OF STANDRDS, PLAN AND POLICIES - Inventory helps in

developing standard, policies and plans for the production process that how could be that

inventory be helpful in increasing or decreasing the supply of the finished goods for the

customers. It also helps in maintaining the price of the products as well as raw material.

Inventory helps the businessmen to make sure that the raw material for the production

process is available at time when it is needed by the factory (Vrat, 2014).

2) MANTAINENCE OF RECORD - Inventory helps in maintaining the record for the

business about the raw material that is being used or that is being replaced by another

inventory. Inventory also discusses about how much amount of raw material or finished

goods have been sold out or how much have been used by the factory of the business. It

also helps in calculating the amount of wastage that is being occurred in the business (Vrat,

2014).

3) HELP IN PRODUCTION PROCESS - Inventory helps the business in the production

process either it’s regarding the raw material or the finished goods. The inventory helps in

making sure that the products are safe, and they can be delivered to the customers any

time. It also informs about the expiry date of the finished goods or raw material so that the

production process cannot be affected by this. The quality of the goods and raw material is
 also maintained in the business by the help of inventory. The reason behind is that the

inventory is frequently checked by the business and if there are problems in the inventory

then such raw material or finished goods are replaced with the proper one (Vrat, 2014).

4) BALANCE IN DEMAND AND SUPPLY - Due to the inventory there is a balance

maintained between the demand and the supply of the raw material or finished goods. The

reason behind this balance is that if this balance is not maintained then there is a problem

arise regarding the increase in the expenses of the holding. These expenses are also called

holding costs. If there is a proper balance maintained, then the business can invest in other

projects and as a result the revenue of the business would be increased (Vrat, 2014).

5) AVAILABLILITY OF RAW MATERIAL ON TIME - Inventory helps the business in

making the material available at the time when it is needed or making sure that the

finished goods are available for sale when there is needed for the business for selling the

products. If the products and raw material is available at the time when it is needed, then

this will help in increase the production as well as selling processes. It helps in two ways

first it helps in increasing the production and selling process and second it helps in

reducing the expenses of the businesses which are called holding costs. There are some

other minor advantages like accuracy of the quality of the goods and the raw material

(Vrat, 2014).
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