FINAL EXAMINATION
PROGRAMME:
MASTER OF BUSINESS ADMINISTRATION (MBA): GENERAL AND
TOURISM- YEAR ONE
MODULE:
OPERATIONS MANAGEMENT
INTAKE:
JANUARY 2011
DATE:
17 NOVEMBER 2011
TIME:
09h00 – 12h00
DURATION:
3 Hours
TOTAL MARKS:
100
EXAMINER:
Mr T Naidoo
MODERATORS:
Dr G Chapman
Mr S Naicker
INSTRUCTIONS TO THE CANDIDATE:
1. Questions must be attempted in the answer book provided.
2. All queries should be directed to the invigilator; do not communicate or attempt to communicate
with any other candidate.
3. You have THREE HOURS to complete this paper. You are not allowed to leave the examination
room within the first hour and in the last 15 minutes of this examination.
4. This is a CLOSED BOOK examination.
5. Answer ALL questions from Section A and ANY TWO (2) from Section B.
1
SECTION A
QUESTION 1
Read the extract below and answer ALL questions that follow
NUMMI – NEW UNITED MOTOR MANUFACTURING
In practically all parts of the world, Japanese motor manufacturers are producing their cars to rigorously high
standards of quality and cost by using production methods similar to those developed in Japan. One of the most
remarkable of these Japanese ‘implants’ is the Toyota plant in Freemont, California. The plant is in fact a joint
venture between General Motors (GM) and Toyota using a plant which GM had previously closed in 1982. The
reasons for GM closing this particular plant were not difficult to understand. Through the ‘70s and early ‘80s the
quality of products produced in the Freemont plant was extremely poor, even by the relatively low standards of the
time. Productivity was among the lowest of any GM plant in the United States, absenteeism was running at around
20 per cent of the workforce, labour relations in the plant were such that it had earned a national reputation for
militancy and wild-cat strikes, and alcohol and drug abuse was a problem both inside the plant and out.
Soon after GM had closed the plant, it began discussions with Toyota about the possibility of a joint venture.
Agreement was reached in 1983 to produce a Japanese-designed car, sold under the GM name but manufactured
using Toyota’s methods of production. The NUMMI plant, as it was now called, was formally opened in 1984. Over
the next two years the plant built up production levels, progressively hiring more workers, about 85 per cent of whom
had worked in the plant before GM had closed it; several came from the old union hierarchy. The first to be recruited
were the team leaders, 450 of whom, together with the entire NUMMI management team, took part in a three-week
training programme in Japan. Those trained then played a part in organizing and training the new workers.
The performance of the NUMMI plant could hardly have contrasted more with that of the old GM-run factory. Even
though the workforce was largely the same, by the end of 1986 the plant’s productivity was more than twice as high
as when it was run by GM, and higher than any other GM factory. Indeed productivity was almost as high as Toyota’s
Takoaka plant in Japan, in spite of the fact that NUMMI’s workforce was new to Toyota’s production methods and, on
average, ten years older. Quality also improved dramatically. Audits showed that quality levels were almost as high
as Takoaka’s and certainly higher than any other GM plant. Absenteeism had dropped from over 20 per cent in the
old GM-run plant to between 3 and 4 per cent. Industrial relations had also improved very significantly. Such
improved levels of performance attracted increased investment, both in new manufacturing technology and new
products.
Many reasons for the success of the NUMMI plant have been put forward. These include clearer organizational
goals, a selective approach to recruiting those employees who had been employed previously in the plant, the move
towards single status and dress codes for every-one in the factory, even the pride of working on an intrinsically better
[60 marks]
2
designed product. However, what is notable is that the new plant and its management did not abandon the
techniques of scientific management which the previous plant’s regime had supposedly used. The philosophy of job
standardization was still rigorously applied, if anything more rigorously than in the past. Every job in the plant is
carefully analysed using method study principles to achieve maximum efficiency and quality. Jobs are timed, using
stop watches, and the detail of jobs questioned critically.
Yet there is a major difference between the way the old GM-run plant approached scientific management job design
and the way it happens under the NUMMI philosophy. Whereas before, the company’s industrial engineers were in
charge of applying method study techniques, now it is the operators (or team members as they are called)
themselves who perform the analysis of their own jobs. Team members time each other, using stop watches, and
analyse the sequence of tasks in each job. They look for alternative ways of doing the job which improve safety and
efficiency and can be sustained at a reasonable pace throughout the day. Each team will then take its improved job
proposals and compare them with those developed by the comparable team doing the same job on a different shift.
The resulting new job specification is then recorded and becomes the standard work definition for all staff performing
that job.
NUMMI’s claim is that the standardization of tasks results in less variability in task performance, which has in turn led
to several further benefits:
 Safety and work-related stress injuries improve because potentially dangerous or harmful elements have been
removed from the job.
 Productivity improves because wasted elements of the job have been eliminated
 Quality standards improve because potential ‘fail points’ in the job have been analysed out.
 Flexibility improves and job rotation is easier because standards are clearer and all staff understands the intrinsic
structure of their jobs.
One team leader compared the way in which the industrial engineers in the old plant had designed jobs with the way
it was done under the NUMMI regime:
‘I don’t think the industrial engineers were dumb. They were just ignorant. Anyone can watch someone else doing a
job and come up with improvement suggestions … and it’s even easier to come up with the ideal procedure if you
don’t even bother to watch the worker at work, but just do it from your office … almost anything can look good that
way. Even when we do our own analysis in our teams some of the silliest ideas can slip through before we actually
try them out … there’s a lot of things than enter into a good job design … the person actually doing the job is the only
one who can see all factors.’
1.1
Briefly discuss the concept of Organizational Effectiveness (Work study) and how it was applied
to the NUMMI plant, to improve performance.
(20 marks)
3
1.2
Critically discuss how the company was transformed from an under-performing GM
Plant to an efficient leading manufacturer under NUMMI management. Your discussion should
focus on the turn-around strategy, and encompass the theory you have studies
1.3
(20 marks)
As the new General Manager for operations, what supply chain strategies would you utilise to
improve efficiency and gain a competitive advantage.
(20 marks)
SECTION B
[40 marks]
Answer ANY TWO (2) questions
QUESTION 2
(20 marks)
Mkhondo Manufacturing produces a range of plastic products, situated 5 kms outside the Durban
area, is considering entering the SADC market (Botswana, Namibia, Lesotho, Swaziland and Zimbabwe).
Prepare a report that will assist them in:

Forecasting their capacity requirements
(7 marks)

Developing their capacity alternatives
(7 marks)

Identifying the factors that will determine their effective capacity.
(6 marks)
QUESTION 3
(20 marks)
Delaware Appliances, a subsidiary of Defy Corporation, manufactures stoves, fridges and chest freezers for the local
market. Over the last three months, late deliveries have increased by 35%, resulting in a major customer (MassMart)
threatening to cancel all new orders and move to a new supplier who has a better ‘on-time’ delivery schedule. John
Barnes, the CEO, of Delaware has requested you, the Operations Director, to provide a proposal to improve delivery
schedules. Having benchmarked your organization, you have decided to use a Just in Time (JIT) approach to rectify
this problem.
Explain:

Key elements of a JIT system and how you could implement at Delaware
(7 marks)

Benefits of a JIT system
(7 marks)

How you would convert Delaware’s existing system to a JIT one.
(6 marks)
4
QUESTION 4
4.1
(20 marks)
Solaris, an international distributor of solar powered generators, expects to sell 12 500 units
annually. Carrying costs are R50.00 per unit and the order cost is R65.50. Solaris works 302 days per
annum. Determine:
4.1.1
The Economic Order Quantity (EOQ)
(4 marks)
4.1.2
The number of orders per year
(3 marks)
4.1.3
The length of the order cycle
(3 marks)
4.2
Company X has the following stock items on hand:
Stock Number
Quantity
Value (Rands)
Counting Policy
MD234
10 000
55 000
Every 10 days
LZ456
25 750
500
Every 50 days
SS785
120 420
750
Every 50 days
PQ210
3000
45 000
Every 10 days
TL220
500
125 000
Every 5 days
ZH750
12 000
35 000
Every 10 days
QT422
35
150 500
Every 5 days
REQUIRED:
4.2.1
Using the ABC Stock Analysis Technique, classify the stock listed in the table above.
(5 marks)
4.2.2
Determine how many stock items must be counted daily.
END OF PAPER
(5 marks)