USN:
PES INSTITUTE OF TECHNOLOGY – BANGALORE SOUTH CAMPUS
Hosur Road (1Km before Electronic City), Bangalore -560100
INTERNAL TEST # 3
Operations Management – 12MBA32
Course: MBA Semester III
Faculty: Mrs Priya Diana Mercy & Mr H Krishnan
Date: 10/11/2014
Time Allowed: 90 Minutes
Marks: 50 (Fifty Marks)
Time: 11.30 AM – 1 PM
Note:
Answer all the Questions.
1 (a) Select the best location from the following data
Factors
L1
L2
L3
L4
L5
Availability of infrastructure
20
40
60
35
55
Size of the market
30
30
40
60
80
IR climate
Tax benefits and concession
80
80
30
20
50
10
60
20
50
20
Availability of cheap labour
Nearness to port
70
20
70
40
45
90
50
50
50
60
L1
300
5
L2
230
1
L3
295
4
L4
275
3
L5
315
6
Solution:
Total
Ranking
(b)
(3 marks)
Explain the various Location models in detail.
1. Factor rating method
2. Point rating method
3. Locational Break even analysis
4. Quantitative factor analysis
FACTOR RATING METHOD
In this method factor ratings are used to evaluate alternative locations
The method has following advantages:
1. their simplicity helps decide why one site is better than another;
2. they enable managers to bring diverse locational considerations into the evaluation
process;
3. They foster consistency of judgment about location alternatives.
The following steps are involved in factor rating:
1. Develop a list of relevant factors.
2. Rate each factor to indicate its relative importance (weights may total 1.00).
3. Score each potential location according to the designated scale, and multiply the scores
by the ratings /weights.
4. Total the points for each location, and choose the location with the maximum points.
(7 marks)
POINT RATING METHOD
If 2 alternative potential locations are found to be equally attractive by comparing the costs then
, these two locations may further be evalued , based on the tangiable factors using the point
rating method.
Points are usually assigned to intangible factors and an evaluation is made to determine whether
the differences between the intangible scores is worth the difference if any , between the
tangible cost of the competing locations.
Each potential site is evaluated in respect to every factor a company is looking for and points are
assigned to each factor.
LOCATIONAL BREAKEVEN ANALYSIS
Steps involved:
1. Determine all relevant cost that vary with each location
2. Categorise the cost for each location into
a. Annual fixed cost
b. Variable cost
c. Calculate total cost
3. Plot the total cost for each location on a graph of csot versus annual production
4. Select the location with the lowest total annual cost
5. If revenue’s vary from one location to another, then the comparisons of locations should
be made on the basis of profits (TR-TC) for each location. The location alternative with
the highest profit should be the choice.
6. If capital / investment is given then the return on investment has to be computed.
ROI % = profit / investment X 100.
The location alternative with the highest ROI should be the choice.
QUALITATIVE FACTOR ANAYLSIS METHOD
If economic criteria (cost, revenues, or profits) alone are not sufficiently influential to determine
the location alternative, a system of assigning scores to qualitative factors and quantitative
factors separately and combing them to arrive at a total score is useful in making the location
decision. This approach is known as qualitative factor analysis.
Steps:
1. On the basis on total operating cost, calculate the best location.
2. Quantify intangible factors by assigning scores to qualitative ratings.
3. For the intangible factors alone, calculate the total rating for each location.
4. Convert the total operating cost to a mere number.
Assign a score of 10 to the lowest total operating cost.
Economic rating of location A = lowest total operating cost X 10
Total operating cost of Location A
5. Total factor rating = economic factor rating + intangible factor rating
6. Select the location with the highest total factor rating
(c)
Mr. Kapoor wants to start a factory to produce ice-cream. He has collected the below data.
Factors
Economic factors
Labour costs
transportation cost
local taxes
cost of power
other costs
Intangible factors
(10 marks)
A
B
C
D
E
270000
29000
19000
19000
37000
100000
25000
25000
14000
22000
190000
19000
11000
18000
28000
170000
23000
17000
11000
29000
95000
27000
14000
16000
27000
community attitude
Labour availability
Quality of transport
very
good
fair
good
good
very good
fair
fair
acceptable
outstanding
quality of life
fair
outstanding
acceptable
Accepta
ble
fair
good
very
good
very good
acceptable
Fair
outstanding
a) On the basis of operating data – which site would you choose
On the basis of overall evaluation – which location is the best.
Solution:
A
total operating cost
rank
374000
5
outstanding
very good
good
fair
acceptable
intangible factor
rating
community attitude
Labour availability
Quality of transport
quailty of life
TOTAL RATING
RANK
B
C
186000
3
D
266000
4
E
250000
2
179000
1
5
4
3
2
1
A
B
4
2
3
2
11
3
C
3
4
2
5
14
1
D
E
2
1
5
1
9
5
1
2
3
4
10
4
4
1
2
5
12
2
ECONOMIC RATING OF LOCATION
A
B
C
D
E
TOTAL FACTOR
A
B
C
4.79
9.62
6.73
7.16
10.00
D
E
RATING
2 (a)
(b)
(c)
15.79
23.62
15.73
17.16
Name the factors involved in service delivery design
Ans:The technology/people mix
The nature of the services to be delivered
Categories of services
Complexity of the service
Volumes
Order-winners and qualifiers
Draw the ABC Analysis graph for the following data. Assume A- 70% , B- 20% and C- 10%
Ans:69.05416
0.2
91.87466
0.5
1000
1
22.00
(3 marks)
(7 marks)
Product Annual consumption (in units per item)
Price per unit in Rs
1
1.480
6.10
2
1.680
0.15
3
10.120
0.20
4
3.520
0.40
5
3.830
9.50
6
4.368
0.25
7
4.180
0.45
8
3.590
0.90
9
4.820
0.70
10
6.000
0.02
A leading orchard owner of Saharanpur has annual demand of 60,000 wooden packing boxes. The cost of
placing an order is Rs 800 and the inventory carrying cost is 25 percent . The price of a packing box is Rs
10. The supplier of the boxes offers 2 percent discount if 10000 or more boxes are purchased and 4% if
15000 boxes are purchased. What should be the quantity of boxes ordered and Minimum Cost of Inventory
among these alternatives?
(10 marks)
Ans:- 15,000 boxes will be ordered and minimum cost is =Rs 597875 EOQ = 6197 units
3
XYZ limited has been regularly using forecast to plan its production. It has always believed that its forecast
was perfect. Mr Roy, the production manager of the plant has tabulated data about the actual demand
and the forecast that was made for 8 months. You are a management consultant who is hired by XYZ Ltd.
Help Mr Roy calculate the errors. The data is as given below.
Period
1
2
3
4
5
6
7
8
Demand
120
114
130
124
97
95
100
110
Forecast
109
118
132
110
110
105
98
95
(10 marks)