FALL 2014

Master of Business Administration MBA Semester 3

OM 0010 Operation Management 4 Credits
Book ID B1934
Roll No. 1308002393

Q.No.1 Define operations strategy. What are the differences between manufacturing and service
organisations in terms of operation strategy?
ANS. OPERATION STRATEGY It can be defined as a plan that details how an organization
utilises its resources to achieve the goals set by the top management.
Operation strategy involves developing the long-term plan for using major resources of the
organization to achieve the desired corporate objectives.
DIFFERENCES BETWEEN MANUFACTURING OPERATION STRATEGY AND SERVICE
OPERATION STRATEGY
The following are the differences between the manufacturing and service organizations in terms of
operation strategy:
1. Strategy pertaining to the input material for producing output
In manufacturing organisations, as the final product is tangible, there are separate strategies
for the purchase of raw materials. For example, in a biscuit manufacturing organization, there
has to be separate strategy for the purchase of flour, sugar etc.
In service-oriented organization, as the final product is intangible, no distinct input materials
are required. For example, in case of consultancy for tax-related issues of an organization, the
input is in the form of experiences, applied knowledge etc.
Thus, in service organizations, the input is not fixed or distinct as in the case of
manufacturing organizations.
2. Strategy pertaining to the design of the workplace

In case of manufacturing organizations, the design of the workplace is formulated according

to the machine layouts.
In case of service organizations, the design of the workplace is formulated to suit the
customers.
3. Strategy pertaining to change management
In case of manufacturing organizations, strategies related to changes are time consuming and
their implementation takes much longer time because of difficulties involved in shifting of
machines, resistance of work force etc.
In case of service organizations, the change is relatively easy and faster to implement, as no
tangible product is involved.
Q.No.2 Explain the characteristics of services.
ANS. CHARACTERISTICS OF SERVICES
There are four characteristics of services as discussed below:
1. Characteristic of intangibility Intangibility refers to the non-receptive characteristic of
products. It is the most basic distinctive characteristic of a service. Services are deeds, actions
and performances that cannot be seen, felt, touched or tasted, as we can do with the physical
products.
Intangibility of services causes lack of confidence on the part of the customer, as they find it
difficult to measure the value, price and quality of service. The core value of intangible
product is produced in the buyer-seller interaction.
The key implications derived from the intangible characteristic of service are:
i.
Difficult for customers to evaluate.
ii.
Difficult to advertise and display prices.
iii.
Difficult to determine the actual cost per unit of service.
2. Characteristic of inseparability Inseparability refers to the characteristic of simultaneous
production and consumption of the services. Services cannot be stored to be distributed later.
It implies that the service provider is an integral part of service at the time of its sale. The
physical presence of customer is essential in service offerings.
The key implications derived from the inseparable characteristic of service are:
i.
Service providers are critical.
ii.
Training of service provider is necessary to ensure quality.
iii.
Customer behaviour and competence can help or hinder productivity.
iv.
Waiting time should be minimised by self-service or expanding service hours.
3. Characteristic of heterogeneity Heterogeneity refers to the characteristic of differentiation
in service quality. In most of the cases, services are provided by human-beings and likely to
differ in quality. The service quality can change from day-to-day or even hour-to-hour.
Heterogeneity gives rise to the concern about the uniformity of service quality. Service
personnel training and careful monitoring of customer satisfaction are required to maintain
service standards.
The key implications derived from the heterogeneity characteristic of service are:
i.
Achieving consistency is difficult.
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ii.
iii.

Customising service as per the expectations of individual customer.

Replacing employees with machine may reduce variability in service.

4. Characteristic of perishability Perishability refers to the characteristic of a service of not

being saved, stored, resold or returned. Services are perishable in nature and cannot be stored.
Perishability of offering does not pose much problem if demand of a service is steady.
The key implications derived from the perishability characteristic of services are:
i.
Cannot be inventoried.
ii.
Demand is time-sensitive.
iii.
High price during peak demand, low price during off peak.
iv.
Make use of technology to improve efficiency.
Q.No.3 What is inventory control? Explain the factors considered in inventory control.
ANS. INVENTORY CONTROL It refers to the evaluation of policies, procedures and systems for
ensuring an adequate supply of inventory. It is also called stock control which is a process that
involves the supervision, storage and accessibility of goods or items. Inventory control is all about
maintaining balance between undersupply and oversupply to maximise profits and minimise costs.
FACTORS CONSIDERED IN INVENTORY CONTROL
The factors that are required to be considered in inventory control are as follows:
1. Warehouse capacity This is the most important factor that is required to be considered in
inventory control. A warehouse with less capacity for holding the stock or a warehouse with a
very large capacity for holding the stock needs to be taken into account during the process of
planning for inventory management.
2. Relevant inventory costs Maintaining a particular level of inventory depends on various
relevant costs such as purchase cost, carrying cost, ordering cost, shortage cost, customer
service cost and total inventory cost.
3. Demand for inventory items An organization always decides the amount of inventory to be
kept on the basis of the demand of goods. The size of demand may either be deterministic or
probabilistic.
4. Replenishment lead time The total time taken for in-house production or the procurement of
goods from an external source is called replenishment lead time. In a manufacturing system,
raw materials and semi-finished goods may be required either to keep them in a warehouse
for the future need or to be used for processing immediately on arrival. The replenishment of
such items may be uniform or constant. These patterns of replenishment depend upon lead
time.
5. Operating decision rule An organization needs to make a number of decisions while
formulating inventory policies. These decisions can b related to the size of replenishment
order and the appropriate time to make this order.

6. Length of planning period It is the planning period that defines the duration for which a
particular inventory level would be maintained. This period may be finite or infinite
depending on the nature of the demand.
7. Constraints on inventory system These are restrictions that directly affect the performance
of an organisations inventory system. These restrictions can be limited warehouse space,
limited budget available for inventory, degree of management attention towards individual
items in the inventory and the customer service level to be achieved.
Q.No.4 Explain the applications of queuing models.
ANS. APPLICATIONS OF QUEUING MODELS Customers are the primary source of revenue
for an organization. They are satisfied if the organization provides products or services at minimum
cost and within the stipulated time. If an organization makes unwanted delays in delivering services,
customers may become highly dissatisfied and switch to other brands. Therefore, the waiting time of
customers and the cost of providing of providing services should be minimised. This can be done by
using queuing models. A queuing model of a system is an abstract representation whose purpose is to
isolate those factors that relate to the systems ability to meet service demands whose occurrences and
durations are random. Typically, simple queuing models are specified in terms of the arrival process
the service mechanism and the queue discipline. The arrival process specifies the probabilistic
structure of the way the demands for service occur in time; the service mechanism specifies the
number of servers and the probabilistic structure of the duration of time required to serve a customer,
and the queue discipline specifies the order in which waiting customers are selected from the queue
for service.
The applications of queuing models are:
1. Industrial manufacturing or production process It has a wide application of queuing models.
In manufacturing or production processes, queuing models are used to minimise the time of
the following: Assembly lines,
Tool room service,
Billing,
Computer centres,
Expensive stock items
2. Transportation In this field, queuing models are used to minimise the waiting time of the
arrival and departure of buses, and checking and ticketing counters.
3. Communication In the communication industry, queuing models are applied to minimise the
waiting time between the telephone calls that need to be attended by agents.
4. Service industry In this field, queuing models are used to minimise the customer waiting
time.
5. Human resource management In this field, queuing models are used to determine
appropriate waiting time for the promotion of an employee.
6. Commercial queuing systems Used in commercial organizations serving external customers.
For example, dentist, bank, ATM, gas stations, etc.
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7. Business-internal service systems Customers receiving service are internal to the

organization providing the service. For example, inspection stations, conveyor belt, etc.
8. Social service systems Used in judicial process, hospital, waiting lists for organ transplant
or student dorm rooms, etc.
Q.No.5 Write short notes on Markov analysis.
ANS. MARKOV ANALYSIS It is a technique that is used to analyse the present behaviour of a
variable and estimate its future behaviour. It is a process that is characterised as memory less as the
next state depends upon the current state and not on the sequence of the events.
CHARACTERISTIC OF MARKOV ANALYSIS The characteristic of Markov analysis are as
follow:
1. There must be finite number of states that are numbered 1, 2, 3,...., n. A finite Markov chain is
a process that moves along the elements of a finite set. For example, a machine can be in one
of the two states at any point of time. It can function either correctly or incorrectly. Thus,
there are two states of the machine.
2. States are required to be collectively exhaustive and mutually exclusive. Collectively
exhaustive means all the possible states of system or process can be listed whereas mutually
exclusive means that at any point of time, the system can be in only one state.
3. The future state from the previous state can be predicted easily. Given state probabilities and
transition probabilities, we can predict the future state.
ASSUMPTIONS OF MARKOV ANALYSIS The important assumptions of Markov analysis are
as follow:
1.
2.
3.
4.
5.
6.

Markov analysis consists of limits or finite number of possible states.

The future state can be predicted from the previous state.
The probability of reaching to various states remains same over time.
Time periods are equal in duration.
The total number of manufacturers and customers remain same.
Markov analysis has a set of initial probabilities, which may be given or determined.

APPLICATIONS OF MARKOV ANALYSIS Markov analysis has a number of applications in

the business world. Some of the most important are as follow:
1. Marketing department Markov analysis helps a marketing manager to predict and analyse
the behaviour of customers in terms of brand loyalty and brand switching. It also helps in
predicting the market share of the organization.
2. Human resource department Markov analysis helps a human resource manager to estimate
the rate of recruitment and the policies of promotion. It predicts the manpower requirements
of the organization.

3. Finance department Markov analysis helps a financial manager to manage the accounts
receivables of the organization. It also helps in studying the stock market movement.
4. Production department Markov analysis is helpful in solving inventory and queuing
problems. It also helps in inspection and replacement analysis.
Q.No.6 Describe the various types of decision making models.
ANS. DECISION MAKING MODELS A decision maker selects a decision making model after
considering various factors such as whether a decision is made by considering the facts of the problem
or the experience of the decision maker.
The various types of decision making models are:
1. Rational model
2. Intuitive model
3. Recognition Primed Decision-Making model

The three decision making models are explained as follows:

RATIONAL MODEL In this model, logic is employed to take decisions. The decision maker
analyses all the solutions of a problem to select the most rational alternative. It uses probability
techniques; however, the calculations involved in such techniques are complex in nature. In the
rational model, all the possible solutions are rated and the one with the highest rating is selected as the
best solution for the problem.
INTUTIVE MODEL In this model, the decision maker makes decisions on the basis of feelings,
emotions and instincts. The decision makers use the hit and trial method to solve a problem. This
model does not follow a step-by-step process. In the intuitive model, decision makers use their five
senses to make some patterns from the gathered information to take a decision. For example, a
weather forecaster observes the weather conditions and predicts whether it would be a rainy or sunny
day. It is important to note that experience plays a crucial role in taking decisions. For example, a
sales person can judge whether a customer can buy a product or not, on the basis of his/her intuition
and prior experience.
RECOGNITION PRIMED DECISION MAKING MODEL It refers to the model that works on
logic as well as intuition. Decisions are taken by evaluating the situation by gathering information.
After that, a certain pattern is framed from the gathered information to find the solution of a problem.
Finally, the decision maker checks the feasibility of the solution, before taking the decision to
implement it. In this case, the information is gathered by using the rational model and the decision is
made by using the intuitive model. In the recognition primed decision making model, the decision
maker takes decisions based on his/her prior experience and skills.
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