Operations Management Module

MBA7061

Jan. 2018
Module Resource Book
 Operations Management
Module Aims:

This module provides a comprehensive introduction to Operations Management as practised in

organisations. It provides an overview of key aspects of operations management from both
manufacturing and service sectors’ perspective within modern organisations. The module
considers operations strategy in the broadest sense. The broad aims of the module are:

 To develop and introduce and develop a critical understanding operations management

for modern organisations in a variety of sectors of activity;
 To consider operations strategy in its broadest sense and relate this to the internal
management and organisation of the production of goods and services within
organisations in different sectors of the economy;
 To examine how to organise resources and operations, and how to improve them using a
variety of quality tools and techniques and process improvement activities;
 To consider the organisation in its wider context; examining how inputs on the supply side
can be managed and improved, and on the demand side how customers, and customer
satisfaction can be understood.

Module Status: Core Module run in Semester 1 of the Masters in Business Management
Programme and is credit rated at 20 M level credits.

Learning Outcomes:

After successfully completing the module, you should be able to:

 Evaluate the nature, scope and extent of manufacturing and service operations strategy;
 Critically evaluate the use of quality tools and techniques for a wide range of organisational
problems;
 Solve complex operational problems related to managing capacity and constraints within
organisations;
 Demonstrate the application of strategies, tools and techniques to improve business
operations and appraise and select appropriate methods for managing supply bases for a
variety of organisations.

Module Title Module Number JACS Subject Code(s) and % of each subject

MBA7061 N500
Operations Management
Level Credits ECTS Module Value Level (0 - M) Credits
(0 - M)

M 20 10 1.0 M 20
Teaching Period Pre-requisites

Semester 1 None

Module Leader School(s) Campus

Dr. Mohamed Abdel Salam Arab Academy Graduate School of Alex Miami Campus
Business
Cairo Heliopolis Campus

Smart Village Campus

Assessment Methods

Duration/Length
of Weighting of
Assessment Type Approximate Date of
Assessment
Assessment Type Submission

Course work Written assignment 100%

(6,000 words) End of Semester

Aim(s)

Operations management is a vital component in any business organization. It is the function that designs,
plans, operates and improves productive systems. This course discusses operational issues facing
organizations and introduces operations management concepts and techniques. In addition, students will
learn some of the quantitative analysis tools such as linear programming that are used to solve problems
facing operations mangers. Students develop skills necessary to improve productivity and quality of
operation in both manufacturing and service organizations. Topics include productivity, location planning,
linear programming, transportation and assignment models, inventory management and simulation.

Learning Outcomes

The aims of this course are to:

1. To gain an understanding of the role and scope of the operations function in business
organizations; to recognize the interdependence between operations and other major functional
areas of business; and to appreciate the implications of operational decisions on overall
enterprise strategy.
2. To develop an awareness of the major strategic and tactical problems associated with the design,
operation, and control of goods and services producing systems (a.k.a. “Operating Systems”) and
to provide exposure to the managerial decisions and activities necessary for their resolution.
3. To develop competency with basic problem solving and decision-making tools using typical
operations management problems.
 Learning and Teaching Delivery Methods

Lectures 24 hours

Seminars/workshops 12 hours

Student – centred learning 64 hours

Total 100 hours

Indicative Content

1. Operations strategy
2. Customer service
3. Managing capacity and demand
4. Scheduling operations
5. Waiting, queuing theory and practice
6. Managing inventories
7. Quality management tools and techniques
8. Process analysis and improvement
9. New product and service development
10. Purchasing and supplier management

Recommended Reading & Required Reading

Required Reading / Learning Materials

Stevenson, W. J. (2012) Operations management: theory and practice (11th ed.). New York, NY: McGraw-
Hill/Irwin.

Simon A. Burtonshaw-Gunn, (2010) Essentials tools for operations management (1st ed.). Willy

Recommended Reading / Learning Materials

Chaffey, D. & Wood, S. (2005). Business information management – Improving performance using
information systems. London: Prentice Hall.

Krajewski, L., & Ritzman, L. (2004). Operations management: Processes and value chains. (7th ed.). New
York: Addison-Wesley.
Module assessment:
As an Operations Management Consultant, XYZ has hired you to help determine how it can improve its
operations management (improving forecasting accuracy, minimizing waste, developing supplier relations,
etc) by using its current resources in a cost effective manner. Furthermore, you should provide both short-
term solutions to their problems and long-term ones specially that the market is growing and XYZ want to
increase its market share in the local market as well as expanding internationally (in Africa) in the upcoming
years.

You are required to undertake an individual research project and to prepare a Management Report (6000 ±
10% words) based on the case study provided below.

The key aspects that need to be covered within the report are:

 Critically evaluate the key Operations Management issues faced by XYZ. You must critically
discuss each of these issues showing clearly why it is actually a problem, how you see an
opportunity for improving XYZ operations in that issue, and preferably you can also provide
evidence from literature that these issues are common in similar business contexts and how
improvements are usually attainable.
 For each issue identified, critically discuss the most appropriate topics, techniques, methods,
models and tools available that you would have possibly identified within the lectures and
textbooks recommended in the first lecture (you can even use other operations management topics
in these books that you might find relevant). You must clearly show why you selected any of these
topics in the first place and in light of the case study, provide a detailed justification for the
techniques, methods… etc. that you’ve chosen.
 Based on what you presented in the previous points, you are required to critically evaluate and
analyse different alternatives pertinent to each issue identified. I expect you to use both quantitative
and qualitative evaluations, show any improvement that you might achieve, use appropriate
illustrations, charts, and tables.
 Reflect your findings in the light of how XYZ are currently handling their operations and in light
of their expected increase in market share.

Report Structure and Layout

You need to follow a report format
The following main sections must be included in your report. Number of words in each section is a guide
only; however, the report must be a range of (6000 ± 10% words) words.

 Cover Page: Student Name, Student Number, and the word count.
 Executive Summary.
 Key issues identified [2000-2500 words].
 Identification of the key approaches, concepts that apply to these issues [2000-2500 words].
 Reflecting and relating your findings in point 4 and how they relate to what XYZ company is doing
along with your recommendations. You would be expected to provide justification of every aspect
and solution to every issue you identified in the first point [1500-2000 words].
 Conclusion: Overall conclusion of your proposed action(s). [500-1000 words]
Further tips
 Structure within the sections identified can contain further subheadings (such as
Techniques, Methods, Models, Tools, Strategies etc.)
 I would expect you to expand on the case study and bring in any further information you
might find suitable and that would help in further analysis of XYZ (alkyd resin) operations.
You might even want to bring in examples from other similar companies, industries, or
products.
 The report MUST have a proper reference list in the end of the report. Harvard style for
both citations and reference list should be used.

Marking and assessment criteria

 Evidence of the level of critical analysis of the issues faced by the organisation in the case
study.
 Quality of the definition of the key problems faced by the organisation in the case study.
 Understanding, critical evaluation and application of appropriate techniques, methods,
models and tools to the issues discussed.
 Appropriateness and justification of recommended changes and interventions to address
the issues identified.

Clarity and coherence of report (with regard to structure of analysis, diagnosis, correctness of
spelling and grammar, appropriateness of language, accuracy of referencing including use of
English and Harvard Referencing scheme).
Assessment Understanding,
criteria critical evaluation and
application of
appropriate
techniques, methods,
models and tools to
the issues discussed
[Distinction] Draws on comprehensive
70%+ range of appropriate
techniques, methods,
models and tools which
show evidence of
independent research.
Application is effective
and critical / creative and
shows evidence of
synthesis of different
models.
[Merit] 60%- Draws on extensive range
69% of appropriate
techniques, methods,
models and tools.
Application is effective
and shows evidence of
synthesis of different
models.
[Pass] 50%- Draws on range of
59% appropriate techniques,
methods, models and
tools. Application is
effective.
[Pass] 40%- Draws on some
49% appropriate techniques,
methods, models and
tools. There is some
effective application in
places.
[Fail] 30%-39% Draws on limited range of
techniques, methods,
models and tools. These
may not always be
appropriate. Application
may be flawed in places.
[Fail] 20%-29% Inappropriate or / no
techniques, methods,
models and tools may be
selected and/ or not
applied to organisation.
Knowledge and
understanding may be
lacking.
Evidence of the level
of critical analysis of
the issues faced by
the organisations in
the case study
Comprehensive, critical
and original analysis of
the issues,
demonstrating excellent
ability to synthesise
evidence.
Extensive and effective
critical analysis of the
issues demonstrating
ability to synthesise
evidence.
Relevant critical analysis
of issues Key aspects of
the situation are
identified and analysed.
Critical analysis of issues
may be partial and not
always relevant. Some
key aspects of the issues
will be identified and
described.
Critical analysis of
current situation is
limited or flawed. Key
aspects of the issues
may be ignored.
Little or no critical
analysis of the issues.
Quality of the Appropriateness and Clarity and
definition of the key justification of coherence of report
problems faced by recommended , including use of
the organisations in changes and English and Harvard
the case study interventions to Referencing scheme
address the issues
identified
The problems are Selection of changes and Written English style is
identified, related interventions is creative clear, articulate and
clearly to the preceding and critical and clearly persuasive, and report
analysis. Problem justified. Recommended is logically and
definition is creative interventions are creative coherently structured.
and shows excellent and critical and clearly Referencing is accurate
and critical awareness justified through relation and full.
of alternative possible to earlier analysis.
definitions and ability
to synthesise these to
produce clear
definitions.
Problems are identified Selection of changes and Written English style is
and related clearly to interventions is well clear and effective and
the preceding analysis. justified. Recommended report is structured
Problem definition is interventions are well logically. Referencing is
thorough and shows justified through relation accurate.
some awareness of to earlier analysis.
alternative possible
definitions and ability
to synthesise these to
produce clear
definitions.
Problems are identified Selection of changes and Written English style is
and defined. interventions are clear and descriptive
appropriate and some and report structure is
valid justifications are clear. Referencing is
given. generally accurate.
Problem is identified. Selection of changes and English style is
Definition of the interventions may be only acceptable with minor
problems may lack partly appropriate; problems of
focus and clarity. justification may be weak. comprehension or
expression. Report
structure may lack
clarity in places. There
may be inaccuracies in
referencing.
Problems may not be Selection of changes and English style may be
clearly identified. interventions may be weak and difficult to
Definition of the inappropriate and / or not understand. The report
problems may be understood. may be presented
flawed. poorly with many errors
and structure may be
unclear. Referencing
may be inaccurate.
No identification of Selection of changes and English style may be
problems or problems interventions may be weak and difficult to
identified is irrelevant. largely absent and / or understand with some
irrelevant. lack of semantic/
grammatical
correctness. Report
structure may be
confused. Referencing
may be very limited,
inaccurate or largely
absent.
 XYZ Company for Alkyd resin:
Introduction:

Paints occupy a prominent place in the cultural history of mankind. People have always been
fascinated with colors and used paints for two main reasons; decoration or protection to an object
or surface. A paint or coating is defined as a liquid or mastic composition designed to act as a thin
layer which is converted to an adherent film after being applied. Paints and coatings contain
specific ingredients that all play a role in their performance properties including durability and
final appearance.

In general, modern paint is a complex mixture of components that comprises binder (resin),
additives, pigments and solvents (see figure 1).

Solvents (Liquids)

Pigments
Additives

Resins (Binder)

Figure 1

Binders (resins) are considered as a crucial component that is present in all types of paints. It binds
or glues ingredients (pigments and additives) of paint together and provides durability & resistance
properties to the paint. Binders (resins) come in several forms such as Latex, Alkyd, Epoxy and
Polyurethane in accordance to its industrial usage. In alkyd paint, the binder is a synthetic resin,
which is called an alkyd resin. Alkyd resin is used in varnish, lacquer, sealer, etc.
XYZ Co is an Egypt-based company engaged in the production of Alkyd resin for the painting
industry and owned by mainly 3 shareholders. The owners started their business in 1998 in Borg
El Arab industrial zone. The total sales for XYZ were around 15 Million Egyptian pounds during
year 2016. The company is operating under a strategy that aims to provide its customers quality
products at a competitive selling price.

During the last board of directors meeting, there was a hot discussion about the future and
prosperity of the business. The General Manager shared the latest sales numbers. He claimed that
sales numbers grew with more than 15% from 2015 to 2016. However, in 2017, the sales numbers
were not good. Although the initial expectations that the demand will continue to increase between
15 and 20 percent, the actual demand remained almost constant (and sometimes decline) especially
during the third and fourth quarters of 2017. On the other hand, competitors are increasingly taking
market share on the company expense.

From the operations point of view, the operations director identified that they are continuously
trying to minimize the operating costs in light with the organization low cost strategic orientation.
However, the operations director claimed that they have regular problems coming from suppliers;
delays, quality problems, etc. He mentioned that the relationship with the suppliers need to be
reevaluated with respect to their strategic importance. He also added that they internally are facing
some quality problems that need special attention. Although all quality problems are resolved
before reaching customers, they are still contributing in raising the costs of operations.

The Marketing Director identified that consumer needs are well defined and market surveys
confirm that consumers are generally happy with the company’s product. However, the surveys
affirmed that they are not always happy with the selling price, compared to competitors nor they
are happy with delivery terms. The Marketing director referred to the continuous delivery delays
to customers.

Product:

An alkyd is a polyester modified by the addition of fatty acids and other components. Originally,
the word alkyd was "alcid", reflecting the fact that they are derived from alcohol and organic acids.
The inclusion of the fatty acid confers a tendency to form flexible coating. They have a max.
Capacity (design capacity) of 42000 tons of alkyd resins each year; effective capacity 38000
tons/year and they reach an actual O/P of 30000 tons/year when operating for only one shift (8
working hours). The original alkyds were compounds of glycerol and phthalic acid sold under the
name Glyptal. These were sold as substitutes for the darker colored Copal resins, thus creating
alkyd varnishes that were much paler in color. From these, the alkyds we know today were
developed.
Operations
Forecasting:

Forecasting is not a significant activity at XYZ due to several factors. Alkyd could be considered
as a highly standardized product, which creates relative stability in usage requirements.
XYZ get their raw materials from both local and international suppliers. The lead times of local
suppliers are relatively short (2 days) while those of international suppliers (around 20 days) are
relatively long. There is a fair degree of production flexibility in terms of product customization.
However, the customization had little effect on supply requests as the customization affects the
formula of alkyd resin (the additives and the time of production) only with no effect on the raw
materials used in customized products. As a result of these factors. The following table shows the
forecasted demand for year 2015, 2016 and 2017.

Forecast 2015 Actual 2015 Forecast 2016 Actual 2016 Forecast 2017 Actual 2017
1 1600 1500 1800 1750 2100 2000
2 1600 1550 1800 1850 2100 1950
3 2400 2250 2700 2800 3300 3100
4 3200 3350 3700 3800 4400 4350
5 4000 4150 4600 4500 5400 4900
6 1600 1650 1900 1950 2300 2000
7 1650 1800 2100 2000 2500 1950
8 3100 2900 3500 3400 4000 3300
9 3900 3850 4500 4550 5200 4350
10 2000 1950 2400 2300 2800 2000
11 1650 1750 1950 1900 2300 1700
12 1750 1800 2000 2100 2400 2200
Tot. 28450 28500 32950 32900 38800 33800

The Production Process

XYZ use batch processing to produce the resin. Batch processing provides them with adequate
volume and the flexibility needed to customize the output to individual orders. Because of the high
standardization among the ingredients, all products have the same manufacturing processing.
Customization is done primarily on the formula of the alkyd resin (the additives) according to
customer specification (long, medium and short resin). They must produce 135 tons per 8 working
hours a day.

The production processes for long alkyd resin are as follows:

1. Cleaning the reactor and ensure continuous flow of nitrogen in pipelines. It takes around
20 seconds on average.
2. Start charging soya bean oil according to formula (with respect to the actual needs of the
customers) while discharging nitrogen. This step takes on average 10 seconds
3. Add a catalyst (LiOH) to the mixture. This step takes on average 5 seconds
4. Heat the mixture to 180̊C (this takes on average around 30 seconds).
 5. After reaching the specified temperature, pentaerythritol (PENTA) is added to the reactor
in a process of poring that takes on average 10 minutes
6. Continue heating to reach a temperature of 250 ̊C (this takes nearly 30 seconds) until
monoglyceride formation is prepared.
7. During heating, add phthalicanhydride and maleic anhydride to the mixture inside the
reactor (this takes nearly 30 seconds)
8. Once steps 6 and 7 are done, it is important to cool down the mixture to180 ̊C (cooling
process takes nearly 45 seconds).
9. Re-heat the mixture once again and start measuring acid value (A.V) & viscosity until
reaching an A.V value of 8mg KOH /g (this takes 90 min on average).
10. Start cooling the mixture until reaching a temperature of 150 ̊C (this nearly takes 30
seconds). Now the resin is ready.

The following table describe the production process:

Task Time (in seconds) Immediate predecessor

A 20 None

B 10 A

C 5 A
D 30 B, C

E 10 D
F 30 E
G 30 E
H 45 F, G
I 90 H
J 30 I

The company is preparing the aggregate plan for the next 6 months from January 2018 till June
2018 with 240 working days per year. The O/P rate of the production is 2400 tons/month (8 hours
a day-one shift). The total regular production cost is 90 LE/ton, over time cost is 100 LE/ton and
the carrying cost is 20 LE/ton/year.

Quality

Quality is strongly emphasized at XYZ. Employees are trained in quality concepts and the use of
quality tools. the following table:

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
 1 40 47 42 48 41 46 49 40 42 47 48 46 48 49 40 41 42 43 48 47
2 44 48 40 47 49 41 45 47 40 42 42 49 47 45 47 46 44 48 43 48
3 44 40 40 42 48 46 42 48 44 43 45 49 48 43 41 48 43 42 48 42
4 41 41 47 41 48 49 41 46 45 47 46 40 41 42 47 45 49 43 43 44
5 48 48 47 41 40 41 48 47 46 45 43 48 43 41 49 42 48 47 44 43

Suppliers

Approximately 30 local and international vendors supply parts and materials to XYZ. In general,
XYZ select suppliers based on some predetermined criteria (ex. cost, quality, delivery, service
levels, etc). They select suppliers (both local and international) that are ISO 9000 certified. They
have an approved supplier list that is updated annually. It could be identified that the procurement
team (with whatsoever supplier) are very much concerned with complying with the strategic
posture of low cost strongly recommended by the top management with little compromise to other
competitive factors. The following chart shows that one third of the suppliers are international
suppliers. Besides, the average annual spend within each category is added to the chart.

International suppliers

Local suppliers

8 Millions

It is also worth to mention that the bulk of the 8 million spent on international supplies (90%) are
coming from 2 main suppliers (divided equally between them) while the main bulk for local
suppliers spent (75%) are coming from three suppliers.
The main problem facing XYZ is with the international supplies. It takes long lead times to get
their needs from international supplies. XYZ start thinking to try out insourcing one material
coming from one of the two international suppliers. Thus, they collected some primary data about
the fixed and variable costs of each option as shown in the following table:

outsource Insource
Fixed cost None $ 1,000,000
Variable cost $ 900/ton $ 100/ton

Nevertheless, it is not only the cost that needs to be considered while taking this strategic move.
Other factors (quality, flexibility and delivery) needs to be further analyzed to assess the
outsourcing vs. insourcing decision.
Inventory and order fulfillment

The company attempts to minimize the amount of inventory. The company has adopted point-of-
use replenishment for some areas of operations, having deliveries come directly to the production
floor. However, there is a real need to reassess this strategy for international purchases. The current
model of ordering and inventory ignores calculated economic order measures as well as quality
discounts that might be offered. For example the needs of XYZ from the soya bean oil; being as a
crucial ingredient and imported from an international supplier has a total demand of about 3000
tons/month. Ordering costs are $120 per order, carrying costs are $4 per ton a month. Orders less
than 350 tons will cost $250 per ton, 350 and less than 450 will cost $ 240 per ton, 450 and less
than 500 will cost $ 230 per ton and larger orders will cost $ 220 per ton. Currently, the
organization has an order quantity of 350 tons per time. The lead time needed from placing an
order till having the order in hand is around 20 days on average.

Finished products usually are immediately shipped to the customer, which in fact targets enhancing
the company's delivery performance and minimizing finished goods inventory. However, lately
they received a lot of complaints from dealers regarding lost orders and the time required to process
these orders.
The inventory manager and the marketing manager decided to perform an initial study to the flow
of customer orders, starting the arrival of the customer order till the delivery of the order to the
customer.
The following information summarizes the results of their preliminary study:
1. The customer order is sent to XYZ either by fax or e-mail. One out of 100 orders gets lost
accidently.
2. The printed order sits in an inbox 1hr on average before being picked up by the internal
mail service.
3. It takes the internal mail service 1 hr (average) to deliver the order to the picking area.
4. Once delivered to the picking area, the order sits takes 1 hour average before being
processed.
5. Once processes, it takes about 5 min. to make sure that the item is in stock.
6. If the requested product is in stock, a worker picks it to an inspector who takes 2 min to
check the order for correctness. However, 1out of 200 orders shipped are wrong.
7. The transportation division takes the order to the customer (delivery time 3-5 days with
some orders being delivered after one week) with 100% correct deliveries.