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PROGRAM - MBA
SEMESTER II
SUBJECT CODE & NAME MB 0044 - PRODUCTION AND OPERATION MANAGEMENT
1. What is value engineering?
List the main benefits of value engineering?
A. Definition and explanation of
Value Engineering(VE)
Value Engineering (VE) or
value analysis is a methodology
by which we try to minimise the cost and improve the revenue of a product or an
operation. The concept of value engineering originated during the second world war. It was developed by General
Electric Corporations (GEC). Value
engineering
has gained
popularity due to
its potential for
gaining high Returns
on Investment (ROI). This
methodology is widely
used in business
reengineering, government projects,
automakers,
2. Case study: SABMiller revamps
supply chain management
SABMilller, the $24bn global brewing giant, is revamping its supply
chain management system to reduce stock-outs caused by an increasingly complex
and hard to predict market.
The firm is developing and testing the new system in South Africa with
an eye on rolling it out to group companies worldwide, says SABMiller programme
manager Rudi van Schoor.
The trigger for the revamp came when the company's customers ran out of
stocks of popular SABMiller brands during peak periods in two consecutive
years, 2007 and 2008. The shortfall on some brands was as high as 22%.
"That had a direct impact on the bottom line," Van Schoor says.
Given SABMiller's ambition to be the world's most efficient producer,
such a gap was never going to be tolerated. But instead of addressing the
symptom, it called in management consultancy McKinsey to look at the entire
supply chain system to see where it could be improved and future stock-outs
avoided.
The study revealed a complex situation, one that wasn't susceptible to
a "quick fix", Van Schoor says.
Demand factors
The ethnically and demographically diverse South African market is one
of the world's most complex and fast-changing. Van Schoor cites economic
growth, more disposable income in new hands, changing and upgrading tastes, new
product development and new routes to market among the factors that influence
demand for SABMiller's products.
Add to that big events such as the British Lions tour and the 2010
World Cup, and climate change, and the picture becomes more complex.
"Our brands are the same as any other brand, especially those at
the luxury end," says Van Schoor. "If the customer comes into the
shop and can't find our product, he or she has the disposable income and
self-confidence to substitute our brand for our competitors'. That's
dangerous."
Van Scoor says the group has a average stock availability target of
98%. "But for some premium brands the target is 100%," he says. That
means it will live with excess stocks of some products, just to ensure that a
thirsty customer can get his or her favourite drink, every time.
Maximise profitability
But SABMiller also wants to maxmise its profitability. To do all this
it must integrate information from a lot of sources. These include sales
forecasts for about 2,600 SKU locations
or depots for the brewing division and 3,100 for the soft drinks division, as
well as planned promotions data from the marketing and promotions division, as
well as cost and production data, among others.
These data must then be converted into raw material purchases,
manufacturing scheduling, distribution and stockholding plans for 12 factories
(seven breweries and five soft drink plants) and three tiers of distributors,
broken down into between 70 and 80 stock-keeping units (skus) for the brewing
division and around 270 for soft drinks.
And all this must be optimised for profit.
"There is inherent volatilty of demand in the soft drinks business
because of seasonal change, but less in the beer market," Van Schoor says.
Even so, improving the accuracy of demand forecasts and schedules and
integrating them to boost profitability was too complex for SABMillers's demand
forecast and supply system. The inhouse system, developed over years, had most
of the usual problems associated with legacy systems: it was inflexible,
complex, hard to communicate with, and hard to integrate with newer systems,
Van Schoor says.
Integration with SAP system
After a global search, SABMiller settled on Infor's advanced supply
chain management system, in particular Infor's demand forecasting system. This
takes information from modules of SABMiller's SAP enterprise resource
management system, integrates them with sales forecasts from the field, and
feeds back to the manufacturing resource planning system and financial systems
to generate production schedules, raw materials orders and volume and financial
forecasts.
This will let SABMiller make any of its products in the most
cost-effective location, given the local demand, manufacturing, transport and
inventory costs.
It will also increase its flexibility in responding to changes in
demand. Products will no longer be made only in a single plant to optimise production
runs, but, based on more holistic data, in the plants that optimise overall
profitability.
This flexibility also gives the company greater cover to handle factory
downtime and to meet rapid changes in demand.
But some parts of the legacy system will still be around. "We are
keeping it to manage the return and reuse of empty bottles," Van Schoor
says.
But even that data will go into the Infor system so that it can create
production schedules down to tank, line and minute accuracy.
This attention to detail is part of the SABMiller ethos. Measurement
and numbers are integral to the company culture. Van Schoor says the Infor
system will be tested in three ways: on its
"theoretical" answers, against actual results, and against
causal factors that may have influenced demand and supply.
Van Schoor says the $1.2m the firm spent on Infor licences was about
60% of the total project cost. But this could be a drop in the ocean if the
company adopts it worldwide. And interest from group firms is high.
"We have used expertise from all around the group," Van
Schoor says. "One of the best people on the project came from our European
division, and we have lots of others keen to know how we do."
(Source :
http://www.computerweekly.com/feature/Case-study-SABMiller-revamps-supply-chainmanagement)
Why did SABMilller revamp its
supply chain? Describe the domain application used for SCM integration?
Answer: -
SABMilller revamp its supply
chain due to following reasons:
·
SABMiller brands during peak periods in two consecutive
years, 2007 and 2008 as the company's customers ran out of stocks of popular.
·
The shortfall on some brands was as high as 22%.
That had a direct impact on the bottom line
·
Given SABMiller's ambition to be the world's
most efficient producer, such a gap was never going to be tolerated. But
instead of addressing the symptom, it called in management consultancy McKinsey
to look at the entire supply chain system to see where it could be improved and
future stock-outs avoided.
3. Write short notes on:
3 (a) Ingredients of a business process
The ingredients
that might be
used in a
business process can
be briefly outlined as follows:
·
The data which accomplishes the desired business
objective
·
Acquisition, storage, distribution,
and control of data
which undertakes the process
across tasks
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3 (b). Acceptance sampling
Acceptance sampling
is also known
as end of
line inspection and categorising the products based on sample
based inspection. In acceptance sampling method of quality control, the
supplier and customer agree upon
accepting a lot, by inspecting a small number taken randomly from the bulk
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3 (c). Work Breakdown Structure
The entire
process of a
project may be
considered to be
made up on number of sub process placed in different
stage called the Work Breakdown Structure (WBS).
WBS is the technique to
analyse the content of work and cost by breaking it down into its component
parts. Project key stages form the
highest level of the WBS, which is then used to show the details at
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3 (d). Productivity
Productivity is
generally expressed as the ratio of outputs to inputs.
While the above ratio
may imply efficiency, productivity is the value added for every unit of
investment. Thus, it is value added upon cost.
Enhancement of
productivity is achieved
by either reducing
the inputs for the
same output or
increasing the output
by using the
same input.
4. Collaborative Forecasting
Running Smoothly at Brooks Sports
Brooks Sports designs and develops high-performance running footwear,
apparel and accessories which are sold in 80 countries worldwide. In 2001, when
the company shifted from a broad product
line to focus on high-performance products targeted at serious runners, it was
clear that the forecasting process needed to change to support the strategic
direction of the company. The existing forecasting process, based entirely on
the judgment of the sales team, was limiting the company’s ability to grow.
The strategy shift created a number of forecasting challenges for
Brooks including:
♦ Inconsistent
style growth: the new line of products experience growth rates anywhere from 0
to 50 percent annually.
♦ Long production
planning horizon coupled with short product life: production and capacity
decisions are typically made 18 months before a style is launched, average lead
time for a style is 6 months and the product life of Brooks’ styles range from
6 to 24 months. This means that planners must sometimes set the entire demand
plan for a style prior to ever receiving a customer order, underscoring the
importance of accurate forecasts.
♦ Increasing
“at-once” orders: “at once” orders, which are placed for immediate shipment,
historically accounted for less than 20 percent of total sales. Since 2001,
however, “at once” orders have increased to nearly 50 percent of total sales.
♦ Evolving size
curves: with its new focus on serious runners, the standard footwear size curve
would not adequately reflect distribution of sales by sizes.
♦ No exposure to
retail sell-through: the high-performance products are sold primarily through
independent specialty stores who don’t have the capability to share sales data
with vendors.
With a corporate mandate from senior management emphasizing the
importance of creating accurate and timely forecasts, Brooks completely
revamped its forecasting proces s. An independent forecasting group, reporting
directly to the COO and CFO, was established to coordinate input from various
groups—sales, marketing, product development and production— and to remove bias
from the forecasting process.
The forecasting group established a collaborative forecasting process
with three primary steps:
Step 1: Produce monthly statistical forecasts at the SKU level to
capture level, trend, seasonality and the impact of events based on historical
data. Brooks chose Forecast Pro to create these forecasts due to a number of
features available in the software:
♦ Ability to
create accurate forecasts
♦ Flexibility to
choose forecast models or let software automatically select models
♦ Capability to
model events (particularly important for predicting spikes in demand with new
product launches)
♦ Support for
multiple-level models to produce consistent forecasts at all levels of
aggregation
♦ Powerful
override facility to enable collaborative forecasting
“Forecast Pro has been a great solution for Brooks,” says Tom Ross,
Financial Analyst.
“Implementing Forecast Pro’s event modeling is very simple, which is an
essential feature for us because of our moving product launches. We also use
event models to address the challenge of forecasting events that don’t occur on
a regular basis—such as races—which can have a dramatic impact on the sales of
specific products. Another powerful feature of Forecast Pro is the ability to
forecast a product hierarchy. This helps us to serve our multiple constituents
within Brooks—we review higher-level forecasts with management and easily
generate detailed forecasts at the SKU level for demand planning.”
Step 2: On a quarterly basis, get sales management and sales reps to
forecast sales for a 12-month horizon, focusing on major accounts. This input
is gathered via the Web and then aggregated by the forecasting group.
Step 3: Compare the statistical and judgmental forecasts, and make
adjustments to create the final monthly forecast. Ninety percent of the final
forecasts are the same as the statistical forecasts—changes are most commonly
made to the forecasts for new styles where the sales organization has important
knowledge to add. These final forecasts are then automatically fed into Brooks’
ERP system. “Forecast Pro allows us to easily apply judgmental overrides, which
is critical for us,” notes Ross. “We now can systematically track changes,
giving us a better understanding of our forecasting performance.”
The commitment to forecasting has paid off at Brooks. Forecast accuracy
has improved on average by 40 percent, unfulfilled demand has been lowered from
approximately 20 percent to less than 5 percent, and closeouts have been
reduced by more than 60 percent. The improved forecasting has also helped to
smooth out production, resulting in lowered costs and better margins.
Source :http://www.forecastpro.com/pdfs/Success%20Story-Brooks%20Sports.pdf
What is the main issue of the case study? Analyse the forecasting
solution
Answer:-
The main issue
established when Brooks Sports designed and developed high-performance running
footwear, apparel and accessories which were sold in 80 countries worldwide. In
2001, when the company shifted from a
broad product line to focus on high-performance products targeted at serious
runners, it was clear that the forecasting process needed to change to support
the strategic direction of the company. The existing forecasting process, based
entirely on the judgment of the sales team, was limiting the company’s ability
to grow.
Due to above reasons
strategy shift created a number of forecasting challenges for Brooks including:
·
Inconsistent style growth
·
Long production planning horizon coupled with
short product life
·
Increasing “at-once” orders
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5. Explain the risk management and
its various components
A. Definition of risk management and what it
entails
Risks are those events
or conditions that may occur and whose occurrence has a harmful or negative
impact on a project.
Risk management
aims to identify
the risks and
then take actions
to minimise their effect on the project.
6. Why redesign of layouts may be
necessary? List the differences between product and process layout.
A. Listing of reasons why
resdesigning of existing layout is required
Most common reasons for
redesign of layouts include the following:
·
Inefficient operations (for example, high cost,
bottlenecks)
·
Accidents or safety hazards
·
Changes in the design of products or services
·
Introduction of new products or services
·
Changes in volume of output or mix of outputs
·
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