End Term Examination eEPOM-03 Batch

Operations Strategy
Max. Marks: 50 Time: Two Hours
Note: (i) The question paper consists of one question and two short cases; a of these
are compusor! to answer" (ii) #ssume suita$! where%er required $ut don&t
for'et to mention !our assumptions in !our answer $ook" (iii) (t is an open $ook
exam hence )ooks and Notes are aowed" (i%) cacuators are aowed in the
examination.
Question 1: *ecommend the operations strate'! for the four sta'es of the +,- of
an inno%ati%e product. ./0
ase !:
*e$ecca started a +i11a shop immediate! upon 'raduation from coe'e. The shop
ser%es wraps with a twist: *e$ecca ets customers choose from one of 2 main
in'redients (either meat or %e'etarian offerin's); an! of 30 different toppin's; one of
5 wrap t!pes; 40 different t!pes of sauce ran'in' from sweet to semi hot to met5!our5
ton'ue5off hot. The tota num$er of +i11a com$inations is o%er 30"000 end +i11as.
The shop did we from the first da! it was open $ecause customers o%ed
*e$ecca&s sauces6man! customers came in 7ust for his specia pepper chocoate
sauce" which was spic! with 7ust a hint of sweetness. The shop was primari! run $!
*e$ecca and one of his $est friends in the first !ear of operation. 8aes for the first
!ear were 9350"000; saes for the second !ear were 9:/0"000. *e$ecca has $een
pannin' an expansion for the comin' !ear. The ta$e $eow shows the pro7ected
saes for this !ear (!ear 0) and the foowin' se%en !ears. 8he has two expansion
options. 8he can ease a new faciit! in which to ocate the shop" a :0005square5foot
space that coud $e expanded $! :"000 square feet in steps of 3"000. #ternati%e!"
she can ease a :"0005square5foot space with no option to expand" $ut then open
another restaurant ocation in another part of town.
*e$ecca has $een quoted a price of 9450"000 to open a :"0005square5foot
faciit!. ;ach expansion of that faciit! to add a 3"0005square5foot addition wi cost
an additiona 9300"000. The aternati%e approach" openin' a sin'e :"0005square5foot
faciit! and then openin' new faciities as needed" requires an in%estment of 9400"000
for each :"0005square5foot faciit!. *e$ecca&s operatin' costs for a$our" utiities"
equipment" and other expenses are <0 percent of his saes. The maximum capacit! of
a sin'e :"0005square5foot faciit! is 9<00"000 per !ear" so *e$ecca must open a new
faciit! or expand the existin' faciit! when saes hit this num$er. #n! new restaurant
or expansion has a ead time of one !ear from the time *e$ecca appro%es the idea to
the time when the faciit! is up and runnin'.
Ta"#e: *estaurant ;xpansion =ptions
$ear Pro%ected Sa#es
>ear 0 9:/0"000
>ear 3 9450"000
>ear : 9<:0"000
>ear 4 9<?0"000
>ear < 9550"000
>ear 5 9@00"000
>ear @ 9@<5"000
>ear 2 9@?5"000
ase ! Questions
3.3 #s a 'enera strate'!" woud !ou recommend that *e$ecca take an a''ressi%e
approach to capacit! expansion or more of a wait5and5see approachA .@0
3.: 8houd *e$ecca 'o with the option for one faciit! that can $e expanded as
needed" or shoud she pan to open one fixed5si1e restaurant and add new
restaurants incrementa! as neededA Bith either approach" when shoud
*e$ecca make expansion decisionA .@0
3.4 Bhat are the risks of !our recommended capacit! expansion strate'!A How can
*e$ecca miti'ate and minimi1e his risksA .@0
ase !!:

C)irds Bord& manufactures a %ariet! of $ird feedersD" 'arden accessories" and other
items intended to hep peope 'et in touch with and o$ser%e nature. Eounded in 3??5
$! Fim McMaster in ,aGran'e" (inois" the compan! started when he was workin' as
a fourth5'rade teacher. +resentations to students on $irds and widife had a wa! of
capturin' their enthusiasm; thus" McMaster started offerin' presentations to other
schoos in the 'reater -hica'o area. Bithin a few !ears" McMaster was so $us! doin'
presentations at %arious schoos" as we as runnin' nature camps from his home" that
he quit his fu5time 7o$ as an eementar! schoo teacher to form Natura Hesi'ns. #t
first" C)irds Bord& was most! Fim and his wife 'i%in' presentations and runnin'
camps" $ut 'radua! the compan! expanded to se some of the $ird feeders and other
nature de%ices featured in his cass taks. Toda!" the compan! has saes of 9: miion
per !ear" most of which comes from ph!sica products sod to outdoor" nature" and
$ird stores such as Bid )irds Inimited.
(n the first few !ears of operation" Fim McMaster and his wife" 8heia"
produced $ird feeders and other products in their 'ara'e. (n 3??2" howe%er" the
operation $ecame too ar'e for their 'ara'e" so the! rented a <"0005square5foot faciit!
for production and distri$ution purposes. The! aso hired two empo!ees to mana'e
these two functions so that the McMasters coud continue 'i%in' schoo taks. Toda!"
C)irds Bord& has 35 empo!ees" : of which are focused soe! on 'i%in' nature taks
and sein' the products to retaiers interested in resein' C)irds Bord& products.
The product ran'e consists of 500 stock5keepin' units (8JIs).
=ne of the chaen'es faced $! C)irds Bord& in%o%es its customi1ed $ird
feeders. This operation aows customers to 'et one of the 30 made5to5stock $ird
feeders and ha%e it customi1ed with their name or address car%ed in the wood" pus
paintin' in an! of 30 coor schemes. This portion of the $usiness has $een 'rowin'
$! 50 percent per !ear and now represents 9300"000 per !ear in saes. # customer
order is taken o%er the (nternet and promised for dei%er! within one week. Then the
item is pued from stock" car%ed with the appropriate name and address" and painted.
Eina!" the item is shipped direct! to the customer&s home. Bhie this product has
$een wid! popuar with customers" Fim McMaster has two ma7or concerns. Eirst" he
is not sure that the customi1ation is profita$e6he char'es an additiona 930 per $ird
feeder" $ut he is not sure exact! how much extra a$our is in%o%ed in fufiin' the
customi1ation portion of the order. 8econd" despite assi'nin' an empo!ee to the
custom $ird feeder operation fu time" ead times on orders ha%e 'radua! increased
from an a%era'e of <.5 $usiness da!s to ?.: $usiness da!s. This pre%ents C)irds
Bord& from meetin' its promised ead time of one week or ess. (n addition" durin'
peak periods (ear! sprin' and ear! fa)" the ead time can stretch to three or four
weeks.
#s Fim McMaster re%iews the current state of C)irds Bord&" he is peased to
note that saes are continuin' to 'row o%era at a rate of 30 percent per !ear.
Eurthermore" his work force is 'enera! happ!" and the $usiness is profita$e.
Howe%er" his accountants ha%e $een tein' him that profits are decinin' as a
percenta'e of saes and that the num$er of customer returns of items and compaints
ha%e increased $! o%er 40 per cent in the past !ear. The capacit! of the existin'
faciit! is extreme! ti'ht" and Fim is considerin' either addin' a second faciit! or
mo%in' to a ar'er /"0005square5foot faciit!.
D)ird Eeeders are de%ices paced outdoors to supp! $ird food to $irds
ase !! Questions
:.3. Bhat t!pes of decisions must Fim McMaster make on a dai! $asis for C)irds
Bord& to run smooth!A Bhat kind of decisions must he make on a on'5term
$asisA .@0
:.:. Hescri$e the operations strate'! for C)irds Bord&. Has this strate'! chan'ed
as a resut of the custom $ird feeder operationA (f !es" howA .@0
:.4. Bhat mi'ht ha%e $een done different! to faciitate the offerin' of custom $ird
feedersA .@0
:.<. How shoud McMaster ana!1e the aternati%e expansion optionsA Bhich
woud !ou recommend: a second faciit! or a mo%e to a sin'e" ar'er faciit!A
.@0
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