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Revision on Operations Management

In the world of business, Operations Management is an essential aspect that businesses need to take into consideration in order to run efficiently.

Inventory management and forecasting are two sub-components of Supply Chain Management (SCM) that are supported by Material Requirement Planning (MRP) and Enterprise Resource Planning (ERP) systems to improve the efficiency and accuracy of supply chain activities.

As part of my exam revision, I've been pondering some important questions.

Questions brainstorming

E.g. how does inventory affect a company's sales?

I can personally relate to this scenario as I've had experiences where I went to a supermarket and couldn't find what I needed, leading me to shop elsewhere. This raises the question of how supermarkets determine the right amount of inventory to keep on hand.

To answer this, it's crucial to know when to order new stock, how much stock to order, and consider factors such as lead time (the time it takes to receive new stock), the number of stocks received per entrance (unit), and the number of stocks sold daily (unit).

Let's take an example: Assume that a supermarket daily sells 50 units of Colgate, and every time it receives 600 units of stock. The lead time is 3 days. To calculate when to order new stock, we can do the following:

  • 600 / 50 = 12 days to clear all stocks

  • 12 days - 3 days = 9th day is when the supermarket should order

  • On the 9th day, there should be 150 units of stock left (3 days x 50 units per day)

But how does the supermarket determine that it should order 600 units and not 6000 or 10000 units?

This is where the Economic Order Quantity (EOQ) model comes in. The EOQ model balances the ordering cost and carrying cost. To use this model, you need to know the demand per year in units (D), the carrying cost per unit (H), and the ordering cost (S).

Let's take another example: A local distributor for a national tire company expects to sell approximately 9,600 radial tires of a certain size and tread design next year. The annual carrying cost is $16 per tire, and the ordering cost is $75. The distributor operates 288 days a year.

  • Demand per year = 9600

  • Carrying cost / Holding = 16 / unit

  • Ordering cost / Setup cost = 75 / order

  • a. EOQ - Economic order quantity

    • The most optimal quantity to order, find a balance between ordering cost and carrying cost.

    • sqr(2DS/H) = sqr[(2x9600x75)/16] = 300 units

  • b. How many times per year does the store reorder?

    • 1 time = 300 units

    • 1 year demand 9600 units

    • 9600/300 = 32 times

  • c. What is the length of an order cycle?

    • 288 days / 32 times = every 9 days

  • d. What will the total annual carrying and ordering cost be if the EOQ quantity is ordered?

    • annual carrying cost = 1 unit carry cost * order quantity = 16 x 300 = 4800

    • annual ordering cost = 1 order cost * # ordering = 75 x 32 = 2400

    • total = 7200 ❌

    • (Q/2)H *WHY DIVIDE 2 -> average per year

    • So, ANS = 4800/2 = 2400

    • TOTAL = 2400 + 2400 = 4800 ✅

In order to make a profit, the distributor needs to know how much to buy from the supplier. This is where forecasting comes in. Forecasting uses historical data to make predictions about future events. There are two types of forecasting techniques: qualitative and quantitative. Quantitative techniques include moving average, weighted moving average, and exponential smoothing.

Exam questions

I recently sat for an Operations Management exam on 07 Feb 2023, from 2.15pm to 4.15pm at DUP A. The exam consisted of both essay questions and multiple choice questions.

For the essay, I was asked to discuss five trends affecting Supply Chain Management and Design, and to perform an ABC analysis. Additionally, I was required to identify activities that form the critical path and calculate the duration of the critical path using a precedence graph.

I am happy to say that I felt confident in my answers for these essay questions. I have a personal interest in Supply Chain Management and I have been actively following documentaries on the topic. This helped me recall the concepts and I was able to mention specific companies, such as Walmart, Amazon, Apple Inc., and Netflix, to support my points. 🥳

In my free time, I enjoy watching YouTube channels such as CNBC, Wall Street Journal, DW Documentary, and Insider Business to build my business acumen. Although I initially started watching these videos for entertainment, I now find that they have helped me retain information and learn in a fun and engaging way. 😀

However, the multiple choice portion of the exam was more challenging for me. 😧Despite my best efforts, I was unable to recall the necessary facts to answer most of the questions. Nevertheless, I remain positive and am looking forward to the results.

These are my favorite YT channels that help me to build my business acumen:

CNBC - YouTube
Wall Street Journal - YouTube
DW Documentary - YouTube
Insider Business - YouTube

Following these channels helped me to keep up to date on global economy. Esp. the inflation waves.