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SME Consultant · LESSON 4

Operations managementEqual subject marks; equal sampling here · 12 topics

Look at flow across production and retail operations rather than isolated task speed. Improving a nonconstraint may not improve total capacity. Batch size, setup effort and inventory involve tradeoffs. Structure possible defect causes and test them with evidence. For a stable process, average WIP equals throughput multiplied by average flow time.

4.1Operations management

Concept

Look at flow across production and retail operations rather than isolated task speed. Improving a nonconstraint may not improve total capacity. Batch size, setup effort and inventory involve tradeoffs. Structure possible defect causes and test them with evidence. For a stable process, average WIP equals throughput multiplied by average flow time.

How it works / steps

  1. In this simplified serial flow, the lowest-capacity process is the bottleneck.
  2. Lower setup burden can make smaller batches and product changes more practical.
  3. A cause-and-effect diagram structures possible contributors to a problem.

Workplace example

Automating an upstream step may not increase output if downstream review remains the bottleneck. Measure WIP and review waiting time too.

Common confusions and exam tips

Reference links

4.2Production types and layouts

Concept

Make-to-order and make-to-stock differ in the timing of orders and production. Job, batch and continuous production reflect variety and volume. Functional layouts support variety but can complicate movement and WIP; product layouts simplify flow but need flexibility checks.

How it works / steps

  1. Similar functions are grouped, supporting variety but requiring transport coordination.
  2. Production starts before orders, creating inventory exposure to forecast errors.
  3. Large or immovable products require resources to move to the product.

Workplace example

Custom equipment needs order-specific routing, while high-volume standard beverages emphasize continuous flow and demand planning.

Common confusions and exam tips

Mini quiz

Q1. Lathes are grouped together and grinders in another group. What layout is this?

  1. Single-product straight-line layout
  2. Functional layout
  3. Product layout
  4. Fixed-position layout
Show answer and explanation

Answer: B Functional layout

Similar functions are grouped, supporting variety but requiring transport coordination.

Q2. Standard goods are produced before orders based on forecasts. Which method is this?

  1. Make-to-stock
  2. Make-to-order
  3. On-site production
  4. Engineer-to-order only
Show answer and explanation

Answer: A Make-to-stock

Production starts before orders, creating inventory exposure to forecast errors.

Reference links

4.3Production planning, MRP and scheduling

Concept

Align aggregate plans, master schedules and material requirements. MRP explodes dependent demand using bills of material, inventory and lead times. In PERT, the longest-duration path is critical; accelerating a noncritical task may not shorten the project.

How it works / steps

  1. Gross requirement is 20; subtract four available parts to get 16.
  2. The path lengths are eight and six; the longest determines completion.
  3. The BOM explodes parent demand into components; inventory, receipts and lead times complete planning.

Workplace example

Ten products needing two parts each, with four parts available, require 16 net parts. Offset release dates by procurement lead time.

Common confusions and exam tips

Mini quiz

Q1. Ten products require two parts each, with four parts available and no other movements. What is net requirement?

  1. 20 parts
  2. 24 parts
  3. 6 parts
  4. 16 parts
Show answer and explanation

Answer: D 16 parts

Gross requirement is 20; subtract four available parts to get 16.

Q2. Parallel paths A→B take 3+5 days and C→D take 4+2. Both must finish. What is minimum project duration?

  1. 14 days
  2. 5 days
  3. 8 days
  4. 6 days
Show answer and explanation

Answer: C 8 days

The path lengths are eight and six; the longest determines completion.

Reference links

4.4Industrial engineering and standard time

Concept

IE studies processes, motions and time to improve methods and standards. ECRS considers elimination, combination, rearrangement and simplification. Standard time includes allowances, whose denominator must be stated because normal-time and standard-time conventions produce different formulas.

How it works / steps

  1. First question whether work is needed, then improve its grouping, order and method.
  2. Observed time times rating is 10×1.2=12, before allowances.
  3. 12×1.1=13.2; an allowance defined as a share of standard time would instead use division by 0.9.

Workplace example

Observed time ten minutes at a 120% rating gives normal time 12 minutes. A 10% allowance based on normal time gives standard time 13.2 minutes.

Common confusions and exam tips

Mini quiz

Q1. What comes first in ECRS?

  1. Eliminate
  2. Combine
  3. Rearrange
  4. Simplify
Show answer and explanation

Answer: A Eliminate

First question whether work is needed, then improve its grouping, order and method.

Q2. Observed time is ten minutes with a 120% rating. What is normal time?

  1. 8.33 minutes
  2. 10 minutes
  3. 22 minutes
  4. 12 minutes
Show answer and explanation

Answer: D 12 minutes

Observed time times rating is 10×1.2=12, before allowances.

Reference links

4.5Quality control and QC tools

Concept

Pareto charts rank categories and cumulative share; fishbone diagrams organize causal hypotheses; control charts assess process stability over time. Specification limits express requirements, while control limits reflect process variation. A stable process can still fail specifications.

How it works / steps

  1. (50+30)/100=80%, helping identify priorities for investigation.
  2. Control charts assess statistical stability; specifications assess customer or design requirements.
  3. It structures possible causes by categories such as people, machines, materials and methods; verification follows separately.

Workplace example

Defects of 50 scratches, 30 stains and 20 dimension errors give 80% for the first two categories. Verify causes and countermeasures with process evidence.

Common confusions and exam tips

Mini quiz

Q1. Defect counts are 50, 30 and 20. What is the cumulative share of the top two?

  1. 60%
  2. 80%
  3. 50%
  4. 70%
Show answer and explanation

Answer: B 80%

(50+30)/100=80%, helping identify priorities for investigation.

Q2. Which statement correctly relates control and specification limits?

  1. Stability and conformity are separate assessments
  2. Control and specification limits are identical
  3. Stability guarantees conformity
  4. Widen control limits whenever defects occur
Show answer and explanation

Answer: A Stability and conformity are separate assessments

Control charts assess statistical stability; specifications assess customer or design requirements.

Reference links

4.6Inventory, EOQ and replenishment

Concept

EOQ minimizes ordering plus holding cost using √(2DS/H), under assumptions such as steady demand and no stockouts. Fixed-quantity systems order at a reorder point; periodic systems calculate quantities at review dates. Safety stock addresses uncertainty.

How it works / steps

  1. √(2×1,000×100/20)=√10,000=100.
  2. Demand during lead time is 50; add safety stock 20 to get 70.
  3. Higher service protection can require more average inventory and carrying cost.

Workplace example

Annual demand 1,000, order cost 100 and annual holding cost 20 give EOQ 100. Daily demand ten, lead time five days and safety stock 20 give a reorder point of 70.

Common confusions and exam tips

Mini quiz

Q1. With annual D=1,000, S=100 and H=20, what is EOQ?

  1. 100
  2. 50
  3. 200
  4. 1,000
Show answer and explanation

Answer: A 100

√(2×1,000×100/20)=√10,000=100.

Q2. Daily demand is ten, lead time five days and safety stock 20. What is the reorder point?

  1. 50
  2. 30
  3. 100
  4. 70
Show answer and explanation

Answer: D 70

Demand during lead time is 50; add safety stock 20 to get 70.

Reference links

4.7JIT, constraints and line balancing

Concept

JIT improves flow by supplying what is needed when needed, often through downstream pull. Kanban transmits replenishment signals. TOC focuses on the system constraint. Line efficiency is total task time divided by stations times cycle time, subject to precedence constraints.

How it works / steps

  1. 18/(4×5)=0.9, leaving 10% calculated idle capacity.
  2. The six-unit stage is the constraint limiting steady-state flow.
  3. Actual use triggers replenishment rather than releasing everything based only on forecasts.

Workplace example

Total work of 18 minutes, four stations and five-minute cycle imply 90% efficiency. Adding nonbottleneck capacity alone may not increase shipments.

Common confusions and exam tips

Mini quiz

Q1. Total work is 18 minutes, four stations and cycle time five minutes. What is line efficiency?

  1. 72%
  2. 111.1%
  3. 90%
  4. 80%
Show answer and explanation

Answer: C 90%

18/(4×5)=0.9, leaving 10% calculated idle capacity.

Q2. Three serial stages have hourly capacities of ten, six and nine. What is maximum system throughput?

  1. 25 per hour
  2. Six per hour
  3. Nine per hour
  4. Ten per hour
Show answer and explanation

Answer: B Six per hour

The six-unit stage is the constraint limiting steady-state flow.

Reference links

4.8Retail location, trade areas and layout

Concept

Trade areas depend on transport, competitors, attractiveness and shopping missions, not distance alone. Layout coordinates circulation, sightlines and cross-shopping. Expansion should consider sales per area, staffing, rent and inventory rather than sales alone.

How it works / steps

  1. 10,000,000/100=100,000 per m².
  2. Barriers, travel time and transport mode affect accessibility.
  3. Usage-related placement supports convenience and complementary purchases.

Workplace example

Monthly sales of ten million over 100 square meters give 100,000 per square meter; use consistent periods and selling-area definitions.

Common confusions and exam tips

Mini quiz

Q1. Monthly sales are ten million and selling area 100 m². What are monthly sales per m²?

  1. 1,000/m²
  2. 100,000/m²
  3. 10,000/m²
  4. 1,000,000/m²
Show answer and explanation

Answer: B 100,000/m²

10,000,000/100=100,000 per m².

Q2. Customers at the same distance visit less across a highway or river. What should catchment analysis reflect?

  1. Actual access and travel conditions
  2. Only fixed straight-line distance
  3. Only the store’s floor area
  4. Only administrative boundaries
Show answer and explanation

Answer: A Actual access and travel conditions

Barriers, travel time and transport mode affect accessibility.

Reference links

4.9Merchandising, margins and GMROI

Concept

Merchandising aligns assortment, quantity, price and timing. Sales equal customers times basket value; basket value can split into items and average price. Combine turnover with gross margin to assess inventory investment. GMROI divides gross profit by average inventory at cost.

How it works / steps

  1. Gross profit divided by average inventory cost is 600/200=3.
  2. Using consistent cost valuation, 1,200/300=4 times per year.
  3. 200×1,500=300,000; customer and basket changes can be analyzed separately.

Workplace example

Annual gross profit 600 and average inventory cost 200 give GMROI three, distinct from measures using retail-valued stock.

Common confusions and exam tips

Mini quiz

Q1. Annual gross profit is 600 and average inventory at cost 200. What is GMROI?

  1. 2
  2. 4
  3. 3
  4. 0.33
Show answer and explanation

Answer: C 3

Gross profit divided by average inventory cost is 600/200=3.

Q2. Annual cost of sales is 1,200 and average inventory cost 300. What is inventory turnover?

  1. 900 times
  2. 4 times
  3. 0.25 times
  4. 3 times
Show answer and explanation

Answer: B 4 times

Using consistent cost valuation, 1,200/300=4 times per year.

Reference links

4.10Logistics, SCM and distribution

Concept

Logistics links transport, storage, handling, packaging, processing and information. SCM coordinates demand, supply and inventory across firms. The bullwhip effect amplifies downstream demand variation upstream; information sharing, smoother ordering and shorter lead times can help.

How it works / steps

  1. Batching and forecast updating can magnify small sales changes into large upstream order swings.
  2. Actual load divided by capacity is 7/10=70%, distinct from volume utilization.
  3. Combining firms’ loads improves transport utilization; data access and responsibilities still need agreement.

Workplace example

When retailers alternate large orders and pauses without sharing actual sales, manufacturers can mistake order noise for volatile demand.

Common confusions and exam tips

Mini quiz

Q1. What is the bullwhip effect?

  1. Final demand becomes perfectly constant
  2. Demand variation amplifies upstream
  3. Product weight falls at each stage
  4. Transport distance falls with demand
Show answer and explanation

Answer: B Demand variation amplifies upstream

Batching and forecast updating can magnify small sales changes into large upstream order swings.

Q2. Capacity is ten tonnes and actual load seven tonnes. What is weight-based load utilization?

  1. 70%
  2. 30%
  3. 142.9%
  4. 7%
Show answer and explanation

Answer: A 70%

Actual load divided by capacity is 7/10=70%, distinct from volume utilization.

Reference links

4.11POS, forecasting and retail information

Concept

POS captures item, quantity and amount at sale, but does not directly explain missing sales. Forecasting separates seasonality, promotion and stockouts. ABC analysis ranks cumulative contribution to direct tighter management toward high-contribution items.

How it works / steps

  1. (80+100+120)/3=100, weighting each period equally.
  2. Unavailable goods cannot be purchased; observed sales omit lost demand.
  3. Concentrate control resources on high-impact items, while checking classification and stockout consequences.

Workplace example

Sales of 80, 100 and 120 over three weeks give a moving average of 100. A stockout week’s sales may understate actual demand.

Common confusions and exam tips

Mini quiz

Q1. Demand in the last three periods was 80, 100 and 120. What is the three-period simple moving-average forecast?

  1. 110
  2. 300
  3. 100
  4. 120
Show answer and explanation

Answer: C 100

(80+100+120)/3=100, weighting each period equally.

Q2. A low-sales day included a long stockout. What matters for forecasting?

  1. The day is certainly a precise observation
  2. Sales may understate demand
  3. Sales necessarily equal full demand
  4. Demand can be assumed zero
Show answer and explanation

Answer: B Sales may understate demand

Unavailable goods cannot be purchased; observed sales omit lost demand.

Reference links

4.12Case III workshop: Flow and setup improvement

Concept

C has machining, painting and inspection capacities of 12, eight and ten per hour. Machining releases large batches to improve local efficiency, increasing WIP and delivery delays before painting. Color-change setups are long and progress is tracked only on separate team papers.

Writing workshop (self-assessed)

Recommend lead-time improvements in roughly 80–100 words, addressing the constraint, release quantities and shared information.

Show model answer and self-check criteria

Pace releases to the painting constraint to limit WIP. Separate internal from external setup tasks and shorten color changes to support smaller appropriate batches. Share stage progress and due dates, then coordinate the overall schedule instead of maximizing machining utilization alone.

Self-check: identify the eight-unit constraint; control releases; improve setup; share and synchronize progress. Hiring or buying software alone lacks a case-grounded mechanism.

How it works / steps

  1. Painting’s capacity of eight is lowest and limits steady throughput.
  2. Without more constraint capacity, extra upstream release creates queues and longer lead times.
  3. Convert suitable internal setup tasks to external preparation, reducing downtime and enabling smaller batches.

Mini quiz

Q1. Which stage currently constrains C?

  1. Inspection
  2. All equally
  3. Painting
  4. Machining
Show answer and explanation

Answer: C Painting

Painting’s capacity of eight is lowest and limits steady throughput.

Q2. What is likely if C only increases machining releases?

  1. Inspection capacity necessarily doubling
  2. More WIP and waiting before painting
  3. Automatic system capacity of 12
  4. Automatic removal of paint setup time
Show answer and explanation

Answer: B More WIP and waiting before painting

Without more constraint capacity, extra upstream release creates queues and longer lead times.

Reference links

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Notes (unofficial, original questions, no pass guarantee)