BEM2007 Operations Management

University of Exeter
University of Exeter Business School
January 2021
Module Convenor: Stephen Disney
You have 24 hours to complete and submit this paper from the time of its release
Intended duration of paper: 2 Hours
No Word Count specified
This is an Open Book exam
Answer any 4 questions
Additional Materials needed: None
BEM2007 Operations Management.
Glencore has some funds to invest in developing a new coal mine. However, due to recent
events it can only afford to make one investment. The choices and pay-offs depend on the size
of the coal find and are described in Table 1.
Quantity of coal found
Low Med High
Australia 80 110 130
Chile −20 100 150
India −150 50 200
Probability 0.4 0.1 0.5
Table 1. Payoff table for Glencore’s investment decision
1a) Identify which decision would be taken with each of the “decision making under
uncertainty” criteria:
• Maximax;
• Maximin;
• Laplace;
• Minimax; Hurwitz (with α = 0.6 );
• and Maximum Likelihood. (60%)
1b) Using the “decision making under risk” criteria, calculate all of the following:
• Expected Monetary Value (EMV);
• Expected Opportunity Loss;
• Expected Profit from a Perfect Predictor;
• Expected Value of Prefect Information. (40%)
Turn over
BEM2007 Operations Management.
Quick Repair Garages are a specialist tyre replacement garage. They replace car tyres on an
“as required” basis and offer a 15 minute service to customers. Because of this they need to
hold an inventory of tyres at the garage. One particular tyre has an annual demand of 800
units and it costs Quick Repair Garages £35 to place the order for tyres and have them
delivered by the supplier, regardless of the number of tyres ordered. Quick Repair Garages
fund their business with a commercial loan with an interest of 20% per year. The supplier, in
order to increase sales, offers a price discount depending on the quantity of tyres in each
order. The percentage price discount from the nominal tyre price of £10 is given in Table 2.
Quantity ordered Discount
1 to 99 0%
100 to 199 2.5%
200 to 299 5%
300+ 6%
Table 2. Quantity discounts offered by Tyre Supplier
2a) How many tyres should Quick Repair Garages order in each delivery to minimise total
annual costs? (40%)
2b) What is the minimised total annual cost with this order quantity? (10%)
2c) How many orders are placed per year? (10%)
2d) Describe some of the managerial implications of the Economic Order Quantity model.
3a) Derive from first principles, listing all assumptions and defining all variables, the Economic
Production Quantity model. Show all workings and use illustrations to support your discussion.
3b) Describe five measures of customer service in inventory management. (50%)
Turn over
BEM2007 Operations Management.
4a) The marketing and sales team for Dapple Corporation feel there is room in the market to introduce
alternative designer branded merchandise into its range of laptops. This would mean outsourcing the
manufacturing of accessories such as laptop covers. Due to the quick response times required to meet
the demands of Dapple’s customer orders, the designer brand manufacturer is proposing to set up a
new manufacturing business unit close to Dapple Corporation to produce six new designs for designer
laptop covers. Operations and purchasing are not convinced this arrangement will be cost effective
and so wish to conduct a breakeven analysis of the situation to ensure the designer brand
manufacturer’s operation is profitable.
The fixed costs for rent and labour are £5,000 per month. The Forecasted Sales Price, Variable Cost
and Forecasted Monthly Sales Quantity for the six new products are given in Table 3 below.
ITEM i Sales Price, S Variable Cost, V Forecasted monthly sales quantity, Q
Product A 20 9.8 2000
Product B 25 12.9 3000
Product C 18 7.5 1000
Product D 30 10.7 500
Product E 20 10.5 300
Product F 35 12.3 2000
Table 3. Data for Dapple Corp’s outsourcing decision
Using the information provided in the table calculate the following:
• The forecasted monthly revenue for each product,
• The unit contribution of each product,
• The forecasted monthly contribution for each product,
• The breakeven point in terms of monthly sales,
• The profit (or loss) of the business proposal,
• The quantity breakeven point for each item.
4b) Derive from first principles the “make verses buy” breakeven point. Define all notation
and state all assumptions. (30%)
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BEM2007 Operations Management.
Days after Hurricane Sandy hit New York meteorologists predict that a severe weather storm will be
hitting your local area within the next five days. This weather storm is expected to cause major
flooding and structural damage to buildings and roads, affecting businesses and homes. Three regions
of your city have to be evacuated!
You have been tasked as the project manager to prepare the community for the likely disaster and
have developed the following precedence table.
A Arrange contact with meteorologists for
regular updates on weather fronts 30 –
B Call in emergency services to help with the
evacuation 3 –
C Public shelters to be found or erected in and
around the three regions 48 –
D Public evacuation from homes and
businesses in all three regions 58 B
E Stop incoming traffic via air, rail, sea, road 12 B
F Close ports, airports, main rail lines,
subways 64 B
G Generators on standby for emergency
services 30 B
H Final sweep to move on reluctant evacuees
from homes and businesses 5 D
I Evacuate emergency crew
teams to declare the zone safe 3 E,F,G,H
J Close bridges 2 I
Table 4. The activities, their duration & precedence relationship in the project of evacuating a
5a) Consider the activities listed in Table 4 and determine;
• The earliest and latest times each activity can start and finish
• The critical path activities
• The duration in hours for the planned evacuation (project)
5b) If you deemed the duration of the project was too long, describe how you would go about
reducing the project duration. (20%)
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BEM2007 Operations Management.
6a) Discuss the advantages and disadvantages of Gantt Charts for analysing and communicating a
project plan. (30%)
6b) Convert the following project network diagram into a Gantt Chart. Schedule the non-critical
activities so as to maximise the Net Present Value of the cash flow of the project.
Figure 1. A project network diagram
6c) Discuss the RACI principles and how they relate to projects. (20%)
7a) Explain the purpose of process mapping. (20%)
7b) The following paragraph describes a pit stop in an F1 race. Draw a process map of this
activity that describes the roles of the different people and how they interact (that is a process
map with “swim lanes”).
An F1 Pit Stop
A) The pit stop starts by inflating the new tyres with nitrogen. Nitrogen is used instead of air
as it copes with the temperature changes better.
B) Then the tyres are placed in a heating blanket that will bring the tyres up to an optimal
temperature. At this temperature they are very sticky and hold the car on the road very well.
C) During the race, the pit stop activities start a few minutes before, the tyres are removed from
their heating blanket, tools are manned, the pit crew take their positions.
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BEM2007 Operations Management.

D) The driver pulls into the pit lane, slows down and stops at a pre-defined point, exactly.

E) The controller lowers a “brake” sign down, about 6 inches in front of the of the drivers face.
It has “brake” written on both sides of the sign in case it is presented the wrong way around
and is on a long pole in order to allow the controller to stand back out of the way of the other
team members.

F) Whilst the pit stop is under way the driver has to press the brake down hard and hold the
steering wheel tight in order to ensure the wheels don’t move or spin. This is quite tough as the
tyres are being pulled and pushed about by the pit crew.

G) Two “trolley-men” place large levers under the front and the rear of the car and lift the cars
up manually. As the tyres are very hot and will actually stick to the tarmac in a few seconds –
thus the trolley-men have to be very quick. They hold the car up for the duration of the pit stop,
lowering each lever when the front or rears tyres have been changed. The rear tyres are heavier
and bigger then the front tyres and usually takes slightly longer to change. This allows the front
“trolley man” to move out of the way before the race car drives off when the brake sign is lifted
up from the drivers view.

H) The tyres are changed by four tyre changers. They each approach the car with a “pneumatic
gun”, in one hand and the new tyre in the other hand. The pneumatic gun is a specialist tool
that will undo the specially designed wheel nuts in fractions of a second. The old tyres are
removed, new tyres are replaced and the wheel nuts are “gunned in”. Sometimes there are three
men on each wheel; one gunning the tyres, one removing the old tyre, one placing the new tyre
in position.

I) Whilst this is happening the car is refuelled. This task is completed by another team member,
holding a big plastic can, with a very wide nozzle to allow fuel to flow quickly into the tank.

J) Another team member cleans the driver’s visor on his helmet and gives the driver a few sips
of water as refreshment.

K) Each team member moves out of the way when his task is finished.

L) When all is done, the controller raises the brake sign; the driver accelerates away from the
pit. (80%)

End of paper.