MMM267: Business Logistics - The DBS Operations Manager Implications of a Negative Cash-to-Cash Conversion Cycle - Management Assignment Help

Assignment Task:

Part 1 (10 marks) 
With the outbreak of COVID-19, the world is experiencing a severe shortage of ventilators for treating  patients in hospitals. DBS is a manufacturer of ventilators in Melbourne. It uses a special component  to make its top-of-the range ventilators. DBS requires an average of 24,000 units of this special  component every year in its manufacturing process. The major supplier of the special component that  DBS has been dealing with, is a preferred supply chain partner who charges a price per unit of $3000  for the component. Each order costs $500 to process. Because of limited storage space, the operations  manager wants to factor in inventory holding cost at 13.75% of the unit cost. You have been asked to: 
(1) Determine the economic order quantity (EOQ) and total annual cost if ordering the EOQ number  of units. How much will DBS be able to save by adopting the EOQ versus a current Q = 400? What is  the reorder point with safety stock if lead time is 21 days, standard deviation of weekly demand is  3.75 and on an average DBS operates for a total of 48 weeks every year? Assume a z value of 1.645  corresponding to the desired service level as specified in DBS’ operating procedures. What would the  reorder point be without safety stock and how would you interpret each of the two reorder points?  
(3 marks)  
(2) Environmental considerations, material losses and waste disposal can be included in the EOQ  model to improve inventory management practices. Assume that on an average 7.5% of the  components that DBS purchases are damaged in transit thus becoming unusable and have to be  disposed of. Disposal cost is $250 per unit. Find the new EOQ and total annual cost when the disposal  cost is considered. What implications does this have for the sustainability of DBS’ inventory practices? 
(3 marks) 
(3) Explain the implications to the operations manager if estimates of setup (order) costs include fixed,  semi-variable, and pure variable costs while inventory-holding costs includes only pure variable costs. 
(4 marks) 
Part 2 (10 marks) 
Requirement 

Year 
(no. of units) 

1 8001 2 8505 3 9008 4 9512 5 9987 6 9029 7 9043 8 9051 9 8860 10 8070 11 7781 12 7593 13 7106
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MMM267 Business Logistics T2 2020 
14 7134 
15 7164 
16 7880 
17 7997 
18 8215 
19 8234 
20 10878 
In the above data table, the operations manager of DBS Manufacturing Company has provided you  historical data on their annual requirement of the special component over the past twenty years. 
(4) What is the forecast requirement for next year using a three-period, four-period, five-period, six period and seven-period simple moving averages? Compute the MSE for each of those moving  averages and compare your results. 
(3 marks) 
(5) Using the same data table, find the best single exponential smoothing model by evaluating the  MSE; starting with an alpha of 0.025 and changing alpha in increments of 0.025. How does the best  single exponential smoothing model compare with the best moving average model you found in (4)?  
(3 marks) 
(6) If the DBS operations manager asked for your advice as to whether it is better to use time-series  forecasting models or regression-based forecasting models, what would your advice be and why?  
(4 marks) 
Part 3 (10 marks) 
DBS is also expecting the demand for its top-of-the range ventilators to increase further from the next  year. Given the increase in annual requirement, the production manager is contemplating to start  manufacturing the special components in-house to save costs rather than sourcing them from outside.  
(7) Given the current purchase price of $3000 per unit, what will the average annual requirement need  to be in order to justify making the components in-house if the variable cost of making is $1200 per  unit and an upfront fixed cost of $20,000,000 is needed to procure the necessary plant and  equipment? However, in the event that the expected increase in demand does not materialize and  the demand is forecast to be only 10,000 units next year, then what will the maximum variable cost  of making need to be in order for DBS to still consider making the components in-house; given an  upfront fixed cost of $20,000,000 would still be needed and the supplier still charges $3000 per unit? 
 (3 marks) 
(8) Going forward, if it is found to be a better decision to make the components in-house, DBS will  then need to select an optimal location point to set up its manufacturing facility. Given the following  location information and expected material movements from several transportation depots to the  DBS’ intended manufacturing facility, find and plot the best location using centre-of-gravity method:
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MMM267 Business Logistics T2 2020 
Transportation depots x y Expected material movements (no. of units) 1 3 18 1500 
2 13 16 2200 
3 14 1 800 
4 2 1 3400 
5 18 8 1000 
6 12 6 1100 
(3 marks) 
(9) Explain to the DBS operations manager some of the potential consequences of not understanding  or considering non-quantifiable factors like local culture and practices when taking location decisions.  
(4 marks) 
Part 4 (10 marks) 
There are three distinct types of ventilators; namely TX (manual model), TY (automated model) and  TZ (digital model), which DBS Manufacturing Company makes and sells to its customers. The  operations manager has decided to combine orders for the same product type from customers to  increase work order size and therefore be able to make one large production run per product type.  Speciality equipment is used to make these products, and it is time-consuming to clean the equipment  and set them up again between production runs. Each equipment and operator runs a daily eight-hour  shift with 45 minutes lunch break and 20 minutes for operator breaks. 
Product Type Setup time (seconds) Processing time (minutes) Work order quantity TX 4320 0.060 6350 TY 2880 0.025 970 TZ 6000 0.080 13080 
(10) What is the total workload (demand) in hours for the above work order mix? (3 marks) 
(11) How many pieces of equipment will it take to get this work done in 1, 2, 3 or 4 days? What  might you say if DBS asked for your expert advice on how might this process be further improved? 
(3 marks) 
(12) Explain to the DBS operations manager the pros and cons of various capacity expansion strategies. (4 marks)
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MMM267 Business Logistics T2 2020 
Part 5 (10 marks) 
(13) The DBS operations manager has determined that their flagship product experienced 2 turns last  year, with an annual sales volume (at cost) of $18,200,000. What was the average inventory value for  this product last year? What would be the average inventory level if inventory turns could be doubled? 
(3 marks) 
(14) You have been asked to evaluate DBS’s cash-to-cash conversion cycle under the following  assumptions: sales of $25 million, cost of goods sold of $18.2 million, 48 operating weeks a year, total  average on hand inventory of $9,100,000, accounts receivable equal to $11,455,000, and accounts  payable of $12,695,000. What do you conclude? What can you recommend to improve performance?  
(3 marks) 
(15) Explain to the DBS operations manager implications of a negative cash-to-cash conversion cycle. (4 marks) 
Part 6 (10 marks) 
(16) The operations manager of DBS thinks they can source some of their basic raw materials from  overseas low-cost economies, which could lead to significant savings by reducing their purchasing  costs. However, there is a risk that the quality of raw materials procured from those overseas, low cost economies may not be as high as that provided by the current suppliers. If the quality of raw  materials is not top notch, this can have an adverse effect on the quality of finished product that DBS  sells to its customers. Most customers of DBS are returning customers with long-standing loyalty and  they keep coming back as they trust the quality they get although DBS charges a higher price relative  to its closest competitors. Using the interlinking model of quality and profitability, explain to the  operations manager how ensuring a high product quality can actually help DBS enhance profitability.  
 
(17) How can you convince the DBS operations manager that quality management concepts can help  towards boosting sustainability efforts? Find some relevant examples to support your arguments. 

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