Operation Management

Assignment#1
Case Study: Theorganicgrocer.com
Discussion Questions
Problems

Submitted by: Muhammad Nazir Ansari

Class & Section: BBA-6B
Registration No: 41099

Submitted to:
Sir CDR. (RTD) AZHAR NISAR
Q.1 What are the comparative operational differences of a conventional “bricks and mortar”
grocery to an online operation? What are the comparative value chains for each system?
Answer:
Some differences between conventional “bricks and mortar” grocery to an online operation can
be been seen in few ways.

 When using online operation technology plays a big role as customer can access through
smart phone, computer form anywhere they select all of the groceries they want, and
then they plan an order to buy them, to pay for the goods purchased can be done through
the debit card and credit card. The cost of the products through online shopping will be
same however the you need to pay extra shipping cost. In this way costumer can save a
lot of time.
This Bricks and mortar grocery’s uses conventional supply chain method and customers
can pay only through cash term unless certain grocery store provides a credit card
payment service.
 In the grocery store, managers need to build a smooth system to control their business. In
the grocery store, there is a lot of departments, each of employers have a different job
such as advertisement, seller, security, accountant etc., But in the online systems, the
value chains of the online systems are less complex than the grocery store, no need to
hire so much staffs.
 Online operation is available 24/7 hour and costumer can order anytime they want
whereas, bricks and mortar grocery stores are not open usually for more than 15 hours a
day. So if the costumers want anything in Customers will have to wait the next day if they
have things to buy from the grocery.
 Online operation shows the product through pictures and text in the descriptions which
allows the customers to see how the product looks like. Sometimes the product might not
look be as it looks online because in online operation they put the best available image of
the product.
 In online operation there is also a link between buyer and seller as if we keep on
purchasing we can have a separate account and the seller knows our information. They
also confirm the purchase through the bank and we get notified. In the conventional
operation user get to pay only through cash so no information sharing is done.
Q.2 What are the key processes in the online operation?
Answer:
The key processes in the online operation include providing customers ultimate satisfaction
through delivering products of high quality, within the previously set delivery time, and with the
right competitive prices. It is about gaining customer value proposition through providing a high
end service. It depends on innovation, simplicity yet up-to-date sites easily handled and
constantly updated to meet with all customer’s needs.

Q.3 Where are the possible operational problem areas of their online business, now and in the
future?
Answer:
The recent possible operational problems would be due to little market information available to
support strategic planning. Competitors are providing 20% cheaper product, and on-time
deliveries dropped from 95% to 75%. Moreover, shipping failed sometimes to provide well
shaped products.
The future problems would be the expansion of such businesses which will need a more
complex operation system. Higher capital investments will be needed as well. Forecasts would
be less accurate for the long run along with a probable shift in the current trend. Moreover,
most of the physical/mortar grocery stores are entering into online grocery industry apart from
the new E-grocers leading to intense competition. Growing supermarkets and hypermarkets
with chain store everywhere are as well a major threat of substitute for e-grocer. Without
forgetting the newly opened e-grocers due to increasing internet penetration everywhere.

Q.4 What operational improvements need to be taken now to improve competitiveness?

Answer:

To improve competitiveness, they should make several changes:

- Take care of the complaints about damaged products by increasing the efficiency and
quality of packaging.
- Maximize the time efficiency of delivery within the set periods
- Keep the prices as low as possible while maintaining the same good quality
- Have an up-to-date website easy to work on and order through.
- Provide some new products that are not present amongst other e-groceries.
 Discussion Questions
Q.7 You are designing a grocery delivery business. Via the Internet, your company will offer
staples and frozen foods in a large metropolitan area and then deliver them within a
customer-defined window of time. You plan to partner with two major food stores in the
area. What should be your competitive priorities and what capabilities do you want to
develop in your core and support processes?
Answer: If you want your business to be successful there are few factors that need to be
considered while establishing an online grocery delivery business.
First of all, you need a partnership with the grocery stores which are currently operational.
Then we must also consider that if there are any customers who are willing to pay the extra
amount for the service and delivery cost a bit more. The ideal customer for this service is a
person who leads an extremely hectic and busy life, does not like visiting grocery stores and has
a medium to high income. Some of these competitive priorities which I must give importance
are cost, Quality and Delivery on time. we need to focus on our core process and support
Process. We must build good relationship with supplier that will surely impact on prices,
product quality & on-time deliveries and last Flexibility because in online competitive
environment, you must have flexibility dimensions which give you competitive advantage.
Finally, the corporation must invest in a robust and reliable information technology system as
well as a great IT department. After all, all the orders will be coming through online and the
web and this is extremely important for the process. Customers will rely on this system and if it
fails then they will not come back to place orders and business will be lost.

Q.8 FedEx built its business on quick, dependable delivery of items being shipped by air from
one business to another. Its early advantages included global tracking of shipments using
Web technology. The advancement of Internet technology enabled competitors to become
much more sophisticated in order tracking. In addition, the advent of Web-based businesses
put pressure on increased ground transportation deliveries. Explain how this change in the
environment has affected FedEx’s operations strategy, especially relative to UPS, which has a
strong hold on the business-to-consumer ground delivery business.
Answer: Due to the growth of e-commerce industry has been driving volumes at UPS's U.S.
Domestic Package segment which has also affected FedEx's operations strategy. In 2013, e-
commerce sales grew 17%, increasing its contribution to overall retail sales from 5.2% to 5.8%.
There is a reason for that which is online shopping has become accessible through smartphones
and high internet usage. Different deals and discounts on online shopping helps gaining the
customer's attraction towards online shopping. FedEx had to develop competitive priorities to
be more productive against UPS. FedEx has affected by a change of operation strategy due to
the fact that internet is growing competitively against UPS.
Q.9 Kathryn Shoemaker established Grandmother’s Chicken Restaurant in Middlesburg 5
years ago. It features a unique recipe for chicken, “just like grandmother used to make.” The
facility is homey, with relaxed and friendly service. Business has been good during the past 2
years, for both lunch and dinner. Customers normally wait about 15 minutes to be served,
although complaints about service delays have increased recently. Shoemaker is currently
considering whether to expand the current facility or open a similar restaurant in neighboring
Uniontown, which has been growing rapidly.
a. What are the possible distinctive competencies of Grandmother’s?
b. What environmental forces could be at work in Middlesburg and Uniontown that
Shoemaker should consider?
c. What types of strategic plans must Shoemaker make?
Answer:
a) The distinctive competencies at Grandmother's chicken Restaurant include the "Unique
recipe", the home like environment, and friend & quick services
b) There are some environmental forces that shoemaker must consider are Competition,
Government Policies, Natural Forces, Social and cultural forces, Demographic factors and
Technological forces. Attitudes towards the nutrition could change the demand for chicken.
Uniontown or middles burg may have the trend for the fastest service, which cannot be
supported by the procedure given in the "Unique recipe". The economy of Uniontown might
not be supportive of restaurant services. The main resources like spices, oil etc. should also be
considered.
c) Shoemaker should use Operational plan if they want to expand their current business in
middles burg and if they want to open restaurant in Uniontown then they must use
Transformational Strategy. Kathryn Shoemaker's strategic plans include product & service
plans, competitive priorities of whether there should be low volumes and high quality or vice
versa, Quality management, process strategy, new technologies, capacity of what should be the
capacity for the new facility and location.
 Solved Problems

Solution:

a. Suds and Duds Laundry labor productivity ratio for each week is as below:

Number of Input Output Output/Input

Week Workers (Labor-hours) (Shirts) Ratio
1 2 24 68 2.83 shirts/hour
2 2 46 130 2.83 shirts/hour
3 3 62 152 2.45 shirts/hour
4 3 51 125 2.45 shirts/hour
5 2 45 131 2.91 shirts/hour

b. whether it is Sud, Dud, or Jud working Output does not vary per person. Productivity ratio decreases
when all three are working at the same time. May be there is not much work which can keep them
engaged may be there is not enough place to work or accommodation problem.
Solution: Output of a processed value is $100 per unit. Labor cost per hour is $50.

Week 1 Week 2 Week 3 Week 4

Units Produced 1124 1310 1092 981

Total Value (Unit Produce x 100$) 112,400 131,000 109,200 98,100

Labor $ 12,735 14,842 10,603 9526

Labor hour 254.7 296.8 212.1 190.5

Material in $ 21,041 24,523 20,442 18,364

Overhead in $ 8,992 10,480 8,736 7,848

Multifactor Productivity 2.628 2.628 2.745 2.745

Labor Productivity (Unit

4.41 units/hr 4.41units/hr 5.15 units/hr 5.15 units/hr
Produced/ Labor Hours
a. Multifactor productivity ratio

Total Value (output): 1124 Units X $100 = $112,400

Total cost for week 1 (Input):
labor + material + overhead= $12,735 + $21,041 + $8,992 = $42,768

Productivity ratio: Labor Productivity ratio = Output/Input

Week 1 Productivity Output/Input= $112,2400/$42,768= 2.628
Week 2 Productivity Output/Input= $131,000/$49,845= 2.628
Week 3 Productivity Output/Input= $109,200/$39,781= 2.745
Week 4 Productivity Output/Input= $98,100/$35,738= 2.745
Change in the productivity of week 3 and week 4

= [(2.745-2.628)/2.628]x 100% = 4.45%

The ratio has been Improved to 4.45% - noticeable in Week 3

b. Labor Productivity Change

Labor-hours of input: Labor $50/hour
Labor costs
Week 1 = $12,735/$50 = 254.7
Week 2 = $14,842/$50 = 296.84
Week 3 = $10,603/$50 = 212.06
Week 4 = $9,526/$50 = 190.52

Productivity ratio: Labor Productivity ratio= Output/Input

Week 1 = Labor Productivity =Output/Input= 1124/254.7 hours = 4.4130/hour
Week 2 = Labor Productivity=Output/Input= 1310/296.84 hours = 4.4130/hour
Week 3 = Labor Productivity=Output/Input= 1092/212.06 hours = 5.1495/hour
Week 4 = Labor Productivity=Output/Input= 981/190.52 hours = 5.1491/hour

Change in Labor productivity

[(5.1491-4.4130)/4.4130]x 100%= 16.68%

The ratio has been Improved to 16.68%

Solution:

The sale Price of Per unit (Output) is $300

Total cost (Input: Labor + Materials + Overhead)
Productivity =Output/Input= [$300/ ($30+$70+ $50)] = 2.000
10% productivity improvement: 2.00 X 110= 2.200
Given productivity  2.20 , and the value of output  $300, we solve for the cost of inputs:
Productivity =Output/Input= [$300/ Input] = 2.20
Input= $300/2.2 = $136.36 or $136

The cost of inputs must decrease by ($150-$136) = $14.

a. A $14 reduction in material costs is $14/$70 = 20.00%

b. A $14 reduction in labor costs is $14/$30 = 46.67%
c. A $14 reduction in overhead is $14/$50 = 28.00%
Solution:
a. Multifactor productivity ratio:

=(Students/Class) x (Credit hours/ Students) x [{tuition+ $ State Support}/Credit hours]

= 75 x 3 x ($200+$100)
Output = $67,500/ Class

Input: labor + material + overhead= 6500+($25per student X 75 students) +$ 30,000

Input: $38.375

Multifactor Productivity ratio:

Productivity =Output/Input=$67,500/$ 38.375=1.76
Comparing to the solved problem 2, multifactor productivity has increased from 1.25 to 1.76
Part b. Total value (Output) : $67,500/ Class
Labor-hours of input: (20 hours/week) x (16 weeks/ class) = 320 hours/class

Productivity ratio:
Labor Productivity =Output/Input=$67,500/ 320 hours= $210.94/ hour