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Case Study: Hightone Electronics, Ins.

Case Questions
1. Explain why operations management is critical to the
success of a business. Why would developing an Internet-
based business require different operations consideration
for HEI? Is George Gonzales correct in his assessment that
this would not be “business as usual”?
Answer: Operation Management is the business function that
plans, Organizes, coordinates and controls the resources
needed to produce a company’s goods and service. It involves
managing people, equipment technology, information and
many other resources. It is responsible for orchestrating all
the resources needed to produce the final product. This
includes designing the product; deciding what resources are
needed; arranging schedules, equipment and facilities,
managing inventory controlling quality; designing the jobs to
make the product; Basically, operations management is
responsible for all aspects of the process of transforming
inputs into outputs. As proper management of operations can
lead to company success, improper management of operations
can lead to failure. So, the operations management is critical
to the success of a business.

The web-based age has created a highly competitive world of

on-line shopping that poses special challenges for operations
management. The web can be used for on-line purchasing of
everything from CDs, books and groceries to prescription
medications and automobiles. Whereas the internet has given
customers flexibility, it has also created one of the biggest
challenges for companies; delivering exactly what the
customer ordered at the time promised, making promises on
web site is one thing; delivering on those promises is yet
another. Ensuring that orders are delivered from “mouse to
house” is the job of operations and is much more complicated
that might seem. That is why it always requires different
operations consideration for HEI.

Yes, George Gonzales correct in his assessment that this would

not be “business as usual”.
2. Recall that HEI wishes to continue its reputation of high
quality and service. Identify key operations management
decisions that need to be considered. How different will
these decisions be for the Internet business?
Answer: The key operations management decisions that need
to be considered to continue the high quality and service
reputation of HEI are follow:
 What are the unique factors of the business that will
make it competitive?
 What sources of supply should be used?
 How will managers ensure the quality of service?
 How should the facility be laid out?
 What job will be needed in the facility?
 How will the inventory be mentioned?
 How the order will be placed and how it will be delivered?
 How much product will be kept in stock?
 Who will work on what schedule?
For Interest following points need to be added:
 How the web site will be developed?
 What are the things should be highlighted in website?
 Who will maintain the web site?
 What are the problems one may face while using website
and how to overcome it?
Diagram of HEI
Chapter - 2

1. What is Operations management (OM)?

Answer: Operations management (OM) is the business function
that plans, organizes, coordinates, and controls the resources
needed to produce a company’s goods and services.
Operations management is a management function. It involves
managing people, equipment, technology, information, and
many other resources. Operations management is the central
core function of every company. This is true whether the
company is large or small, provides a physical good or a
service, is for profit or not for profit. Every company has an
operations management function.

Question: Operations Strategy

Answer: Strategy in a business organization is essentially
about how the organization seeks to survive and prosper
within its environment over the long-term. The decisions and
actions taken within its operations have a direct impact on the
basis on which an
Organization is able to do this. The way in which an
organization secures, deploys and utilizes its resources will
determine the extent to which it can successfully pursue
specific performance objectives.
Question: Competitiveness:
Answer: Companies must be competitive to sell their goods
and service in the market place. Competiveness is an
important factor in determining whether a company prospers,
barely gets by, or fails.
Business organizations compete through some combination of
their marketing and operations functions. Marketing influences
competitiveness in several ways, including indentifying
consumer wants and needs, pricing and advertising and
Operations influences competitiveness through product and
service design, cost, location, quality, response time,
flexibility, inventory supply chain management, and service.

Question: Time- and Quality-Based Strategies

• Answer: Time-based strategies

– Strategies that focus on the reduction of time

needed to accomplish tasks
• It is believed that by reducing time, costs are
lower, quality is higher, productivity is higher,
time-to-market is faster, and customer service is
• Quality-based strategy
– Strategy that focuses on quality in all phases of an
• Pursuit of such a strategy is rooted in a number
of factors:
– Trying to overcome a poor quality
– Desire to maintain a quality image
– A part of a cost reduction strategy

Chapter – 4
1. What dose product and service design do?
Answer: A range of activities fall under the heading of product
and service and design. The activities and responsibilities of
product and service design include the following:
1. Translates customer wants and needs into product and
service requirements
2. Refines existing products and services
3. Develops new products and services
4. Formulates quality goals
5. Formulates cost targets
6. Constructs and tests prototypes
7. Documents specifications
8. Translates product and service specifications into process
Product and service design involves or affects collaboration
nearly every functional area of an organization. However,
marketing and operations have major involvement.

Service something that is done to or for a customer. Service

delivery system which includes facilities processes and skills
needed provide a service. Product Bundle is combination of
goods and services provided to a customer. Service package is
physical resources needed to perform the service, the
accompanying goods, and the explicit and implicit service

Question: Why excess capacity can be badness?

Answer: Excess capacity sometime going to be badness for
reason are following:
a) Unutilized resources
b) Cash out flow rises and cash inflow decreases
c) If the excess capacity may be kept for long time, then
there might be stack up and quality of the product may be
d) To purchase raw materials or spear parts shortage of
capital may increase.
e) Total revenue may decreased total expense may rise.

Chapter – 11
Requirement for effective inventory management.
Answer: Management has two basic functions concerning
inventory. One is to establish a system of keeping track of
items in inventory and the other is to make decisions about
how much and when to order. To be effective, management
must have the following:
1. A system to keep track of the inventory on hand and on
2. A reliable forecast of demand that includes and
indications an indication of possible forecast error.
3. Knowledge of lead times and lead time variability.
4. Reasonable estimates of inventory holding costs, ordering
cost and shortage costs.
5. A classification system for inventory items.
Let’s take a closer look at each of these requirements.

Question: Economic Order Quantity Models:

Answer : EOQ models indentify the optimal order quantity by
minimizing the sum of certain annual costs that very with
order size. Three order size models are described here:
1. The basic order quantity model.
2. The economic production model.
3. The quantity discount model.

The basic order quantity model:

1. Only one product is involved.
2. Annual demand requirements are known.
3. Demand is spread evenly throughout the years so that the
demand rate is reasonably constant.
4. Lead time dose not very.
5. Each order is received in a single delivery.
6. There are no quantity discounts.

The economic production model:

1. Only one item is involved.
2. Annual demand is known.
3. The usage rate is constant.
4. Usage occurs continually, but promotion occurs
5. The production rate is constant.
6. Lead time does not very.
7. There are no quantity discounts.

The quantity discount model:

1. Compute the common minimum point.
2. Only one of the unit prices will have the minimum point in
its feasible range since ranges do not overlap.