Posted: June 9th, 2022

UCW OPMT 301: OPERATIONS MANAGEMENT

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UCW OPMT 301: OPERATIONS MANAGEMENT

CASE STUDY #1- Ice House Toys
❖ Introduction
Robin Baker, the Managing Director of a small group
of toy shops, suspected that he had a problem. His
company, formed in 1962, consisted of five
profitable shops and a catalogue sales (mail-order)
business which, although profitable, had never been
able to capitalize fully on the quality of its products
and the loyalty of its customers.
Ice House Toys, its mail-order operation, was
run from a renovated eighteenth century ice house
(originally constructed on a dockside for storing
imported blocks of ice) in Bristol, which the
company acquired in 1981 when such old industrial
property was cheap and easy to find. The current
state of the property market made relocation
unrealistic, and alternative modern warehouse space
in the Bristol area was both inconveniently situated
and too expensive.
The building consisted of three floors, each
of which was divided by the stairwell and lift-shaft
into two working areas of 600 square metres each.
One of the ground floor areas was used to store stock
for the company’s shops, but it had been decided to
reallocate this space to the mail-order operation from
the beginning of September 2000.
The other ground floor area was used as the packing
room for the mail-order operation. Of the remaining
four work areas in the building, three (two on the first
floor and one on the second) were mail-order
stockrooms, while the fourth contained the office. As
is often the case in a historic industrial building,
ceiling height was restricted, and stock was stacked
to use all the available height.
❖ Sales and purchasing patterns
Ice House Toys distributed three mail-order
catalogues every year, each of which contained
approximately 300 different toys and games, all of
which were standard products manufactured in the
UK, Europe and the Far East. The major catalogue
was the Christmas one, sent to 160 000 customers in
the first week of October. In 1999, this had resulted
in a total of 22 600 orders with an average order value
of $42. The Winter Sale Catalogue and the Spring
Catalogue were each sent to 45 000 regular
customers, and in 1999 achieved a combined total of
6900 orders with an average order value of $23.
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The stock for the Christmas Catalogue was
ordered before the end of July, and was received in
two phases. The first, representing approximately
75 per cent of total requirements, arrived in the first
week of October, filling the stock areas to capacity.
Table 1: Orders received in 1999
Month Week Orders
October
1 0
2 360
3 800
4 1800
November
1 2900
2 3300
3 3700
4 3500
December
1 2800
2 2200
3 1300
The remainder was ordered after the first 2500
customer orders had been processed and the sales
patterns had been analyzed and was delivered during
the fourth week of November. The feasibility of
receiving deliveries of smaller quantities of stock had
been considered on several occasions in the past but,
taking loss of discount and advantageous terms of
payment into account, the resulting eight per cent
reduction in gross profit margins had been
considered unacceptable. Appendix – A gives a
detailed breakdown of costs.
In 1999, stock with a total resale value of $1.1
million was ordered. This was based on a projection
of 21 000 orders with an average value of $45, plus
a margin for error which Robin always added to
guard against unexpected higher demand for a
particular item or the failure of some suppliers to
deliver an order in full. Any surplus stock at the end
of the Christmas Catalogue period could be disposed
of through the Winter Sale Catalogue, or through the
retail shops. Robin liked to maintain a minimum
stock level at any time to cover 10 working days,
allowing a buffer for late delivery from a supplier or
for a sudden unexpected demand for a particular
item.
The recorded volume of orders received from
the Christmas Catalogue in 1999 is shown in Table
1. This pattern had been found to vary little from year
to year. Given the 24th December delivery deadline
for Christmas, all orders had to be dispatched by the
end of the third week in December. Any customers
whose orders were received in the fourth week of
December (there were only 75 orders in 1999) were
contacted by telephone, and most usually agreed to
their order being dispatched when the warehouse
reopened in the first week of January.
❖ Operations
Any order arriving at the warehouse passed through
three stages, in the following sequence: recording,
assembly and packing, dispatch. A detailed analysis
of each of these stages follows:
❖ Recording
All orders were entered into the computer on the day
on which they arrived so that the earliest possible
notice could be given of any stock shortages. There
were facilities in the office for up to seven VDU
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operators, who were hired from a local agency and
were paid by the hour. They each worked a seven hour day. Each operator was able to process an
average of 22 orders per hour, which involved
entering either an existing customer’s account
number or a new customer’s name and address into
the computer, followed by the customer’s order and
payment details. Picking lists, packing notes and
address labels were then automatically printed out
two floors below in the Parcels Room, where both
the assembly/packing and dispatch operations
were situated.
❖ Assembly and packing
The assembly operation was divided into two stages,
both of which, according to internal and external
work studies, were performed efficiently. For every
batch of 20 orders, the computer produced an
aggregate picking list, which enabled each of the
three stock collectors to go round the stockrooms
and, in an average of 45 minutes, select the stock
required for their 20 orders. This stock was then
given to teams of two packers who worked together
to allocate it to individual orders, to check that each
order was correct, and then carefully to pack each
order into a suitable-size box. The completed orders
were then passed on, with packing note attached, to
the dispatch stage of the operation. Each packer
completed an average of 4.3 parcels per hour, which
enabled a single stock collector to provide sufficient
stock for six packers. The total space allocated to the
packing operation was 330 square metres, which was
sufficient for a maximum of 16 packers at any one
time. This department, like the dispatch department,
was staffed entirely by part-timers who worked
either four-hour (morning) or five-hour (afternoon)
shifts. The warehouse was operated Monday to
Friday from 9 a.m. to 6 p.m.
❖ Dispatch
The workers in the dispatch department were, like
their colleagues in assembly and packing, employed
as and when they were required. Their job was to
take each parcel, attach an address label, which had
been printed by the computer, and enter the order
number into the computer to confirm that the order
had been fully processed. The parcels were then
stored in a secure area on the loading bay, and were
collected by a parcel carrier at regular intervals six
times each day. Each person in the dispatch team
could complete 9.5 orders per hour, and required at
least 30 square metres to be able to operate
effectively.
❖ Future plans
Robin was determined to expand catalogue sales
considerably in 2000:
‘The 1999 ratio of 22 600 orders from 160 000
catalogues sent out was close to the average for the
last 10 seasons. For 2000, however, there are three
major changes. Firstly, we have made an agreement
to share part of our customer database with a
company that sells upmarket children’s clothes by
mail order. Of course, these are clearly identified
customers who have signed an agreement to allow
their details to be used in that way. In return, this
company will provide us access to its database of
similarly disposed customers, and this will add some
30 000 names and addresses to our current list. Our
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second initiative is to spend a further $18 000 on
advertising. In the past, each $1000 spent on
advertising has finally led to 190 additional orders.
‘Thirdly, we finally launched our new
website, aimed at existing customers only, at the end
of November 1999, and expect this to have a
significant impact in our market this year.
Unfortunately, it was late for the season just finished
because the design had to be reworked to remove a
number of very irritating bugs that were identified by
around a thousand trial customers. Now, however,
anyone who accesses this site will be able to obtain
more comprehensive descriptions and photographs
of all the products we supply, and it will make
ordering much simpler for the customer. They will
simply fill their virtual shopping baskets by clicking
on the products they require. There will be no need
to copy out product descriptions and codes: the
system will do all that for them. We learnt a lot
during the trial, and found that the average order
value for the Internet customers was around $60.
From discussions with some other mail-order
retailers who have similarly gone online, I would
expect about five per cent of our existing customers
to use this service in the 2000 season, and overall
usage of this channel is expected to double every year
as new customers find our site.
‘Orders received this way will remove the
need to key in data in the Recording Office. The data entry staff will simply check the details deposited by
the online customers and, if these are correctly and
fully completed, will allow the order to pass into the
further processes as normal. Our trials indicate that
this will allow each operator to completely process
and authorize these orders at a rate of about one per
minute. That will eventually have a significant
impact on our costs, and will increase our capacity to
enter ordersinto the system at the busiest times of the
season.
‘The only thing that worries me is that this
ongoing expansion will either lead to us completely
running out of warehouse space due to the sheer
volume of stock, or to us being forced to pay
overtime to run the operation during evenings or
weekends. This would undermine our tight control of
costs and erode our hard-won profits. Also, at
present, it is our policy to dispatch all orders within
three days of receipt; I am very concerned that this
may become increasingly difficult to achieve as our
sales volumes should grow by a forecast annual rate
of 15 per cent per year from the 2001 season.’
Case Questions
a) Evaluate the impact on operations of Robin’s
sales targets for the 2000 Christmas Catalogue.
You may wish to consider the following:
i. What are the main capacity constraints
within the mail-order operation?
ii. To what extent can they be resolved by
the planned 2000 increase in the amount
of warehouse space allocated to the
mail-order operation?
iii. In what other ways could Robin attempt
to influence demand so as to overcome
capacity constraints?
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iv. What will be the impact on operations of
the website, based on Robin’s forecast of
customer uptake? What would the effect
be if this channel failed to grow as
rapidly as expected?
Assume that selecting smaller toys for the
catalogue is not a solution!
b) What are the longer-term capacity planning
issues? Evaluate the impact of the projected 15
per cent growth over five years.
c) Is it possible to construct an argument which
could justify the company accepting a 7.5 per
cent reduction in gross profit margin through the
adoption of an alternative purchasing policy,
which would significantly reduce stock levels?
Ignore any effect of price inflation, and take
account of your answer to Question b), above.
d) Is it reasonable for Robin to be horrified at the
idea of overtime payments?
Appendix – A 1999 Christmas Catalogue: Cost
Analysis
Breakdown of cost for one average parcel (1999
figures)
Sales 42.00
Cost of Stock, packaging
material, carriage
(23.00)
Gross Profit 19.00
Share of fixed costsa
(10.08)
Catalogue productionb
(3.25)
VDU operator wages (0.35)
Stock collector wages (0.12)
Packer wages (0.77)
Dispatcher wages (0.35)
Net Profit 4.08
Notes
aTotal fixed cost $288 000 per year, absorbed over 22 600
orders
b160 000 catalogues were printed and mailed at a cost of
$0.46 each, resulting in 22 600 orders
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Guidelines for Analyzing Case Studies
While there is no “formula” for analyzing case studies, the following guidelines are recommended;
1. Define the goals and objectives for your analysis. What questions are you trying to answer? What issues are
you trying to resolve?
2. Rapidly skim through the case study and get a sense for how the case study has been structured.
3. Read through the case study with paper and pencil and make notes as you go along
4. Structure the information in the case study: this is the key step.
a. Think of the information given in the case study as “raw data” that you have gathered to
help you answer the questions and resolve the issues in Step 1 above.
b. You need to structure this data in order to resolve the issues.
Here are some useful dimensions along which you can structure the given information chronologically:
i. Evolution of the industry in which the enterprise operates (changes in technology, customer
needs, competitive landscape, etc.)
ii. Evolution of strategy – business, technology, and market – of the enterprise
iii. Evolution of technology (including manufacturing), product platforms, and product lines
of the enterprise
iv. The technology, product, and process development process within the enterprise
v. Growth (or decline) of the enterprise with respect to of market share, revenues, costs,
profits, etc.
vi. Organizational structure of the enterprise
vii. Key decisions made at different stages in the life of enterprise, and the drivers for these
decisions
viii. The interconnections and relationships between all the above factors
ix. Make extensive use of figures, tables, trees, etc. to shape your thinking during the
structuring process.
x. Perform any necessary analysis, for example, revenues or costs associated with different
design options
5. Draw conclusions, answer questions, resolve issues, and make recommendations using the structured
information in Step 4.
6. Use the case questions to structure your paper. In order words don’t quote the questions and provide
answers, rather formulate titles and subtitles with the case questions in an essay format.
Key issues
• Capacity analysis
• Bottleneck management
• Effect of Internet process on capacity
• Inventory management/purchasing policies
Paper submission Format
The Case study paper should be presented in the format below;
Format – The written presentation will be
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(1) Double-spaced typed, and not longer than 8 pages
(2) Use citations (APA format) and a reference of sources used.
(3) Pages should be numbered.
(4) A title page that includes the student’s name.
(5) An abstract (less than 250 words) providing a brief summary of the paper outlining the purpose,
method/process, findings and conclusion /recommendations.
SUBMISSION INSTRUCTIONS
Strictly comply with APA. Use the template provided to submit the assignment. All papers are to be submitted
through TurnitIn.com on the course site on or before Tuesday August 09, 2022, by Mid-night. Turnitin is the
leading academic plagiarism detector, utilized by teachers and students to avoid plagiarism and to ensure
academic integrity. Therefore, ensure all references and citation are properly made and in accordance with APA
stylish of writing. Save your file as OPMT 301_Case_Assignment-1_DeoJ (Doe=last name and J= first
initial). The case analysis is worth 10% of overall class marks
Rubrics for evaluating Case Study
Activity/Competencies Demonstrated % of Final
Grade
1. Critical Analysis and Research (75%)
a. Depth of background summary /10
b. Assessment the impact of Robins operation /25
c. Determined the longer-term capacity planning with
the projected 15% growth
/15
d. Argument for improvement /15
e. Analysis of Robin’s response to overtime payment /10
2. Communication (15%)
a. Uses language clearly and effectively /10
b. Information organized intelligently and holistically /5
3. Organization and Writing (10%)
a. APA Referencing and formatting (title, headings, and references) /5
b. Spelling and grammar /5
Total /100

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