MNO2601 - Answers to possible exam questions. This will greatly prepare you for the exam and give you the understanding needed to comfortably pass this module
MNO2601 ANSWERS TO POSSIBLE
QUESTIONS
compiled by Liezel Wyngaard
• External and internal effects of performance objectives (page 46 textbook)
• Calculations of EOQ (page 307 and 308 textbook)
In this case the cost of holding stocks is calculated at R1 per item per year and the cost of placing an order is calculated at
R20 per order. We can now calculate total holding costs and ordering costs for any particular ordering plan as follows:
, We can now calculate the costs of adopting plans with different order quantities. These are illustrated in Table 12.4. As
we would expect with low values of Q, holding costs are low but the costs of placing orders are high because orders have
to be placed very frequently. As Q increases, the holding costs increase but the costs of placing orders decrease. Initially
the decrease in ordering costs is greater than the increase in holding costs and the total cost falls. After a point, however,
the decrease in ordering costs slows, whereas the increase in holding costs remains constant and the total cost starts to
increase. In this case the order quantity, Q, which minimises the sum of holding and order costs, is 200. This ‘optimum’
order quantity is called the economic order quantity (EOQ).
• Explain why micro-productivity is important for production/op management (page 83 study guide)
The basic building block involves the input-transformation-output (or input-conversion-output) process and is found in all
types of operation. The fundamental purpose of production/operations management is the transformation of input
resources into goods (or products) and services. Microproductivity is also primarily concerned with outputs and inputs.
Logically, therefore, the responsibility for productivity within a business should fall largely to production and operations
management. Improved micro-productivity means better efficiency and utilisation of resources within the production (or
transformation) process (a direct responsibility of production/operations managers) and greater effectiveness in
satisfying customer/client needs (probably a direct marketing function but an indirect responsibility for
production/operations managers).
, • Define effectiveness in a micro productivity context according to products SA (page 75 study guide
The degree to which the output of the production process is related, in both quantitative and qualitative terms, to
market needs (thus whether the output has value in the market
• Five sequential steps in DPA productivity (page 80 study guide)
• Explain the concept of a PD Ratio (page 149 study guide)
Determining the P:D ratios (P stands for “total throughput time” and D for “demand time”) for various operations is
another way of characterising the relationship between the time when a customer/client “asks” for a product/service
and the time it takes the operation to obtain the resources and produce and/or deliver the product/service. High P:D
ratios generally mean that the operations need a long time before they can respond to customers/clients needs. These
operations normally also have a higher degree of uncertainty in their planning and control activities as a result of the
longer time span involved in “order-by-customer/client-to-production/delivery-by-operation”. Nevertheless, it should be
noted that because demand (D) per se is usually only a prediction, subject to considerable uncertainty, no matter how
much greater P is than D, the risk of inaccurate operations planning and control decisions is greater. Reducing the P:D
ratios, therefore, becomes a way of removing some of the risk involved in operations planning and control.
• Differentiate between dependent and independent demand and give examples (page 148 study guide)
Dependent demand is “relatively predictable because it is dependent upon some factor which is known”, so dependent
demand planning and control concentrate on the consequences of the demand within the operation. (In this case the
materials requirements planning approach – MRP – may be used.) On the other hand, independent demand operations
will supply demand without having any firm idea of customers’ orders. The business/organisation therefore runs the risk
of stockouts on certain items because demand may exceed the available stock. This is normal for independent demand
planning and control where the operation attempts to draw on inventory to respond quickly by putting resources in
place to satisfy demand.
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