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Graduate School of Business
Operations Management Project
Module assessment:
As an Operations Management Consultant, XYZ has hired you to help determine how it
can improve its operations management (improving forecasting accuracy, etc.) by using
its current resources in a cost effective manner. Furthermore, you should provide both
short-term solutions to their problems and long-term ones.
Presentation Structure and Layout

You are required to undertake group research project and to prepare a presentation.
The following main sections must be included in your presentation.
 Cover Page: Student Name, Student Registration Number.
 Executive Summary.
 Identification of the key approaches, concepts that apply to these issues (such as
Techniques, Methods, Models, Tools, Strategies etc.) (You would be expected to
provide justification of every aspect and solution to every issue you identified).
 Reflecting and relating your findings using appropriate illustrations and tables.
 Conclusion: Overall conclusion of your proposed action(s).
 Proper reference list in the end of the report. Harvard style for both citations and
reference list could be used.
Operations Management Dr. Nevien Farouk Khourshed

XYZ Company for Tea Production

Introduction:
Tea is an aromatic beverage commonly prepared by pouring hot or boiling water over
cured leaves of the Camellia Sinensis (a species of evergreen shrub or small tree whose
leaves and leaf buds are used to produce tea). After water, it is the most widely consumed
drink in the world. Tea processing is the method in which the leaves from the tea plant
Camellia sinensis are transformed into the dried leaves for brewing tea. There are several
categories of tea that are distinguished by how they are processed. In a very generic
manner, tea processing involves different manners and degree of oxidation of the leaves,
stopping the oxidation, forming the tea and drying it. The innate flavor of the dried tea
leaves is determined by the type of cultivar of the tea bush, the quality of the plucked tea
leaves, and the manner and quality of the production processing they undergo. After
processing, a tea may be blended with other teas or mixed with different flavors to alter
the flavor of the final tea. During the last board of directors meeting, there was a hot
discussion about the future of the tea business. The General Manager of the tea business
shared the latest sales numbers. He highlighted the growth in sales in years 2016 and 2017
reached around 10% annually. However, he referred to the current economic situation in
Egypt and how it affected sales during 2017 with a less than 4 % growth. Further, he
highlighted that the net profits from the tea business decreased by 5 %. The main reason
was the increase in the operations costs with a higher rate than the increase in their selling
prices. The current economic conditions in Egypt constrains the increase in selling prices
to the customers. He added that the current economic situation is expected to continue
during the upcoming period (2018 and 2019). It is still not clear how the prevailing
economic conditions will affect the company sales during 2018.
Thus, the General Manager highlighted the need to reconsider the forecasting and
inventory techniques, as well as how the quality is managed and controlled.

Forecasting:
Forecasting is an important activity in XYZ, due to the variation in customer demand
patterns all over the year. The demand pattern fluctuates between stable, seasonal and
trend patterns all over the entire year even though the high standardization of the
company products. The only customization needed is undertaken in the final product
packaging which has no effect on the raw materials used by the company.
You are required to test each of the forecasting techniques to choose the suitable
method, after calculating forecasting error.
Month Year 2016 Year 2017 Year 2018

Jan 190000 230000 235000
Feb 198000 227000 232000
Mar 200000 225000 230000
Apr 203000 223000 228000
May 205000 205000 270000
Jun 190000 260000 225000
Jul 250000 200000 218000
Aug 180000 195000 210000
Sep 175000 200000 212000
Oct 190000 205000 215000
Nov 200000 220000 232000
Dec 220000 235000 240000
Average 200083.3 218750 228916.7
(Tons/month)
Total annual sales 2401000 2625000 2747000
(box/year)

Quality
Quality is strongly emphasized at XYZ. Employees are trained in quality concepts and the
use of quality tools. Training is incorporated on-the-job so that employees can see the
practical applications of what they are learning. Employees are responsible for performing
in-process quality checks (quality at the source), and to report any defects they discover
to their supervisor. In that sense, several quality checks are performed; moisture content,
bulk density, dust content and sensory testing. The close monitoring of step 4 revealed
that the company is frequently facing problems with the moisture content of the tea
mixture. The accepted norm of the moisture content ranges between 5% to 7%. The
standard deviation of the process is unknown. You are required to assess the quality
control limits and pattern, and then provide justified recommendation.
Therefore, the quality team decided to collect a sample data (20 samples each with 5
observations) about the moisture content (in percentage) of step 4 as shown in the
following table:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
1 7 6.7 6.9 6 6.5 6.7 7.9 6 6.5 7.7 6.9 6 6.5 6.7 7.9 6.9 6.8 6.5 6.7 6.9
2 7.2 6.6 7 6.1 6.6 6.6 7 6.1 6.6 7.6 6.5 6.1 7.6 6.6 7 7.1 6.7 6.6 6.6 7
3 7 6.7 6.7 6.2 6 6.7 7.4 6.2 6 6.7 6.4 6.2 7 6.7 7.4 7.2 7.2 7 6.7 7.4
4 6.9 6.9 6.7 6.4 6.4 6.9 7.3 6.4 6.4 6.9 6.3 6.4 7.4 6.9 7.3 7.4 7.4 7.4 6.9 6.7
5 6.9 7 6.5 6.3 6.7 6 6.9 6.3 6.7 6 6.4 6.3 6.7 6.9 7.4 7.3 7.5 7.3 7 6.8

Inventory and order fulfilment
The company attempts to minimize the amount of inventory. The company has adopted
point-of-use replenishment for some areas of operations, having deliveries come directly
to the production floor. However, there is a real need to reassess this strategy for
international purchases. The current model of ordering and inventory ignores calculated
economic order measures as well as quality discounts that might be offered. For example
the needs of XYZ from the raw tea; being as a crucial ingredient and imported from an
international supplier has a total demand of about 250000 tons/month. Ordering costs are
$20000 per order, carrying costs are $2 per ton a month. Orders less than 200000 tons will
cost $2500 per ton, 200001 and less than 250000 will cost $ 2400 per ton, and larger orders
will cost $ 2300 per ton. Currently, the organization has an order quantity of 350000 tons
per time. The lead-time needed from placing an order until having the order is around 30
days on average.
Finished products usually are immediately shipped to the customer, which in fact targets
enhancing the company's delivery performance and minimizing finished goods inventory.
However, lately they received many complaints from dealers regarding lost orders and the
time required to process these orders. Hence, the inventory manager and the marketing
manager decided to perform an initial study to the flow of customer orders, starting the
arrival of the customer order until the delivery of the order to the customer.
The following information summarizes the results of their preliminary study:

1. The customer order is sent to the marketing representative at XYZ by an e-mail.
One out of 400 orders are accidently dismissed.
2. The marketing representative prints all the orders every 1 hour on average and is
then picked up by the internal mail service.
3. It takes the internal mail service half an hour on average to deliver the order to the
picking area.
4. Once delivered to the picking area, the order sits takes 3-hour average before being
processed.
5. Once processed, it takes about 30 min. to check the amount of inventory.
6. If the requested product is in stock, a worker picks it to an inspector who takes 10
min to check the order for correctness. However, 1 out of 500 orders shipped are
wrong.
7. The transportation division takes the order to the customer (delivery time 3-5 days
with some orders being delivered after one week) with 100% correct deliveries.
You are required to test each of the inventory models to choose the suitable method
that will minimize the total cost, and provide justified recommendation.

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Graduate School of Business

Operations Management Project

Presentation Structure and Layout

Operations Management Dr. Nevien Farouk Khourshed

XYZ Company for Tea Production

Operations Management Dr. Nevien Farouk Khourshed

Month Year 2016 Year 2017 Year 2018

Operations Management Dr. Nevien Farouk Khourshed

Operations Management Dr. Nevien Farouk Khourshed

Inventory and order fulfilment

The following information summarizes the results of their preliminary study:

Operations Management Dr. Nevien Farouk Khourshed

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