IB Business Management HL Operations Management Question Bank

RDM is a family-owned healthcare-device manufacturer in Lobjanec, Czech Republic. It formerly employed about 500 unionized workers, mass-produced stoves and sold through wholesalers. Because of globalization and fierce competition from Asian manufacturers with lower cost structures, Jan introduced a highly automated manufacturing process in 2006, operational by 2009. Customers enter product specifications into an online template; an engineer reviews the request, may contact the customer and improve the design, and then sends the approved specifications to accounting and marketing, which determine the price. Robots configure tooling, load raw materials and manufacture the order, while highly trained engineers monitor the process. Automation lowers long-run costs, improves responsiveness and allows customized products, including new products such as aluminium water bottles. The change also affected human resources: in 2019 RDM employed 117 people, mainly engineers and computer experts recruited from universities across Europe rather than the local vocational school. The organization changed from hierarchical management to cross-functional teams composed of individuals from all business functions. These changes altered the relationship between operations and human resources, marketing, and accounting and finance, and changed the interests of employees, managers and the family shareholders.

With reference to RDM, describe how changes in operations management altered its relationship with two other business functions.

Las Rosas (LR)


Las Rosas (LR) is a large commercial dairy farm owned and managed by the D'Aremberg family since 1986. It has 3800 cows. LR sells milk, cheese and yoghurts. In 1996, LR started to export some of its dairy products. Profits and cash flow have been improving year on year. LR has no outstanding loans and therefore its current gearing ratio is zero.
LR's unique selling proposition (USP) comes from the organic quality of its products as they are made without chemical additives. The cows' diet does not include hormones and other supplements. The farm's products also meet national and international quality standards.
LR's corporate culture encourages innovation and the use of cell production. To stay ahead of the competition LR has increased its spending on research and development (R\&D) and workers are given the opportunity to create new products, or to add value to existing ones. LR's financial manager, however, believes that the R\&D budget is too high and needs to be cut. He also argues that there are too many legal constraints limiting the development of new products.
LR's management is considering buying El Remanzo, a large sheep farm located nearby. This acquisition will cost $\$24$ million and LR will need to cut its R\&D budget to zero and organize a new loan to finance the takeover. A significant restructuring would need to occur at both LR and El Remanzo to allow both companies to combine resources and knowledge. However, the potential economies of scale experienced by LR could be substantial.
Total capital employed at LR is $\$45$ million.

Emma, a marketing graduate at a public relations office, has always wanted to have a more creative and independent role. Falit works in the production planning department of a large multinational oil company. He likes his job but hates the bureaucracy. Ahmed is a charismatic, self-confident project manager at a construction company. The group decided that Ahmed was the right person to manage the project and the group because of his management and leadership skills. They decided to call the app "IBAT" (insect bite analysis test). Regular online meetings would take place to develop the idea. By September 2015, the group agreed that they would go ahead with the business idea in their spare time. They had all talked to friends, relatives and anyone they knew working in healthcare. All of these people liked the idea. The six friends decided to call the business Medimatters. IBAT would consist of a paid-for app that, with a smartphone, would: - take a good quality photograph of the insect bite - send the photograph to IBAT's online automated database. The automated database would then: - compare the photo with the online library of scanned images - produce a report on the findings of the comparison for the IBAT user as well as, if possible, medical professionals such as doctors. After consultation with some doctors, Carlo discovered a technical problem. The image quality of smartphones varies. To obtain the necessary detail of the insect bite, a separate magnifying lens attachment which would convert the smartphone's lens into a microscope would be required. A different design of lens for each make of smartphone would be required. The need for a lens means that IBAT would not be a conventional app that is purchased from an online app store. Customers, who could be members of the public or people in the healthcare profession, would purchase a physical product (the lens) and a password for downloading the app. IBAT would therefore be a service and a product/good that has implications for both marketing and operations management. Ahmed acted decisively. He assigned to each group member tasks to complete within three months. In January 2016, they met face to face and reported their findings and progress (Appendix 1). Emma considered who to target. She told the group during a further online meeting that the best approach to marketing was to concentrate on particular market segments. It would be easier to focus on healthcare professionals, such as doctors. Emma suggested that the best approach to contact these potential customers was through conferences and relevant medical magazines and journals. She was also investigating other potential market segments and distribution channels. Identifying these potential customers was going to be a major challenge and required market research. Could the general public be targeted through large chains of shops that sell health-related products? Ahmed thinks that they should concentrate on launching the product in Brazil before going global, but this might result in competitors copying the idea in other countries. In many areas the project was going smoothly, but frustrations were beginning to show. Bella was keen to make a lot of progress quickly. She thought that the project should be launched as soon as possible and then refined later based on customers' experiences. Didi was clear that they had to get the product absolutely right before it was launched. He also stated that Medimatters would need finance in order to start trading. Carlo was worried about where the lenses should be produced. Ahmed has a lot of work to do to sort out these frustrations. \begin{tabular}{|l|l|}
\hline Group member & Findings and progress \\
\hline Ahmed
Project manager & \begin{tabular}{l}
- Draft business plan: complete \\
- Potential investors: identified \\
- Application for copyright/patents: in progress \\
- Size of market: unclear, believes that there is huge national and global potential
\end{tabular} \\
\hline Bella
IT & \begin{tabular}{l}
- Prototype of image-taking software: written and tested \\
- Medical diagnosis software development: in progress
\end{tabular} \\
\hline Carlo
Medical expert & \begin{tabular}{l}
- Insect bite images: $75 \%$ collected and catalogued on database \\
- Communication channels with healthcare professionals: no progress \\
- Reporting format for medical diagnosis: some progress \\
- Approval for the use of the app for medical purposes: cannot be granted by health authorities until lens design finalized
\end{tabular} \\
\hline Didi
Accountant & \begin{tabular}{l}
- Production costs for app and lens: to be determined \\
- Further financial information for business plan: in progress \\
- Set-up cost: $\$ 60000$
\end{tabular} \\
\hline Emma
Marketing & \begin{tabular}{l}
- Market research: no progress, except for discovering a device/app that measures skin colour to help choose cosmetics and another that helps identify skin cancer \\
- List of potential market segments and target markets: complete \\
- Promotion strategies targeting medical profession: ongoing \\
- Marketing plan: in progress
\end{tabular} \\
\hline Falit
Production & \begin{tabular}{l}
- Lens production: investigate where to produce the lenses, possible manufacturer identified \\
- Production method: investigate batch or flow
\end{tabular} \\
\hline All of them & - Ahmed, Bella and Carlo could each invest $\$ 2000$, the others could
invest $\$ 1000$. $\$ 51000$ extra would need to be found. The list of
problems is getting longer! \\
\hline
\end{tabular} Additional terms not in the guide Copyright/patents Companies, products, or individuals named in this case study are fictitious and any similarities with actual entities are purely coincidental.

FrioAire Appliances (FA)


FrioAire Appliances (FA) manufactures medium-priced and medium-quality refrigerators. It is a multinational public limited company. Its factory is located in a less economically developed country that has high unemployment, a tradition of autocratic leadership and labour costs lower than FA's home country. The factory is profitable, and FA pays consistently good dividends. Market growth for medium-priced and medium-quality refrigerators is limited.
As part of a strategic objective to increase productivity and to enter a fast-growing market for high-priced and high-quality refrigerators, F A is considering building a new factory in and relocating production to Germany. This would require closing the factory in the less economically developed country. The new factory will:
- use innovative technologies, including advanced robotics and 3D processes
- require fewer employees, but those it does require will need to have better skills and qualifications.
Germany has a highly skilled, qualified and productive workforce. The new factory would allow FA to reposition its products. However, FA would need to raise significant finance to build and equip the new factory.
FA's leadership style at the factory in the less economically developed country is autocratic. Members of FA's board wonder whether this style would be suitable for the new factory in Germany, where workers have more bargaining power because of their high skill level and the labour-friendly cultural traditions. In Germany, FA would have to follow more regulations regarding the environment, health and safety, and employee rights.
FA workers in the less economically developed country are very loyal to F A, which has continued operation through a civil war at significant cost to itself (for security). If FA were to close in the less economically developed country, the workers would not find such good jobs.

Evaluate the option of building a factory in, and relocating to, Germany.