Operations Management Project
XYZ Company for Tea Production
XYZ Co is a prominent company in the FMCG industry. It provides 400 different brands spanning
14 categories of home, personal care and foods products. XYZ is now one of the world’s biggest
companies. Their first business in the Middle East started in Saudi Arabia in the 1930’s and by
1978, the first factory was set up in Jeddah to supply the Middle East region with home and
personal care products. In Egypt, XYZ established in 1991 a joint venture with an Egyptian
company creating one of the largest FMCG businesses in Egypt.
In 2000, XYZ established its tea factory in Borg El Arab to produce high quality tea. The total
sales for XYZ (the tea factory) were around 60 Million Egyptian pounds during year 2020. The
company is operating under a strategy that aims to provide the best tea tasting experience to its
customers (differentiation strategy).
Forecasting
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 constant growth in sales in years 2018, 2019 and 2020. However, the current conditions in
Egypt and the world calls for reassessment of their future sales. Thus, the General Manager
highlighted the need to reassess the forecasting techniques that they currently use.

Capacity Planning
XYZ has 7 production lines with a max. capacity (Actual O/P) of 250,000 box of tea per month.
During 2020, the capacity of the factory critically covered the market demand. However, the
company might face a problem to cover the expected demand in the future. Thus, it seems critical
to rethink their capacity for future. During the meeting, the operations manager proposed two
capacity alternatives to increase their capacity. The first alternative is to buy a new production line.
The second alternative is to continue outsourcing to a third party producer. The following table
indicates the annual fixed and variable cost per unit of each alternative:

Besides, for the short term, there is a need to reconsider the use of the company resources while
maintaining the same quality of their products. Accordingly, the operations manager proposed a
process improvement initiative that reduces processing time for each box (the company operates
8 hr./day), so that output is increased by 15 %, but 5 additional workers required for each
production line. Originally, 15 operators are needed to operate each line (7 production lines).
Operator costs are LE 10/hour, and material input is LE 2/box and operating line cost LE 300/hr.
Overhead is charged at 1.4 times direct labor cost (before and after the proposed initiative). As a
member of the improvement team, you are required to assess the feasibility of the proposed
initiative with respect to its effect on the productivity of the production lines (assume that the
output is evenly distributed among the 7 lines).
Production process and quality
Generally, production in XYZ company could be considered as a batch processing that provides
quite high volume and quite acceptable variety of output. As previously mentioned, there are 7
production lines that are used to produce the 5 different types of products produced by XYZ. Line
1, 2 and 3 are used to produce tea bags (100, 50 and 25 packs). Line 5 is used to produce tea bags
as well (but the 10 pack). Line 6 is used to produce the dust while line 7 is used to produce the
CTC. Line 4 could produce all the different types of tea. The production processes for the different
types of tea produced are as follows:
1. The warehouse dispatches the raw tea after receiving the production order.
2. After the raw tea is dispatched, the certified tea tasters start to propose the needed blend of
tea and then the blend preparation starts.
3. The mixing stage starts which includes a magnet, mesh and a mixing drum to guarantee
the homogeneity of the blend.
4. The blend then is moved to the sample tank. In the sample tank, samples are taken to do
some quality checks.
5. The blend is then moved to the main tanks according to the type of the blend.
6. The blend is then moved to one of the production lines to be processed.
7. The final product is then moved to the packaging stage.
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 (step 4); 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
6% to 8%. The standard deviation of the process is 0.25 %., So, the quality team decided to collect
a sample data (20 samples each with 5 observations) about the moisture content (in percentage) as
shown in the following table:

Inventory and order fulfillment
The company attempts to minimize the amount of inventory. There is a real need to reassess this
strategy for their purchases. The current model of ordering and inventory ignores calculating
economic order measures as well as quantity discounts that might be offered. For example, the
needs of XYZ from one of its raw materials, the raw tea; being as a crucial ingredient and imported
from an international supplier has a total demand of about 310,000 tons/year. Ordering costs are
$24000 per order, carrying costs are $35 per ton per year. Orders less than 20,000 tons will cost
$18 per ton, 20,000 and less than 30,000 will cost $ 17.5 per ton, and larger orders will cost $ 16
per ton. The lead-time needed from placing an order until having the order is around 8 days on
average with standard deviation 2.5 days. while the required service level is 95%
Aggregate Planning
Planners of the company are about to prepare the aggregate plan that will cover 6 months.
Assuming that the company identified the following forecast for the next 6 months:

They now want to evaluate a plan that calls for a steady rate of regular output (250000
boxes/month), mainly using inventory to absorb the uneven demand but allowing some backlog.
They intend to start with zero inventory on hand in the first period. They decided to use overtime
to make up for lost output. The maximum amount of overtime output per period is 35000 box per
month. The regular production cost per box is 30 LE while the overtime cost per box is 35 LE.
The holding cost is 5 LE per box per month and the backorder cost is 10 LE per box per month.
Product mix and transportation (Linear Programming)
The company produces five types of tea which for convenience shall be referred as A, B, C, D,
and E. The operations manager is thinking about formulating a linear programming model. This
model can be used by the firm to determine the optimal product mix and production quantities in
the presence of production and demand constraints with several “what-if” scenarios. However, the
model is comprehensive and incorporates several diverse issues such as:
• Multiple products, each with its own resource usage per unit of the product
• Product demands per month
• Finite resource availability
• Distinct resource costs
The objective in the mathematical model is to maximize the firm’s profit. Therefore, the model
assumes that each product has its own unique operating procedure, which we define as the
parameters of a production process that uses a known amount of each resource and results in a
specific production yield of that product. The resulting mathematical model in this scenario is a
linear program. The outputs of the model give the firm precise information regarding which
products should be produced, and in what quantities. Furthermore, the model should show which
production and demand constraints limit the firm’s profits so that the firm can carefully study these
problem areas. Since the model calculates the amount of different products in advance, the results
can also be used for comparison between optimal and actual amounts of production.
The following table shows the requirements of each box from the raw material, machine time and
labor time as well as the maximum demand and the profit per unit.

– The monthly available tea leaf (the raw material of the tea) is 35000 kilograms
– The maximum capacity of the 7 lines is 250000 box/month.
Required case analysis:
As an Operations Management Consultant, XYZ has hired you to help determine how it can
improve its operations management by using the available resources. You are required to provide
a report and PowerPoint presentation indicating your analysis to the case company and your
recommendations regarding the following:
▪ Analyze the sales numbers of the company and recommend a forecasting technique to use
during the upcoming period and forecast 2021.
▪ Assess the two alternatives (outsourcing vs insourcing) and determine the appropriate
decision based on 2021 forecast and determine when it is appropriate to outsource and
which year the new production line is a must.
▪ Assess the proposed improvement initiative using the actual demand of 2020.
▪ Review and assess the process of inspection undertaken by XYZ.
▪ Review and assess the inventory decisions facing XYZ
▪ Prepare an aggregate plan for the first 6 months of 2021 based on the given forecasted
demand.
▪ Prepare a linear programming model that determine the optimal product mix.
▪ In each module of the case provide a theoretical background regarding the topic no more
than 2 pages for each module