OPERATIONS MANAGEMENT

Group 1

Abstract
This project is an explorative study of the operations management of a product (chocolate) and
the related capacity, layout and location planning in order to maximize the profitability.

Abhinav Deb (170301002)

Arya Kishore Sarbadhikary (170301015)
Nilesh Dutta (170301030)
Soumya Basu (170301037)
Subasish Ansuman Sharma (170301038)
Contents
Product.......................................................................................................................................................... 3
Product Design ............................................................................................................................................. 3
Idea Generation ........................................................................................................................................ 3
Economic............................................................................................................................................... 3
Physiological .......................................................................................................................................... 3
Social ..................................................................................................................................................... 4
Features..................................................................................................................................................... 4
Prototype .................................................................................................................................................. 8
Replicate .................................................................................................................................................... 8
Review ....................................................................................................................................................... 8
Location Planning .......................................................................................................................................... 9
Factors Considered for choosing the location ......................................................................................... 9
Raw materials ........................................................................................................................................ 9
Cocoa Producing States ........................................................................................................................ 9
Natural Bourbon Vanilla Bean producing states ................................................................................... 9
Cocoa butter......................................................................................................................................... 9
Maltitol producing states....................................................................................................................... 9
Ease of Import ........................................................................................................................................... 9
Labor cost ................................................................................................................................................. 9
Land Cost ................................................................................................................................................ 10
Electricity Cost ....................................................................................................................................... 10
Environment ............................................................................................................................................ 10
Ease of Doing Business ........................................................................................................................... 12
State Economy ........................................................................................................................................ 12
Factor Rating Method ............................................................................................................................. 13
Capacity Planning ........................................................................................................................................ 14
Why capacity planning is important for a company? .............................................................................. 15
Capacity Level of Cadbury v/s the others .............................................................................................. 15
How Capacity planning works in Cadbury? ............................................................................................ 16
Manufacturing process flow of Cadbury ................................................................................................. 17
Product
Dark sugar-free chocolate.

Product Design
Idea Generation
Increasingly, consumers are becoming concerned about the sugar and calorie content as well as
the cariogenicity of confectionery products, with ‘sugar-free’ products growing in popularity. A
food product can assume a ‘sugar-free’ claim if it provides less than 40 calories per serving or
provides less than 0.5 g of sugars per serving, respectively. The growing popularity of these
products have led to an increased quest for the use of alternative sweeteners in the dairy,
confectionery and beverage industries within the past decade. While the use of sucrose prevails
in traditional chocolate industry, numerous nutritive and non-nutritive sweeteners offer new
opportunities for the manufacturer. Consequently, edible carbohydrates with lower energy
contents have been developed which are suitable for inclusion as bulking agents in chocolate
manufacture, to cater to the growing sugar free dark chocolates market.
Economic
The research conducted by London-based global market firm Mintel states that while the
chocolate sales in other nations have stagnated, India consumed 228,000 tonnes worth of
chocolate in 2016.
It said that over two in five Indian consumers (44%) find sweet snacks like chocolates and cakes
to be healthy.
India's chocolate confectionery market is expected to grow at a CAGR of 20.6 per cent from
2016 to 2020, the research said.
With India growing to be more health conscious, global market researches show that dark sugar
free chocolates are going to grow at a very rapid pace.
Physiological
Dark chocolate is emerging as the popular type of chocolates in the new generation because it
has relatively lower added sugar and fats than milk chocolate. It has the following physiological
benefits
Protection from Disease-Causing Free Radicals
Antioxidants are the compounds that are believed to neutralize free radicals and protect the body from
their damage. Two groups of antioxidants prevalent in dark chocolate are flavonoids and polyphenols.
Dark chocolate’s cocoa has actually been shown to have the highest content of polyphenols and flavonoids,
even greater than wine and tea.
Potential Cancer Prevention
According to the American Cancer Institute: A recent review of studies on the cancer protective
properties of cocoa concluded that the evidence is limited but suggestive. More rigorous studies should
be conducted on chocolates’ cancer protective role, concluded the author, because it provides ‘strong
antioxidant effects in combination with a pleasurable eating experience.
Improved Heart Health
Flavanols are the main type of flavonoid found in dark chocolate. According to Cleveland Clinic, research
has shown that flavanols have a very positive effect on heart health by helping lower blood pressure and
improving blood flow to the heart as well as the brain. Dark chocolates flavanols can also help make blood
platelets less sticky and able to clot, which reduces the risk of blood clots and stroke.
Good for Overall Cholesterol Profile compared to normal chocolate
The cocoa butter found in dark chocolate contains equal amounts of oleic acid (a heart-healthy
monounsaturated fat also found in olive oil), stearic and palmitic acids. It’s true that stearic and palmitic
acids are forms of saturated fat, but research shows that stearic acid appears to have a neutral effect on
cholesterol, which means it doesn’t raise it or lower it.
Sugar free - Lesser Calories
The addition of alternative sweeteners in addition to already lesser amount of carbohydrates in dark
chocolate cuts down on the calorie intake. Milk chocolate usually has about 50 grams of carbs per 100 g,
while the amount of carbs in dark chocolate ranges from 8 to 35 carbs, depending on how dark it is. A
chocolate with 70% cocoa has ~30 grams; a 85% chocolate has ~20 grams.

Social
The social factors effecting the choice of product, i.e. chocolate are:

 Delicious and easily obtainable

 Acts as a stimulant due to the presence of caffeine, dopamine, serotonin, sugar and
theobromine.
 Has aphrodisiac effect.

Features
We have two options of alternative sweeteners for use in our product: Artificial sweeteners or natural
sugar substitutes. Both alternatives are analyzed below.

 High potency sweeteners (HPSs) are often called high intensity sweeteners. They deliver a
sweetness punch from hundreds to thousands of times than that of sucrose and, therefore, are
used at levels of “parts per million” (ppm). Many types exist; some of them are listed below.
 Polyols (also known as sugar alcohols) originate from traditional corn syrups modified by reducing
the reactive sites (aldehyde or ketone) through catalytic hydrogenation, enzymatic conversion or
fermentation. Only the reactive groups are changed so the polyol retains much of the sugar’s
structure, bulk and function, making them ideal for 1:1 bulk sugar replacement. Polyols vary in
sweetness from half as sweet to about as sweet as sucrose, at the same time providing almost
zero to about one-half the calories of sugar on a per weight basis. They include sorbitol, isomalt,
erythritol, maltitol, lactitol, mannitol and xylitol. Their chemical properties are summarized in
Table 2.
Maltitol allows us to get a sweetness that is close to that of sugar, but with not as many calories.
For this reason, it can help with weight loss. It also doesn’t have the unpleasant aftertaste that
other sugar substitutes tend to have. Another benefit is that maltitol, and other sugar alcohols,
don’t cause cavities or tooth decay like sugar and other sweeteners do. Also, it is produced in
almost every state in India. Based on all these Malitol will be used as the alternative sweetener in
our product.
 Ingredients

6%
4%

20%

70%

Cocoa Solids Malitol Cocoa Butter Natural Bourbon Vanilla Bean

Chocolate will be bar shaped with 3x6 squares (Dimensions, inches: 3.5*0.3*7.6), having a net
weight of 100g including the packaging.
Chocolate products are heat sensitive and require chocolate packaging material that is composed
of special material properties that will support the packaging of chocolate products.
We will be using an Inner wrap of tightly sealed aluminium and an Outer wrap in cardboard label
with tear perforation.

Prototype
We will be producing a prototype batch of 10000 pieces for distribution in Tier 1 cities across
India as sugar free dark chocolates come under the premium chocolate category and are generally
consumed by the high-income group.
Replicate
We will be mass-producing after prototype sales are successful.
We will be using different combination of above-mentioned ingredients to provide 3 different shades of
flavors.
In addition, we will be mass-producing in sizes of 2x3 (33g) and 3x3 (50g) in addition to our original size
of 3x6 (100g).
In all we will be having a range of 9 different products based on the above combinations.

Review
We will be conducting a customer survey after a period of 6 months to gauge the user’s level of
satisfaction.
Based on the feedback we will be tweaking the offered flavors and keep/discard the relevant sizes of
chocolates offered.
Location Planning
Factors Considered for choosing the location
Raw materials
Cocoa solids (Constitutes minimum 70% of dark chocolate, Maltitol-A sugar Substitute, cocoa
butter, natural bourbon vanilla bean.
Cocoa Producing States
Tamil Nadu, Andhra Pradesh, Karnataka, Kerala.
Natural Bourbon Vanilla Bean producing states
Tamil Nadu, Andhra Pradesh, Karnataka, Kerala.
Cocoa butter
Need to be imported.
Maltitol producing states
Almost every state.
Ease of Import
COCOA produced is not enough to meet the fluctuating demand. Some portion has to be
imported. Also for plant set up the complex equipments have to be imported from outside.
A port nearby is an essential requirement. Andhra Pradesh is the third maritime state in terms
of cargo handled after Gujarat and Maharastra.
Considering the above two factors, more location analysis will be done on the sates of Gujrat,
Tamil Nadu, Andhra Pradesh, Karnataka, Kerala and Maharastra.
Further analysis need to consider the below factors

Labor cost
Land Cost

Electricity Cost

Environment
For any food product manufacturing plant to be set up, the environment around the plant should
be safe and clean
Swachh Sarvekshan 2017 was conducted between 4 January 2017 and 7 February 2017. The
results of top 30 cities are as follows:

Rank City State/Union Territory

1 Indore Madhya Pradesh
2 Bhopal Madhya Pradesh
3 Visakhapatnam Andhra Pradesh
4 Surat Gujarat
5 Mysore Karnataka
 6 Tiruchirapalli Tamil Nadu
7 New Delhi Municipal Council Delhi
8 Navi Mumbai Maharashtra
9 Tirupati Andhra Pradesh
10 Vadodara Gujarat
11 Chandigarh Chandigarh
12 Ujjain Madhya Pradesh
13 Pune Maharashtra
14 Ahmedabad Gujarat
15 Ambikapur Chhattisgarh
16 Coimbatore Tamil Nadu
17 Khargone Madhya Pradesh
18 Rajkot Gujarat
19 Vijayawada Andhra Pradesh
20 Gandhinagar Gujarat
21 Jabalpur Madhya Pradesh
Greater Hyderabad Municipal
22 Corporation Telangana
23 Sagar Madhya Pradesh
24 Murwara Madhya Pradesh
25 Navsari Gujarat
26 Vapi Gujarat
27 Gwalior Madhya pradesh
28 Warangal Telangana
29 Mumbai Maharashta
30 Suryapet Telangana
Source: Ministry of Urban Development[3]
Ease of Doing Business

State Economy

This means consumer spending power increases that eventually means the local market for
chocolates will increase.
Factor Rating Method
Considering all the above parameters, we have chosen Surat (Gujarat), Vizag (Andhra Pradesh)
and Mumbai (Maharashtra) as the final three locations on which we need to decide by using Factor
Rating method.

Factors Importance (I) Surat (S) IxS Mumbai (M) IxM Vizag (V) IxV
Distance from Raw Material
Source 5 3 15 4 20 5 25
Ease of Import by Sea 5 3 15 4 20 5 25
Labor Cost 4 5 20 3 12 4 16
Land Cost 4 3 12 4 16 5 20
Electricity cost 4 5 20 3 12 4 16
Environment around the location 4 5 20 3 12 5 20
Ease of doing business in the state 4 5 20 3 12 4 16
Economy of the state 3 4 12 4 12 5 15
Total 33 134 116 153

The rating for each location is provided by an experienced professional.

As the result, by Factor Rating Method, Vizag is a suitable location for the chocolate factory.
Capacity Planning

Capacity planning is the process of determining the production capacity needed by an organization to
meet changing demands for its products. In the context of capacity planning, design capacity is the
maximum amount of work that an organization is capable of completing in a given period.
Classes of Capacity Planning strategies:-
1. Lead Strategy is adding capacity in anticipation of an increase in demand. It’s an aggressive type of
strategy with the goal of luring away the customers from the company’s competitors by improving the
service level and reducing the lead time.

2. Lag Strategy refers to adding capacity only after the organization is running at full capacity or beyond
due to increase in demand. Three clear advantages of this strategy are a reduced risk of overbuilding,
greater productivity due to higher utilization levels, and the ability to put off large investments as long
as possible. Organization that follow this strategy often provide mature, cost-sensitive products or
services.
3. Match Strategy is adding capacity in small amounts in response to changing demand in the market.
This is a more moderate strategy.
4. Adjustment Strategy is adding or reducing capacity in small or large amounts due to consumer's
demand, or, due to major changes to product or system architecture.
Why capacity planning is important for a company?

Capacity planning is long-term decision that establishes a firms' overall level of resources. Capacity decisions
affect the production lead time, customer responsiveness, operating cost and company ability to compete.
Inadequate capacity planning can lead to the loss of the customer and business. Excess capacity can drain the
company's resources and prevent investments into more lucrative ventures. The question is that when capacity
should be increased and by how much are the critical decisions? System Capacity is the maximum amount of
work that an organization is capable of completing in a given period. System Efficiency is the maximum amount
of work that an organization is capable of completing in a given period due to constraints such as quality
problems, delays, material handling, etc.

In context with capacity Cadbury Dairy Milk is producing 8,000 tonnes chocolates in a year.

Capacity Level of Cadbury v/s the others

Cadbury has a current production level of 10000 TPA (tonnes per annum) and is expected to increase its
production capacity to 250000 TPA by 2020, installing another unit in Andhra Pradesh.

Below are the capacity comparison for other competitors:-

Manufacturer Unit (TPA) Expected (TPA)

Cadbury 10000 250000
Amul 3500 20000
Nestle 8000 50000
Campco 9000 17000
How Capacity planning works in Cadbury?

Cadbury gradually moves from Lead Strategy to Match Strategy planning as they rollout new products in the
market with incremental changes.

The max production level for Cadbury is 10000 tonnes chocolates in FY 2017-18

The Current Capacity used for Cadbury is 8000 tonnes chocolates in FY 2017-18

𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑈𝑠𝑒𝑑
Capacity Utilization Rate =
𝐵𝑒𝑠𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐿𝑒𝑣𝑒𝑙

8000
= 10000 = 80%
The Capacity Utilization Rate is 80 % and have a 20% capacity cushion for unexpected surges in demand or
temporary work stoppages. It is the amount of reserve capacity the business maintains to handle
sudden increases in demand or temporary losses of production capacity.

Note:

If the capacity utilization rate had been 100%, then the productivity would have slowed down and things
would have ended up in a bad shape.
The range where the average cost per unit of the product can be operated is between the “Best Operating
Level” and “Capacity Used” keeping a margin of capacity cushion of 20%.

Also the average cost per unit reduces when moved from current production capacity to best operating level.

Advantages of Capacity cushions:-

1. Prevention of oversupply of product due to increase of demand in the market

2. Temporary loss of production capacity due to inventory fault
3. Temporary loss of production capacity due to labour strike

Manufacturing process flow of Cadbury

Collecting the Separating and Roasting

cocoa beans drying

Mixing with Grinding Winnowing

sugar

Conching Molding Finishing

chocolate bars