TEST BANK for Managing Operations Across the Supply Chain, 5th Edition Morgan by Swink, Melnyk, Hart by ACADEMIAMILL

TEST BANK

Student name:__________ 1) Which of the following statements is a reason why operations management is important? A) Efficient and productive operations drive the economic well-being of nations. B) Operations management is responsible for much of the value created by

organizations. C) All of these are reasons why operations management is important. D) Operations management is a key source of competitive differentiation among firms. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-01 Explain what operations management is and why it is important. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-17 Which of the following statements is...

2) Structural operations management decisions include: A) Materials controls, supply chain, and value definition. B) Workforce, production planning, and materials controls. C) Workforce, capacity, and facilities. D) Capacity, facilities, and technology. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-02 Describe the major decisions that operations managers typically make. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-4 Structural operations management...

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3) A supply chain is a global network of organizations and activities involved in: A) Financing, producing, and marketing of goods and services. B) Designing, financing, selling, and disposing of goods and services. C) Producing, buying, servicing, and disposing of goods and services. D) Designing, transforming, consuming, and disposing of goods and services. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-01 Explain what operations management is and why it is important. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-2 A supply chain is a global network...

4) Joe Jones was asked to undertake a project to determine the resources and capacity his firm

would need in the next three to 10 years. These types of decisions are considered to be: A) Positional aspects of operations management. B) Infrastructural aspects of operations management. C) Structural aspects of operations management. D) Assessment aspects of operations management. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-02 Describe the major decisions that operations managers typically make. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-5 Joe Jones was asked to undertake a...

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5) Which of the following factors is NOT a major change driver that supply chain managers are

concerned about? A) Regulatory changes B) Global political changes C) Supply chain managers are concerned about all of these changes. D) Technology changes Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-21 Which of the following factors is...

6) Which functional activities are the most closely related to operations managers’ attempts to

manage the flow of materials and information in a firm? A) Customer, finance, and logistics management B) Logistics, supply, and customer management C) Finance, accounting, and supply management D) Logistics, finance, and supply management Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-06 Define the planning activities associated with managing operations across Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-14 Which functional activities are the...

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7) A supplier of materials used in manufactured goods is a participant in: A) The resource/technology supply chain B) The product supply chain C) A union D) The tier 2 supply chain Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-35 A supplier of materials used in...

8) Which of the following statements is NOT true regarding supply chain management? A) Supply chain management is a way of viewing operations management. B) Supply chain management has grown as a result of a focus on core capabilities. C) Supply chain management is about making the most of relationships with suppliers. D) Globalization has slowed the growth of supply chain management. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-19 Which of the following statements is...

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9) Which of the following challenges is most likely to be faced by service operations managers,

rather than manufacturing operations managers? A) Pure service operations need to be separated from pure goods-producing operations B) Customers are more directly involved in service processes, so their perceptions need to be considered C) Operations is typically less financially important in service businesses D) The “total product experience” is more important in services Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-01 Explain what operations management is and why it is important. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-30 Which of the following challenges is most...

10) While there is overlap between operations management and supply chain management, the

two are different in that: A) Operations management focuses on processes, supply chain management focuses on relationships and flows. B) Operations management focuses on tangible goods, supply chain management focuses on services. C) All of these. D) Operations management focuses on production, supply chain management focuses on supply and logistics. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-11 While there is overlap between...

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11) In working with downstream processes, internal operations managers typically work closely

with: A) B) C) D)

Marketing and sales managers Human resource managers Government regulators Information technology managers

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-05 Identify the partners and functional groups that work together in operatio Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-33 In working with downstream processes...

12) Suppose that you are the general manager of a hotel. For which of the following issues would

you first seek help from an operations manager in your firm? A) We are running out of cash. B) Our prices seem to be too high. C) Customers' complaints are rising. D) We need a new insurance policy. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 01-02 Describe the major decisions that operations managers typically make. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-40 Suppose that you are the general...

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13) Which of the following statements best describes “process thinking”? A) B) C) D)

It is a way to categorize elements of work activities. It is a way to approach work systematically. It is a way to manage thought processes to make better decisions. It is a way to view business as a system of interrelated activities.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-03 Explain the role of processes and &#8220;process thinking&#8221; in operat Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-28 Which of the following statements best...

14) Operations managers answer questions of what, how, when, where, and who by defining both

the _________ and _________ aspects of the operations management system. A) Financing and capacity B) Marketing and delivery C) Structural and infrastructural D) Production and accounting Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-02 Describe the major decisions that operations managers typically make. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-3 Operations managers answer questions of...

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15) Operations management is: A) The management of production. B) The management of services. C) The management of physicians. D) The management of processes. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-01 Explain what operations management is and why it is important. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-16 Operations management...

16) What kinds of questions does an operations manager who is responsible for strategic-level

planning address? A) How many manufacturing plants should the company operate? B) How should this process be organized? C) Should we make this part or buy it? D) Which employees should work the day shift tomorrow? Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 01-06 Define the planning activities associated with managing operations across Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-39 What kinds of question does an operations...

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17) Every organization operates which of the following types of supply chains? A) Information and personnel supply chains. B) Product and resource/technology supply chains. C) Direct and indirect supply chains. D) Product and tangible goods supply chains. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-20 Every organization operates which of...

18) To an operations manager, the "key customer" is: A) The Echelon 1 customer. B) The person who uses the product. C) The person who has the greatest impact on design, sales, and growth opportunities for

the product. D) The person who buys a product. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-05 Identify the partners and functional groups that work together in operatio Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-13 To an operations manager, the...

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19) Which of the following functions would NOT have to think about "processes"? A) Supply management B) All of these have to think about "processes." C) Accounting D) Production management E) Logistics management Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-03 Explain the role of processes and &#8220;process thinking&#8221; in operat Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-7 Which of the following functions would...

20) Internal operations managers work with what function to coordinate inbound and outbound

flows of materials and information? A) Marketing B) Finance C) Logistics D) Purchasing Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-05 Identify the partners and functional groups that work together in operatio Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-34 Internal operations managers work...

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21) Growth of the supply chain management perspective in operations management results from

the advent of: A) All of these. B) Collaborative networks. C) A focus on core capabilities. D) Technology and infrastructure advances. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Operations Management Yesterday and Today Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-9 Growth of the supply chain...

22) Which of the following decisions would NOT be under the direct control of operations

managers? A) What resources will be used to satisfy customer demand? B) What suppliers should provide needed inputs? C) What mode of transportation should be used to ship products? D) What customers should be targeted with greatest priority? Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-02 Describe the major decisions that operations managers typically make. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-24 Which of the following decisions would...

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23) During the "mass production" era, operations management focused primarily on: A) Sales, production, and design. B) Production and design. C) Internal production. D) The global supply chain. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Operations Management Yesterday and Today Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-10 During the "mass production" era,...

24) Customer service management connects what functional groups? A) Human resources management, marketing, and finance. B) Marketing, logistics management, and sales and distribution. C) Logistics management, sales and distribution, and product engineering. D) Supply management, marketing, and finance. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-05 Identify the partners and functional groups that work together in operatio Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-25 Customer service management connects...

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25) Jones Manufacturing sells a part to Lear Corporation. Lear puts this part into a radio, which

Lear then sells to Ford. From Ford's point of view, Jones Manufacturing is a(n) _________ supplier. A) Echelon 2 B) Echelon 1 C) Tier 2 D) Tier 1 Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-05 Identify the partners and functional groups that work together in operatio Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-15 Jones Manufacturing sells a part to...

26) Johnson Company makes widgets, which it then sends to Smith Company. Smith Company

puts the widgets in packages. Smith Company is considered by Johnson to be a: A) Downstream product supplier. B) Upstream product supplier. C) Key customer. D) Aftermarket supplier. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-05 Identify the partners and functional groups that work together in operatio Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-12 Johnson Company makes widgets, which it...

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27) Up until the latter parts of the 20th century, operations management mainly focused on: A) Globalization B) Design C) External outsourcing D) Internal production Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-31 Up until the latter parts of the 20th century...

28) Which of the following groups is NOT likely to be stakeholders for operations in a local

bank? A) B) C) D)

All of these are likely to be stakeholders Customers Regulators Employees

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29) An example of strategic planning is: A) Deciding where to locate a new manufacturing plant. B) Forecasting next week's demand of a given product item. C) Targeting customer demand for aggregate product families. D) Setting inventory levels for a given product. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-06 Define the planning activities associated with managing operations across Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-23 An example of strategic planning...

30) How is “supply chain management” different than “operations management”? A) Supply chain management focuses mainly on supplier relationships, while operations

management focuses mainly on production B) Supply chain management is about relationships and flows, while operations

management is about processes C) Supply chain management is external, while operations management is internal D) They are exactly the same thing Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-32 How is "supply chain management"...

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31) Different levels of planning in supply chain operations management include: A) Logistical, operational, and procurement planning. B) Long-term and short-term planning. C) General and detailed planning. D) Strategic, tactical, and operational planning. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-06 Define the planning activities associated with managing operations across Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-22 Different levels of planning in...

32) What kinds of questions does an operations manager who is responsible for operational-level

planning address? A) How many units of inventory for product X should I order? B) What new information system should we install? C) Where should we locate a new distribution center? D) What technical training program should we purchase? Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 01-06 Define the planning activities associated with managing operations across Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-38 What kinds of questions does an operations...

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33) What kinds of questions does an operations manager who is responsible for tactical-level

planning address? A) How many workers should we hire or fire? B) Which customer order should we work on first today? C) What new customers should the company pursue? D) What new technologies should the company buy? Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 01-06 Define the planning activities associated with managing operations across Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-37 What kinds of questions does an operations...

34) Which of the following statements about operations management processes is NOT true? A) Inputs to operations management processes can be materials, people, and/or

information. B) Design of operations processes should reflect what customers want. C) Operations management processes involve transformation of inputs into valuable outputs. D) Outputs of operations management processes are always tangible goods. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-03 Explain the role of processes and &#8220;process thinking&#8221; in operat Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-8 Which of the following statements...

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35) A process is: A) A system of activities that transforms inputs into valuable outputs. B) A set of planned steps used to achieve an objective. C) A system of decisions. D) A combined effort by people who want to get something done. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-03 Explain the role of processes and &#8220;process thinking&#8221; in operat Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-18 A process...

36) Fundamental areas of management in supply chain operations management include: A) People, Equipment, and Money. B) Quality, Inventories, and Processes. C) Lean Systems, Quality, and Flexibility. D) Markets, Processes, and Sales. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-01 Explain what operations management is and why it is important. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-27 Fundamental areas of management in supply...

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37) Supply chain management has grown as a prevalent perspective on operations management

because: A) Firms have become more vertically integrated. B) Governments have become less open to trade. C) Purchasing managers now have stronger roles in companies. D) Technology has facilitated globalization. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-04 Explain what the supply chain is and what it means to view operations mana Topic : Viewing Operations Management from a Supply Chain Management Perspective Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-26 Supply chain management has grown as a...

38) Operations management is important because: A) It is more important than finance or marketing B) It is a major cost for firms that needs to be minimized C) Managers need to continually find ways to automate processes D) It affects the quality of life of workers and consumers Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 01-01 Explain what operations management is and why it is important. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-29 Operations management is important...

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39) Physical goods can be differentiated from services in the operations management process by: A) More capital-intensive and shorter lead times. B) More labor-intensive and longer lead times. C) More expensive and easier to control. D) Longer lead times and they can be inventoried. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-02 Describe the major decisions that operations managers typically make. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-6 Physical goods can be differentiated...

40) Which of the following is NOT one of the processes included in operations management? A) Design B) Produce C) Finance D) Deliver Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 01-01 Explain what operations management is and why it is important. Topic : A Broad Definition of Supply Chain Operations Management Source : Chapter 01 Test Bank - Static > TB MC Qu. 01-1 Which of the following is NOT one of the...

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Answer Key Test name: Chapter 1: Introduction to Managing Operations Across the Supply Chain 1) C

Operations management affects both macroeconomic and individual firm outcomes. 2) D

Structural decisions include capacity, facilities, technology, and the supply chain network. The other choices include infrastructural decisions. 3) D

The organizations and activities in a supply chain are involved in designing, transforming, consuming, and disposing of goods and services. 4) C

Resources and capacity are among the structural decisions. 5) C

Supply chain managers also track market changes, including social issues such as sustainability. 6) B

Supply management, logistics management, and customer management are the functions most directly related to the flows of both materials and information. Finance and accounting are primarily about managing capital and reporting information. 7) B

Material suppliers provide items that go into finished products. Resource/technology suppliers provide knowledge or physical assets (example, equipment) that are used to accomplish product transformations. 8) D

Globalization has increased the growth of supply chain management. SCM involves relationships with customers and partners, not just suppliers. 9) B

Customers are often intimately a part of the operations process. The process is the product, and customers directly and immediately observe the process. 10) A

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The key distinction is that supply chain management focuses on relationships and flows, whereas operations management focuses on processes. 11) A

Operations managers working in “customer-facing” processes (example, order processing, fulfillment) will work closely with marketing and sales managers, who are also customeroriented. 12) C

Although operations managers might be asked to get involved with any of these issues, customer complaints are probably due to ineffective processes, a primary operations management responsibility. 13) D

Process thinking looks at all operations as systems of activities that are related by material, information, and people flows, and by shared resources. 14) C

Structural and infrastructural aspects of operations management must be defined to answer questions of what, how, when, where, and who. 15) D

"Processes" comprehends all of the aspects of operations management. The other answers are just possible components of operations management. 16) A

Strategic planning deals with long-term issues (years) at a business level, including making changes to a physical network of facilities. 17) B

Product supply chains manage flows of goods and services. Resource/technology supply chains manage acquisitions and flows of equipment, facilities, workers, product designs, and so on. 18) C

The key customer is one who has the greatest impact on design, sales, and growth opportunities. 19) B

All functions must think about processes. 20) C

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Logistics operations managers focus on managing orders and inventories into and out of a company’s facilities. 21) A

In addition to the three listed alternatives, reduction in trade barriers also contributed to growth of the supply chain perspective. 22) D

Customer targeting is primarily the responsibility of the marketing function. 23) C

In the mass production era, the operations focus was on internal production. 24) B

These groups work together to identify and fulfill customers' needs. 25) C

A supplier's supplier is known as a Tier 2 supplier. 26) A

Companies that enhance finished goods are considered downstream product suppliers. 27) D

Over the last 50 years, globalization and outsourcing have caused a shift in operations management from an internal focus to a combined internal and external focus. 28) A

A bank must consider the needs of its customers and employees, while also complying with government and other regulators. 29) A

Strategic planning addresses long-term decisions involving large amounts of money. 30) B

Supply chain management is a way of viewing operations that focuses on connections and flows of materials and information, whereas operations traditionally has more of a process orientation. These are not mutually exclusive differences, they simply represent differences in perspectives and functional scope. 31) D

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Strategic, tactical, and operational planning address different time frames and levels of detail. 32) A

Operational-level planning deals with short-term issues (hours or days), typically addressing order processing, labor allocations, and inventory management. 33) A

Tactical planning deals with medium-term issues (months) usually regarding capacity (example, labor, machines, space). 34) D

Outputs of operations management processes can be services. 35) A

Processes involve transformation, and they may or may not involve people. 36) B

These groups work together to identify and fulfill customers' needs. 37) D

Communications and transportation technologies have made global outsourcing easier, thus raising the need to focus on supply chains. 38) D

The ways that operations are managed affect the health, enjoyment, and mobility of workers, as well as the productivity and wealth of nations. 39) D

Physical goods typically have longer lead times than services and can be inventoried (services typically cannot). See Table 1-1. 40) C

Design, supply, produce, and deliver are operations management processes. Finance is not.

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Student name:__________ 1) Xanadu Incorporated claims that its manufacturing processes result in fewer greenhouse

gases than those of its primary competitors. This suggests that Xanadu has a focus on: A) Sustainability. B) Profitability. C) Flexibility. D) Risk management. Question Details AACSB : Ethics Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-04 Explain what product-related and process-related operational competitive p Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-09 Xanadu Incorporated claims that its manufacturing...

2) Internal questions that may be addressed in a SWOT analysis include: A) What trends are we well positioned to take advantage of? B) What do we do better than anyone else? C) What changes in technology will affect us? D) What obstacles do we face? Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-01 Describe how operations strategy fits within a firm s overall strategic pl Topic : Levels of Strategic Planning Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-25 Internal questions...

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3) A well-designed value proposition possesses five characteristics. Which of the following is

NOT one of those characteristics? A) It differentiates the firm from its competition in a way that is difficult to imitate. B) It satisfies the financial and strategic objectives of the firm. C) It offers the highest product quality in each quality dimension. D) It can be reliably delivered given the operational capabilities of the firm and its supporting supply chain. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-02 Describe the need for fit between the key customers, value propositions, a Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-03 A well-designed value proposition possesses...

4) Which of the following is NOT a component of the business model? A) System capabilities B) Key customer C) Value proposition D) Desired outcome statement Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-02 Describe the need for fit between the key customers, value propositions, a Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-15 Which of the following is...

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5) Scantron Incorporated claims that its competitors have to recall 10 percent of their products

to fix defects, while it only has to recall 5 percent. Scantron is emphasizing which dimension of quality? A) Performance B) Durability C) Reliability D) Conformance Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-04 Explain what product-related and process-related operational competitive p Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-07 Scantron Incorporated claims that its competitors...

6) An electronics firm produces smart phones for sale to the worldwide market. One of the most

crucial process-related competitive operational priorities for this firm is: A) Aesthetics B) Cyber security C) Flexibility D) Durability Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-03 Describe customer-desired outcomes in terms of order winners, order qualif Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-22 An electronics firm...

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7) Which three elements make up the triple bottom line? A) Profit, Equality, Pollution. B) People, Profit, Planet. C) Pollution, Equality, People. D) Planet, Pollution, Profit. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-05 Explain how strategic performance can be assessed both operationally and f Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-18 Which three elements...

8) You are an upper-level manager in a firm. You believe that corporate objectives are not

effectively disseminated throughout the organization and that line-level managers do not take them into account in their decision making. Which of the following would best help you to try to correct this problem? A) Evaluate personality indicators to ensure inter-departmental worker compatibility. B) Establish metric-based performance measures. C) Hold a series of supervisory manager meetings. D) Evaluate and increase manager salaries and benefits. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-05 Explain how strategic performance can be assessed both operationally and f Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-13 You are an upper-level manager...

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9) Which of the following is NOT true about "order qualifiers"? A) The firm must perform acceptably on these traits, usually at least as well as

competitors' offerings. B) Order qualifier traits may include availability, price, and conformance quality. C) These are product traits that must meet a certain level for the product to even be considered by customers. D) All of the items are true. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-03 Describe customer-desired outcomes in terms of order winners, order qualif Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-05 Which of the following is NOT true about...

10) The three elements of Value Proposition, Key Customers, and Capabilities operate within an

environment. Which of the following is NOT part of that environment? A) Technology B) Regulation C) Competition D) Founder’s ideology Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-01 Describe how operations strategy fits within a firm s overall strategic pl Topic : Levels of Strategic Planning Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-26 The three elements...

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11) Corporate strategic planning involves decisions related to: A) What financial/stock prices goals should be emphasized. B) What measures should we use to control strategic initiatives? C) What businesses should we be in? D) What specific product- and market-based initiatives and goals should we establish? Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-01 Describe how operations strategy fits within a firm s overall strategic pl Topic : Levels of Strategic Planning Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-01 Corporate strategic planning involves...

12) A vice president of operations wants to evaluate the impact of reducing manufacturing

expenses on the firm's return on assets. Which measurement should be examined? A) Asset turnover B) Net profit margin C) None of these D) Cost of goods sold Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-05 Explain how strategic performance can be assessed both operationally and f Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-12 A vice president...

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13) A manufacturer of generic prescription drugs must excel at delivering which of the following

product traits? A) Product performance B) Features (unique attributes) C) Low cost D) Durability Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-03 Describe customer-desired outcomes in terms of order winners, order qualif Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-23 A manufacturer of...

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14) Currently, our system is characterized by a lack of fit between what the customer wants and

what the SCM system is best able to provide. As a result, which of the following would apply? 1. The only way to restore fit is for the firm to change the market segment it is going after. 2. Unless something is done, our firm will not be the most effective and efficient long-term supplier. 3. Any firm can successfully counter such inconsistencies through the use of patents and aggressive advertising. A) 1 and 2 only. B) 1 only. C) 2 only. D) 1, 2, and 3. E) 3 only. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-02 Describe the need for fit between the key customers, value propositions, a Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-17 Currently, our system is...

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15) "When operational capabilities are consistent with and supportive of the value proposition

and the outcomes desired by key customers" - this statement best describes the concept of: A) Execution. B) Fit. C) Strategic planning. D) Flexibility. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-05 Explain how strategic performance can be assessed both operationally and f Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-11 When operational capabilities are...

16) Which of the following is NOT considered a key characteristic of a core capability: A) It does not need to be extendable to many market opportunities. B) It is based on factors that are rare or unique to the firm. C) There are few substitutes for it. D) It is hard to imitate. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-05 Explain how strategic performance can be assessed both operationally and f Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-10 Which of the following is NOT considered a...

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17) Which of the following attributes is directly related to fitness for consumption by a

customer? A) Availability B) Transaction Price C) Timeliness D) Performance Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-04 Explain what product-related and process-related operational competitive p Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-19 Which of the following attributes is...

18) Within the supply chain and operations management system, the value proposition is most

effectively communicated to the rest of the organization through which of the following mechanisms? A) Management mandates B) Corporate slogans and promotional materials. C) Performance measures D) Mission statements Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-05 Explain how strategic performance can be assessed both operationally and f Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-21 Within the supply chain...

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19) Which of the following is the most appropriate definition of an "order winner"? A) A product that has the highest profit margin. B) A product characteristic that causes customers to choose the product over that of a

competitor. C) A product that generates the highest dollar sales volume. D) A product characteristic that permits the product to compete in a market. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-03 Describe customer-desired outcomes in terms of order winners, order qualif Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-04 Which of the following is the most...

20) Decision making regarding customers and products is often led by the: A) CEO B) Marketing Management C) Financial Managers D) Board of Directors Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-03 Describe customer-desired outcomes in terms of order winners, order qualif Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-24 Decision making regarding...

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21) Functional strategic planning involves decisions related to: A) Specific product- and market-based initiatives and goals. B) What types of manufacturing processes the firm should focus on. C) What metrics should be used to ensure progress in operations management? D) What businesses should we be in? Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-01 Describe how operations strategy fits within a firm s overall strategic pl Topic : Levels of Strategic Planning Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-02 Functional strategic planning involves...

22) Which of the following is the most appropriate definition of a core capability? A) Reputation. B) Production/design processes unique to the firm. C) Technical capabilities of a firm. D) A set of products unique to a firm. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-04 Explain what product-related and process-related operational competitive p Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-14 Which of the following is the...

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23) Which of the following is considered a "process-related" competitive priority? A) Flexibility B) Cost C) Quality D) All of these Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-04 Explain what product-related and process-related operational competitive p Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-08 Which of the following is considered...

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24) A company with a number of physically separate plants has a centralized tool room. This tool

room in the past has been responsible for emergency repairs. Whenever equipment (e.g., a spindle, boring machine, transfer line) in one of these separate plants breaks down, the affected items are brought to the tool room, where they are repaired. In some cases, the breakdowns affect production schedules. In other cases, the breakdowns are more annoying but do not adversely affect schedules. Complicating the operations in the tool room is the fact that many of the plans for the equipment are incomplete or out-of-date, thus resulting in "make from sample"; requests (the broken part is provided and the tool room is asked to make the replacement piece just like the broken part). It is difficult to predict what equipment will break down and when. Furthermore, the company owns a wide variety of equipment. What are the order winners and order qualifiers in this scenario? Order Winners A. B. C. D. A) B) C) D)

Cost, Quality Flexibility, Quality Speed, Cost Speed, Flexibility

Order Qualifiers Speed, Flexibility Speed, Cost Flexibility, Quality Quality, Cost

Option D Option C Option B Option A

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-03 Describe customer-desired outcomes in terms of order winners, order qualif Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-16 A company with a number...

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25) Xanadu makes HD televisions. It claims that its HD televisions have the clearest picture

clarity in the industry. Xanadu is emphasizing which dimension of quality? A) Reliability B) Performance C) Conformance D) Features Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 02-04 Explain what product-related and process-related operational competitive p Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-06 Xanadu makes...

26) Under which component of the business model would people and culture fall? A) System capabilities B) Key customer C) Value proposition D) Environment Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 02-04 Explain what product-related and process-related operational competitive p Topic : Deploying Operations Strategy: Creating Value Through Execution Type : Static Source : Chapter 02 Test Bank - Static > TB MC Qu. 02-20 Under which component of the...

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Answer Key Test name: Chapter 2: Operations and Supply Chain Strategy 1) A

Maintaining operations that are profitable and nondamaging to the environment is sustainability. 2) B

"What do we do better than anyone else?" is a question that helps identify strengths in the SWOT analysis. 3) C

Providing value does not require the highest quality in each dimension of quality. 4) D

This is based on the discussion of the business model. 5) D

Defects are an indication of lack of conformance. 6) C

Flexibility is important because of the short life cycle of a current model and the rapid progression of technology. Cyber security is handled by the ultimate customer’s network vendor. Aesthetics and Durability are product-related characteristics, not process-related characteristics. 7) B

The term “triple bottom line” refers to three different measures of profit and loss: People, Profit, and Planet. 8) B

Performance measures communicate strategic intentions to operations personnel. 9) D

"Order qualifiers" are traits a product must meet at a certain threshold level to be considered; the product must perform acceptably on traits including availability, price, or conformance quality. 10) D

The environment consists of conditions such as competition, regulations, and technology that influence how managers develop an operations strategy. 11) C

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Corporate strategic planning is very broad and relates to what businesses the company should be involved in. 12) D

In the Strategic Profit Model, cost of goods sold includes manufacturing expenses. 13) C

Since generic products seek to mimic brand-name products, their central appeal is lower purchase price. 14) C

Only solution Unless something is done, our firm will not be the most effective and efficient long-term supplier addresses this situation directly. Solution The only way to restore fit is for the firm to change the market segment it is going after “blames the customer” for the firm’s shortcomings and solution Any firm can successfully counter such inconsistencies through the use of patents and aggressive advertising. does not address the issues at all, providing symptomatic relief at best. 15) B

Fit exists when operational capabilities are consistent with and supportive of the value proposition and the outcomes desired by key customers. 16) A

Core capabilities should be extendable to many market opportunities. 17) D

A product’s performance is an aspect of its quality, which is its fitness for consumption by the consumer who bought it. 18) C

Performance measures communicate strategic intentions to operational personnel. 19) B

Order winners are traits that cause customers to actually choose a specific product. 20) B

Marketing managers often lead decisions regarding customers and products. 21) C

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Functional planning includes decisions regarding appropriate metrics for the specific functions in a business unit. 22) B

Core capabilities are skills, processes, and systems that are unique to the firm and desired by the customer. 23) A

Quality and cost are product related. Flexibility is process related. 24) A

This situation demands speed and flexibility. Quality and cost are also important, but should not be exchanged for less speed or inflexibility. 25) B

Picture clarity is a basic performance dimension of HD televisions. 26) A

People and culture are a key component of an organization’s systemic capabilities.

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Student name:__________ 1) Joe Jones, plant manager at Waco Industries, told a friend that if it was necessary, his plant

could produce 1,000 items a day if all conditions were just right. Joe is describing his plant's: A) Effective capacity. B) Utilization. C) Maximum capacity. D) Yield rate. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-03 Distinguish between operational, tactical, and strategic capacity planning Topic : Process Capacity and Utilization Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-06 Joe Jones, plant manager...

2) Adam Smith described his company's process as follows: "Under ideal conditions we can

produce 10,000 units a day. However, our normal production is 6,000 units a day. Today, we actually produced 8,000 units." Which of the following is true? A) Utilization was 133 percent of effective capacity. B) Yield is 133 percent of effective capacity. C) The process must have changed to permit this increase in production. D) Utilization is 60 percent of maximum capacity. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-03 Distinguish between operational, tactical, and strategic capacity planning Topic : Process Capacity and Utilization Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-07 Adam Smith described his...

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3) In process improvement projects, why should we focus our efforts on those processes that

consume the most resources (e.g., labor, space, capital, etc.)? A) Because those are the processes most visible to the customer B) Because that is where we get “the most bang for our buck.” C) Because those are the processes that use our firm’s core capabilities D) All of these Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-06 Describe process improvement methodologies such as business process reengi Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-29 In process...

4) Which of the following is NOT a basic activity type in processes? A) Storage B) Reporting C) Delay D) Operation Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Anatomy of a Process Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-02 Which of the following is...

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5) The total time that it takes to get one unit through a process is called: A) Wait time B) Cycle time C) Flow time D) Throughput time Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-26 The total time that...

6) Little's Law suggests that the key to increased throughput is: A) Eliminating waste. B) Increased inspection. C) Fewer defects. D) Shorter flow times. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-04 Estimate the capacity and utilization of a process. Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-11 Little&#39;s Law suggests that the...

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7) You walk into a hair stylist shop. All stylists are busy, and you sit in the waiting area. You

are in which of the following basic activity types in a process? A) Storage B) Operation C) Delay D) You are not in a process activity. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Anatomy of a Process Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-03 You walk into a hair...

8) A bottleneck activity in a process is generally the activity with: A) The least capacity. B) The highest cost. C) No delays in front of it. D) The smallest number of resources devoted to it. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-04 Estimate the capacity and utilization of a process. Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-10 A bottleneck activity in...

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9) Space on the shop floor, bins, carts, or racks are capacity-limiting resources most frequently

associated with which of the following process activities? A) Inspections B) Transportation C) Operations. D) Delays Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Processes and Process Thinking Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-23 Space on the shop floor, bins, carts, or racks are capacity-limiting...

10) An example of a short-term capacity increase decision is: A) Installing new equipment. B) Adding new facilities. C) Adding low-skilled labor. D) Adding specialized labor. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-03 Distinguish between operational, tactical, and strategic capacity planning Topic : Process Capacity and Utilization Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-15 An example of...

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11) The following sequence shows four operations for a computer chip assembly process and the

effective capacity of each. Which step is the bottleneck? Step 1: 500 chips per hour Step 2: 250 chips per hour Step 3: 200 chips per hour Step 4: 550 chips per hour A) Step 2 B) Step 4 C) Step 1 D) Step 3 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-04 Estimate the capacity and utilization of a process. Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-08 The following sequence shows four...

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12) Which of the following statements about economies of scale is NOT true? A) Economies of scale refers to the fact that as volume increases, total cost of production

decreases. B) Economies of scale may not exist at all levels of production. C) One reason economies of scale occur is because fixed costs can be spread over more units of production as output increases. D) One reason economies of scale occur is because employees become more efficient as volume increases. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-03 Distinguish between operational, tactical, and strategic capacity planning Topic : Process Capacity and Utilization Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-16 Which of the following statements...

13) Which of the following pairs of effects directly result from bottlenecks? A) Increase in costs and increase in defects. B) Decrease in output and increase in lead-times. C) Decrease in inspections and increase in costs. D) Increase in output and increase in lead-times. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-24 Which of the following pairs...

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14) Subcontracting is typically considered at what time horizon when doing capacity planning? A) Long-term B) Medium-term C) It is not part of the capacity planning process. D) Short-term Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Process Capacity and Utilization Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-19 Subcontracting is typically...

15) Which of the following statements best differentiates a delay from storage? A) There is no difference – they both refer to the same concept. B) Delays require control; storages does not. C) Delays are planned activities; storages are not. D) Delays are uncontrolled; storage is a planned part of a process. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Processes and Process Thinking Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-21 Which of the following statements...

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16) Which of the following actions will NOT increase output? A) Outsourcing. B) Changing the processes to eliminate unnecessary steps. C) Increasing capacity through physical additions. D) Managing the flow of work into the system. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Process Capacity and Utilization Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-20 Which of the following actions...

17) Process thinking causes managers to address critical process elements, including: A) If you don’t like the outcome, focus on the people. B) Processes drive measurement. C) If you don’t like the outcome, change the process. D) Processes are guidelines to thinking about to best staff activities. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-01 Understand the importance of processes and process thinking to operations Topic : Processes and Process Thinking Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-01 Process thinking causes...

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18) If a company can eliminate all sources of variance in a process: A) There will be no constraints in the process. B) It will be able to operate at maximum capacity at all times. C) The predictability of the process is significantly improved. D) Continuous improvement will not be necessary. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-14 If a company can...

19) One implication of increased utilization in a process is that: A) Process cost typically will go up. B) Waiting time typically will go up. C) Variance typically will be reduced. D) All of these. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-13 One implication...

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20) Suppose you learn that a process has a very long waiting time. Which of the following would

decrease the waiting time? A) Decrease utilization. B) None of these would decrease waiting time. C) Increase the coefficient of variation of job processing times. D) Increase the coefficient of variation of job arrival times. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Evaluate Difficulty : 3 Hard Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-12 Suppose you...

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21) The following sequence shows four operations for a computer chip assembly process and the

effective capacity of each. Step 1: 500 chips per hour Step 2: 250 chips per hour Step 3: 200 chips per hour Step 4: 550 chips per hour Suppose the utilization is 70 percent of effective capacity. What is the actual output of the process? A) 350 chips per hour B) 200 chips per hour C) 175 chips per hour D) 140 chips per hour Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-04 Estimate the capacity and utilization of a process. Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-09 The following sequence shows four...

22) Continual improvement of processes is important because: A) Customer preferences change over time. B) All of these. C) Competitors are improving their processes. D) Technology is constantly changing. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-06 Describe process improvement methodologies such as business process reengi Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-28 Continual improvement...

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23) Inventory held due to bottlenecks in a process causes: A) Increased storage requirements B) Increased labor costs C) Quality issues D) All of these Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-27 Inventory held due...

24) A process having the same activity being performed by two or more resources

simultaneously is said to have what kind of structure? A) Parallel B) Flexible C) Serial D) Helping Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-05 Explain the impacts of bottlenecks, variance, and other factors on process Topic : Principles of Process Performance: The Theory of Constraints Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-25 A process...

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25) Floor space used to store items to be inspected belongs to which of the following elements of

a process? A) Management policies B) Inputs/outputs/flows C) Activities D) Process structure Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Anatomy of a Process Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-17 Floor space used...

26) Which of the following elements of a process most directly impacts or affects process

capabilities? A) Inputs or Outputs orFlows B) Activities C) Management Policies. D) Process Structure Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Processes and Process Thinking Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-22 Which of the following elements of a process...

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27) A manager is currently unhappy with the capabilities of a particular process and wants to

improve its capabilities. To accomplish this, the manager needs to focus on the process: A) Structure. B) Inputs, outputs, and flows. C) Management metrics. D) Activities. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Anatomy of a Process Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-05 A manager is currently unhappy...

28) Most processes involve two basic types of flows: A) Physical flows and security flows. B) Information flows and material flows. C) Information flows and operator flows. D) Product flows and decision flows. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-02 Define the various components that make up processes, including types of i Topic : Anatomy of a Process Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-04 Most processes involve two basic...

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29) Under Juran's Law, whenever a problem occurs, what percentage of the time is the problem

the result of a system/process error? A) 100 percent B) 85 percent C) 50 percent D) 15 percent Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03-01 Understand the importance of processes and process thinking to operations Topic : Processes and Process Thinking Type : Static Source : Chapter 03 Test Bank - Static > TB MC Qu. 03-18 Under Juran&#39;s Law, whenever...

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Answer Key Test name: Chapter 3: Managing Processes and Capacity 1) C

Maximum capacity is the highest output a process can achieve under ideal conditions. 2) A

8,000 ÷ 6,000 = 133% 3) B

We focus on the processes that consume the most resources because that is where improvements can have the greatest return. 4) B

Operation, transportation, inspection, delay, and storage are the basic activity types in a process. 5) C

Flow time is the total time it takes to get one unit through a process. 6) D

Flow time = inventory divided by throughput rate 7) C

Operation, transportation, inspection, delay, and storage are the basic activity types in a process. 8) A

The bottleneck in a process is the activity with the least capacity per unit of time. 9) D

Delays utilize limited resources including space on the shop floor, carts, and racks holding the materials delayed by a malfunction, for example. 10) C

Of these options, adding low-skilled labor is the easiest to implement and to reverse. 11) D

200 chips per hour is the smallest capacity listed and is therefore the process bottleneck. 12) A

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While unit costs may decrease as volume increases, total costs will continue to rise. 13) B

Bottlenecks limit output and extend lead times. 14) B

Subcontracting is thought of as a medium-term capacity decision. 15) D

Storage is a planned part of a process. 16) D

The flow of work into the system is unrelated to output. 17) C

Outputs become viewed as the result of the process; if you don’t like the outcome, change the process. 18) C

Eliminating variability does not remove constraints or eliminate the need for improvement. Maximum capacity cannot be achieved over long periods of time. 19) B

The formula for wait time includes the factor (Utilization ÷ 1 – utilization) as a multiplier. Hence, as utilization increases, waiting time will increase 20) A

Increasing the variability increases waiting times. The only option presented that decreases waiting times is decreasing utilization. 21) D

200 × 0.70 = 140 chips per hour 22) B

Operations managers do not work in a static world. 23) D

Inventory due to bottlenecks creates requirements for more space to store inventoried items, labor to track and manage that inventory, and leads to increased damage from handling and delays in diagnosing the causes of quality problems.

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24) A

In a Parallel structure, an activity is done by two or more resources simultaneously. 25) B

An inspection activity requires floor space to store the items being inspected and is thus an input to the process. 26) D

The process structure limits process capabilities. 27) A

The structure limits the process capabilities. 28) B

Most processes involved two types of flows: information flows and material flows. 29) B

15% of operational problems are the result of human errors; the other 85% are due to systemic process errors.

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Student name:__________ 1) After you have drawn the "current state" process map, you decide that you need a tool for

showing the actual moves of material (and their locations) that take place in the manufacture of Widget A. Which of the following tools would be most appropriate? A) A process flow table B) An assembly process chart C) A physical layout diagram D) A "future state" map Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-02 After you have drawn the...

2) You, as a supply chain analyst, have been approached by the vice president of supply chain

operations to come up with a recommendation for improving the throughput time for the manufacture of Widget A. You quickly realize that you need a process map before you proceed. What is the first step you should undertake to map the process? A) Identify the desired outcomes of the process. B) Analyze the process and prioritize opportunities for improvement C) Document the existing process (the "current state" map). D) Draw a detailed schematic of the inputs and outputs of the process in question. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-01 Work through the various steps in process mapping and analysis. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-01 You, as a supply chain...

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3) The principles of process improvement suggest that an ineffective, inefficient process: A) Processes workpieces on a First-in-First-Out (FIFO) basis. B) Produces products in large batch sizes. C) Keeps non-value-adding activities off the critical path. D) Produces at the rate of customer demand. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03S-05 Change a process to make it more effective and efficient by either refini Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-12 The principles of process improvement...

4) When the Marriott, an international hotel chain, designs a new facility, which of the

following process tools is it most likely to use? A) Swim lanes B) Process Flow Diagram C) Service blueprinting D) Physical Layout Diagram Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-05 Change a process to make it more effective and efficient by either refini Topic : Other Process Mapping Tools Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-25 When the Marriott, an international hotel...

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5) Joe's Quick Oil Change shop is interested in improving its ability to satisfy customers. The

most appropriate mapping tool for a company such as this is called: A) Service architecture. B) Service mapping. C) Service blueprinting. D) Service diagramming. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : Other Process Mapping Tools Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-14 Joe&#39;s Quick Oil Change shop...

6) You observe three different people doing the same task using three different approaches

(with differing levels of quality, output, and lead time). Which of the following disposition options is most appropriate for this situation? A) Rethink B) Combine C) Eliminate D) Keep Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 03S-03 Determine to what type of activity each step in a process belongs. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-09 You observe three different people...

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7) Value stream mapping: A) Is more comprehensive than typical process mapping. B) Relies on computer-assisted flowcharting. C) Uses the same terminology and symbols used in typical process mapping. D) Is a simplified version of process mapping. E) Is another name for a future state map. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : Other Process Mapping Tools Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-13 Value stream...

8) Which of the following identifies the ultimate goal of process mapping? A) Reduce costs created by the process. B) Reduce steps in the process. C) Facilitate the identification and reduction of system complexity. D) Improve the value a process delivers to its customers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-02 Assess a process to determine how effective it is in achieving its desire Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-22 Which of the following identifies...

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9) Why are processes that are visible to the customer considered to be critical? A) They are often bottlenecking (thus causing customer delays). B) They are often shared processes. C) They often exhibit the greatest variance (thus affecting customer waiting times). D) They affect the customer perceptions of value delivered by the firm. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-02 Assess a process to determine how effective it is in achieving its desire Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-21 Why are processes that are...

10) The symbol ∇ indicates what type of activity in a process? A) Storage B) Delay C) Transportation D) Operation Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-03 Determine to what type of activity each step in a process belongs. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-07 The symbol &#8711; indicates what...

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11) The process of "stapling yourself to an order" refers to: A) Pretending you are the workpiece moving through a process. B) Observing a process through multiple iterations to eliminate possible biases from

observing "random" events. C) Stapling documents in your process maps to other applicable documents in order not to confuse the "flow." D) Imagining a workpiece in a process and following it through a process map you have developed. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-01 Work through the various steps in process mapping and analysis. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-05 The process of "stapling yourself...

12) Which of the following traits is not associated with a critical process? A) It is associated with a core competency. B) It is a bottleneck operation. C) It has been identified by management as critical. D) It is visible to the customer. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03S-02 Assess a process to determine how effective it is in achieving its desire Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-27 Which of the following...

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13) Production planning and scheduling is most likely to be associated with which of the

following activities? A) Inspections B) Transportation C) Storages D) Operations Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-03 Determine to what type of activity each step in a process belongs. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-17 Production planning and scheduling is...

14) Value in a process flow analysis is most often associated with which of the following

activities? A) process setup B) Operations C) Inspections D) Storages Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-03 Determine to what type of activity each step in a process belongs. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-16 Value in a process flow...

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15) You realize that you need a tool for recording all the move distances, process flow symbols,

people involved, value add designations, and time required for each step to get an overall grasp for where waste exists in the process. The best tool for this would be: A) An assembly process chart B) A physical layout diagram C) A process flow table D) A value stream map Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-03 You realize that you need...

16) The symbol indicates what type of activity in a process? A) Operation B) Transportation C) Storage D) Delay Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-03 Determine to what type of activity each step in a process belongs. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-06 The symbol...

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17) Which of the following is an example of an activity that is "necessary but not value-adding"? A) Inspections B) Setups C) Scheduling D) Processing Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-23 Which of the following is...

18) Which of the following mapping techniques identifies and integrates functional

responsibilities into the process mapping process? A) Service blueprinting B) Value stream mapping C) Process flow diagram D) Swim lanes Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-05 Change a process to make it more effective and efficient by either refini Topic : Other Process Mapping Tools Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-19 Which of the following mapping...

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19) "Bounding" a process is necessary because: A) Bounding determines if a process is a core competency. B) It determines which activity is the bottleneck. C) Without bounding, it is difficult to determine the beginning and ending points for the

analysis. D) If the project is "shelved" during your analysis, someone else may have to pick up where you left off. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-01 Work through the various steps in process mapping and analysis. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-04 "Bounding" a process is necessary...

20) Which of the following conditions does a "critical" process satisfy? A) The first process that we encounter in the system. B) A process that is visible to the key customers. C) Process with the most steps (thus consuming the most time). D) The one that people complain about the most. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-01 Work through the various steps in process mapping and analysis. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-15 Which of the following conditions...

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21) Which of the following activities is most likely to be overlooked when doing a process flow

analysis? A) Operations B) Delays C) Inspections D) Storages Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-02 Assess a process to determine how effective it is in achieving its desire Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-20 Which of the following activities...

22) Which of these sets of two activities are most likely to be "value-adding"? A) Transportation and operations B) Delays and transportation C) Storage and delays D) Operations and storage Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-24 Which of these sets of two...

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23) Which of the following is NOT a principle of process improvement? A) Change process design to facilitate product improvements. B) Produce at the rate of customer demand. C) Sequence activities to minimize setups, distance, or other transition costs. D) All of these are principles of process improvement. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 03S-05 Change a process to make it more effective and efficient by either refini Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-10 Which of the following is...

24) A process activity identified by a "?" is typically a(n): A) Waste-generating activity. B) Not sure of the value-nature of the activity. C) Necessary activity. D) Value-adding activity. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-03 Determine to what type of activity each step in a process belongs. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-08 A process...

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25) If our goal is to reduce lead times, which of the following process measures is most

appropriate? A) Percentage reduction in lead time B) Actual elapsed lead time C) Actual lead time versus standard or target lead time D) Number of steps Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03S-02 Assess a process to determine how effective it is in achieving its desire Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-26 If our goal is to reduce lead times, which...

26) A process measure related to availability is: A) Percentage reduction in lead time B) Number of interdepartmental handoffs C) Average setup time D) Number of defect-free shipments Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : Other Process Mapping Tools Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-28 A process measure...

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27) In the process of process mapping, the first step is always: A) Identify and bound the critical process. B) Determine the desired outcome of the process. C) Staple yourself to an order. D) Document the existing process. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 03S-01 Work through the various steps in process mapping and analysis. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-29 In the process of...

28) A tool used to quickly communicate proposed process changes effectively is called a: A) Work process flowchart. B) New physical layout diagram. C) Process summary table. D) Process flow diagram. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 03S-04 Understand when and how to apply the various tools of process mapping. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-11 A tool used to quickly...

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29) Which of the following identifies the most appropriate time to set the metrics when doing a

process flow analysis? A) During the analysis stage B) When recommending the appropriate changes to the process (i.e., the "future state" map) C) At the start of the process of process analysis D) When bounding the critical process Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 03S-01 Work through the various steps in process mapping and analysis. Topic : The "Process" of Process Mapping and Analysis Source : Chapter 03S Test Bank - Static > TB MC Qu. 03S-18 Which of the following identifies...

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Answer Key Test name: Chapter 3: Chapter Supplement: Process Mapping and Analysis 1) C

A physical layout diagram will show the actual moves of materials and their locations. 2) A

The first step in process mapping is to determine the desired outputs of the process. 3) B

A principle of process improvement is to develop the ability to economically make every part every day by making setup times as short as possible. 4) C

Service blueprints are particularly useful for improving service offerings. 5) C

Service blueprinting focuses on understanding the interfaces between customers, technology, and the service process. 6) A

Rethink: evaluate the three approaches to determine which is most efficient and/or appropriate and standardize the approach to this task. 7) A

Value stream mapping is more comprehensive and complex than the process mapping described in the text. 8) D

Whether minor or radical process changes are anticipated, it is a good idea to keep in mind that the goal of any process analysis is to continually improve the value that a process delivers to its customers. 9) D

Processes that are visible to the customer are critical because they can directly affect the customer’s perception of value. 10) A

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Storage activity is indicated by an inverted isosceles triangle. 11) A

Stapling yourself to an order means following the path an order would take through the process and documenting each activity. 12) C

The traits of a critical process are identified by analysis, not proclamation. 13) D

Production planning and scheduling is closely associated with operations. 14) B

Most of the value-added processes involve operations. Value is seldom added in storage, inspection, or transportation. 15) C

A process flow table records process activities, their attributes, and their sequence. 16) B

Transportation activity is indicated by a small arrow on the process map. 17) B

A process setup prepares equipment for a task, but no value is added in setting up the equipment. 18) D

The major attraction of swim lanes is that this technique helps organize processes into functional or organizational blocks and responsibilities. 19) C

It is important to clearly identify the limits of the process that is to be improved. 20) B

One of the attributes of a process deemed critical is that it is visible to the key customer. 21) B

It is often easy to overlook certain steps in a process, especially delays. 22) A

In general, transportation and operations activities tend to most often contribute to value.

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23) A

Changing product (not process) design to facilitate process (not product) improvement is a principle of process improvement. 24) B

The question (?) symbol does not signify any type of process activity. In value analysis it indicates a process whose value is uncertain. 25) D

The more steps in a process, the longer the lead time. 26) B

More hand-offs usually indicate more delays and lower availability. 27) B

The first step in process mapping is to determine the desired outcome of the process and the associated metrics to evaluate its performance. 28) C

A process summary table can be developed to communicate proposed process changes effectively 29) C

Before making any change to the process, it is important to clarify what the process should achieve.

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Student name:__________ 1) A system that enables 3D modeling and evaluation of product designs without the cost of

producing physical parts is: A) CAD/CAE B) 3D printing C) Group technology D) QFD Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Enabling Technologies for Product/Process Innovation Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-37 A system that enables...

2) An FMEA estimates the risk priority number (RPN) for a given failure mode to be 36. The

occurrence rating is 3 and the severity rating is 3. Thus, the undetectability rating is: A) 5 B) 6 C) 4 D) 3 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-24 An FMEA estimates the risk priority number...

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3) In conducting a failure modes and effects analysis, the following data were developed for

three modes Mode 1: Severity = 5, Occurrence = 2, and Undetectability = 7 Mode 2: Severity = 3, Occurrence = 6, and Undetectability = 5 Mode 3: Severity = 7, Occurrence = 2, and Undetectability = 4 Which has the highest risk? A) Mode 2 B) Mode 1 C) Mode 1 and Mode 2 are equal in having highest risk D) Mode 3 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-11 In conducting a failure modes and effects...

4) Understanding the product life cycle is important because: A) Major process innovations typically occur in the growth stage B) Innovation investments need to be matched to the phase of a product’s life C) All products follow the same pattern of innovation D) The time between product launch and decline is typically very long Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-01 Explain why product/process innovation is an important contributor to a fi Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-27 Understanding the...

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5) The primary difference between integrated or concurrent engineering development and

functional/sequential development is: A) Integrated development spends more money up front in order to save money in later stages. B) Sequential development is more thorough in addressing development steps. C) Integrated development usually leads to higher sustaining and warranty costs. D) In sequential development, multiple functions comanage design and testing. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-04 Explain why integrated/concurrent engineering is needed in product and pro Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-22 The primary difference between integrated...

6) “Design for X” is: A) A short way to say “design for excellence” B) An approach that ensures that customers’ needs are met C) A collection of design approaches that address specific areas of supply chain

management D) The same thing as design for manufacture Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-41 &#8220;Design for X&#8221; is:

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7) Companies usually first build working product prototypes in which stage of product/process

innovation? A) Commercialization B) Concept development C) Detailed design and development D) Market testing Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-20 Companies usually first build working product...

8) The main purpose of quality function deployment (QFD) is: A) To set up a plan for the deployment of statistical quality control tools throughout the

organization. B) To base product and process design decisions more directly on what the customer

thinks is important. C) To clearly identify the functional groups within the organization that have a direct influence on quality. D) To expand the quality function and eliminate the need for statistical process control. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-09 The main purpose of quality function deployment...

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9) A FMEA analysis shows that, for a given failure mode, the severity is 5, the occurrence is 3,

and the undetectability is 2. The risk priority number (RPN) for this mode is: A) 10 B) 16 C) 5 D) 30 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-40 A FMEA analysis shows...

10) Overall, it is clear that well-managed innovation projects: A) Involve input from multiple functions in a company. B) All of these. C) Should always be executed sequentially. D) Apply only to manufacturing firms. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-04 Explain why integrated/concurrent engineering is needed in product and pro Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-14 Overall, it is clear that well-managed...

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11) High-quality innovators typically gain which advantages? A) None of these. B) They satisfy customers more effectively, building strong brand image and customer

loyalty. C) They can sell at lower prices or lower the total sales needed for a new product to pay back its initial development costs. D) They can fund more new design and development projects than other firms. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-02 Contrast different types of innovation strategies and projects. Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-03 High-quality innovators typically gain which...

12) Why is product or process innovation an important driver of firm performance? A) Strong innovators can respond to market opportunities faster B) All of these are reasons why innovation drives firm performance C) Innovative firms typically have stronger brands D) Product design decisions largely affect supply chain costs Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-01 Explain why product/process innovation is an important contributor to a fi Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-28 Why is product or process...

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13) One of the most important benefits of crowdsourcing from customers is: A) Competitors are not likely to be able to match innovations generated from customer

inputs B) It maintains secrecy of new product ideas C) Customers almost always have the best new product ideas D) Customers gain a sense of engagement and ownership of new products Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Operational Product/Process Innovation Competencies Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-31 One of the most important benefits...

14) Suppose that you want to develop a product that can easily be configured in a wide variety of

ways. What design approach would be best? A) FMEA B) Component standardization C) Modular product design D) VOC Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-39 Suppose that you want to...

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15) A technology that produces prototypes quickly without the cost of production tooling is: A) 3D printing B) Group technology C) VOC D) CAD/CAE Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Enabling Technologies for Product/Process Innovation Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-38 A technology that...

16) Acton Corporation has identified a way to combine several existing technologies into a new

product. This is most likely to have occurred in a: A) Enhancement development project. B) Research and advanced development project. C) Next generation or platform development project. D) Radical breakthrough development project. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-02 Contrast different types of innovation strategies and projects. Topic : Operational Product/Process Innovation Competencies Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-04 Acton Corporation has identified a way to...

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17) Another way to think of how virtual reality is used in product development is: A) Virtual prototyping B) Customer engagement C) Augmented design D) 3D printing Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-43 Another way to think of how virtual reality...

18) The main benefit of integrated or concurrent product development is: A) Earlier problem solving B) Faster product development C) All of these are benefits D) Reduced launch and production costs Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-36 The main benefit of...

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19) The stage of the product life cycle in which process innovation becomes an important way to

increase efficiencies is: A) Decline B) Growth C) Launch D) Maturity Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-01 Explain why product/process innovation is an important contributor to a fi Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-17 The stage of the product life cycle in which...

20) Which of the following statements is true regarding product/process innovation? A) All of these statements are true. B) Innovation projects are operational processes. C) Product/process design is a part of the resource/technology supply chain. D) Product and process development activities are usually closely linked. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-01 Explain why product/process innovation is an important contributor to a fi Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-16 Which of the following statements is true...

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21) The main benefit of a stage-gate process for product development is that it: A) Is faster B) Reduces management overhead costs C) Helps to reduce risk D) Allows for greater parallel processing of development stages Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-34 The main benefit of a...

22) "Concurrent engineering" is best described as: A) Engineering techniques that seek to capture leading-edge knowledge and technology

in the design phase of a new product. B) Assigning multiple engineers to a project to ensure the accuracy of the work. C) The simultaneous implementation of engineering projects critical to the manufacture of new products. D) The simultaneous design and development of all the processes and information needed to manufacture a product, to sell it, to distribute it, and to service it. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-04 Explain why integrated/concurrent engineering is needed in product and pro Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-07 "Concurrent engineering" is best described...

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23) An advantage of "early supplier involvement" is that it: A) Generally leads to higher-quality products. B) All of these. C) Avoids supply problems once the product is launched. D) Decreases time to launch new products. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-02 Contrast different types of innovation strategies and projects. Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-05 An advantage of "early supplier involvement"...

24) The "house of quality" is best described as: A) Research efforts that gather detailed data describing customers' wishes, needs, likes,

and dislikes regarding specific product features and functionalities. B) A template that guides the translation of product features into technical product specifications. C) A template that guides identification and translation of customer requirements into product specifications. D) An approach in which customers use product prototypes and provide feedback to developers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-10 The "house of quality" is best described as:

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25) A product design approach that uses digital connectivity to deliver services is known as: A) Modular design B) Design for service C) Service platform D) Product platform Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-42 A product design approach that...

26) Integrated/concurrent engineering is needed in innovation projects because: A) It is cheaper to solve problems uncovered early in development. B) All of these are correct. C) All functions have a stake in the success of a new product. D) Process design decisions are dependent on product design decisions. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-04 Explain why integrated/concurrent engineering is needed in product and pro Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-21 Integrated/concurrent engineering is needed in...

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27) Sequential product development projects are likely to have _________ development costs

and _________ development times than concurrent engineering product development projects. A) Higher; shorter B) Lower; longer C) Lower; shorter D) Higher; longer Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-04 Explain why integrated/concurrent engineering is needed in product and pro Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-08 Sequential product development projects are...

28) Fast innovators typically gain which advantages? A) They can sell at lower prices or lower the total sales needed for a new product to pay

back its initial development costs. B) They produce a more continuous stream of new product introductions that create a greater and more constant market awareness of their brands. C) They have fewer problems in launching new products and fewer failures in the marketplace. D) All of these. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-02 Contrast different types of innovation strategies and projects. Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-02 Fast innovators typically gain which...

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29) A project team interested in identifying and correcting potential quality problems in a

product design would find which one of the following tools most useful? A) Value analysis B) FMEA C) QFD D) DFM Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-12 A project team interested in identifying and...

30) If you want to minimize up-front development costs in a new product development and

launch project, which approach would you use? A) Quality function deployment B) Product life cycle management C) Concurrent engineering D) Sequential product development Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-35 If you want to minimize...

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31) “Crowdsourcing” is: A) B) C) D)

A way to get ideas or services from a large number of sources, usually online Not used for process innovation, mostly only for product innovation A way to identify and hire the best and brightest new employees A way to design products that satisfy the largest number of people

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Operational Product/Process Innovation Competencies Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-30 &#8220;Crowdsourcing&#8221; is:

32) _________ transform product specifications and new process technology into a new or

revised production system. A) New product design and development projects B) New process design and development projects C) Concurrent engineering projects D) Operations management projects Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-01 Explain why product/process innovation is an important contributor to a fi Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-01 _________ transform product...

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33) An emphasis on involving supply chain partners in product/process innovation is known as: A) Launch and learn B) Design outsourcing C) Portfolio planning D) Codevelopment Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-02 Contrast different types of innovation strategies and projects. Topic : Operational Product/Process Innovation Competencies Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-19 An emphasis on involving supply...

34) A management system that captures and shares all the information needed to define a product

is: A) B) C) D)

CAE PLM 3D printing DFM

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Enabling Technologies for Product/Process Innovation Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-26 A management system that...

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35) XYZ Corporation is using customer interviews and surveys to gather perceptions regarding

new product concepts. This approach is known as: A) Voice of the customer. B) Quality function deployment. C) Failure modes and effects analysis. D) Beta testing. Question Details AACSB : Technology Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-23 XYZ Corporation is using customer interviews...

36) Which of the following statements is true regarding innovation portfolio planning? A) Each innovation project should be evaluated on its own merits, independent of other

projects a firm is pursuing B) Product enhancement projects typically require greater resource investments than

platform development projects do C) In order to be fair, all innovation projects should be assessed using the same metrics D) Operations managers play different roles on different types of innovation projects Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-02 Contrast different types of innovation strategies and projects. Topic : Operational Product/Process Innovation Competencies Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-33 Which of the following statements...

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37) A disadvantage of "component standardization" is that it: A) None of these are disadvantages. B) Increases development time. C) Increases development cost. D) Increases the difficulty of inventory management. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-15 A disadvantage of "component standardization"...

38) Xanadu Incorporated has a project team interested in reducing the projected production cost

of a new product. The team would find which one of the following tools most useful? A) FMEA B) QFD C) DFM D) CAD/CAE Question Details AACSB : Technology Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-13 Xanadu Incorporated has a project team interested in...

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39) A project aimed at finding new core products or processes is called a(n): A) Next generation development project. B) Research and advanced development project. C) New platform development project. D) Enhancement development project. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-02 Contrast different types of innovation strategies and projects. Topic : Operational Product/Process Innovation Competencies Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-18 A project aimed at finding new core products...

40) Operations managers view innovation as a “funnel” because: A) Small ideas grow to become broad new strategies B) Innovation means launching many new products so that the market can sort out the

winners and losers C) It often takes many new ideas to yield a few really good innovations D) Good innovators invest in as many new projects as they can afford Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Operational Product/Process Innovation Competencies Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-32 Operations managers...

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41) The stage of a product or process innovation in which managers determine the target values

of product attributes, volume, and price is: A) Detailed design and development. B) Product and market testing. C) Product and process planning. D) Concept development. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-03 Describe new product/process design and development objectives and project Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-06 The stage of a product or process innovation in...

42) What is the first step in conducting value engineering/value analysis? A) Identify the functional purposes of a product. B) Estimate the value of each function in a product. C) Ask suppliers to provide cost information. D) Compare the importance and cost of each function. Question Details AACSB : Technology Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 04-05 Apply tools and techniques for integrating customer needs and supply chain Topic : Product/Process Design and Development Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-25 What is the first step in conducting value...

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43) What attributes are important measures of a firm’s innovative prowess? A) Relentless pursuit of perfection B) The ability to imitate as well as innovate C) The “wow” factor of innovation D) Speed, quality, and efficiency of innovation Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 04-01 Explain why product/process innovation is an important contributor to a fi Topic : The Role of Product/Process Innovation in Supply Chain Operations Management Type : Static Source : Chapter 04 Test Bank - Static > TB MC Qu. 04-29 What attributes are...

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Answer Key Test name: Chapter 04 Test Bank 1) A

Computer-aided design and engineering systems enable designers to electronically model parts and simulate how they will fit and work together in product assemblies, and how they will be produced in manufacturing systems. 2) C

RPN = Occurrence × Severity × Undetectability. 3) A

Mode 1: 5 × 2 × 7 = 70. Mode 2: 3 × 6 × 5 = 90. Mode 3: 7 × 2 × 4 = 56 4) B

The amount and type of innovation that a firm does depends on whether the product is in a launch, growth, maturity, or decline stage. 5) A

Integrated development brings multiple functions together in early development stages to identify and solve potential downstream problems. 6) C

Design for X is a collection of “design for” methods that help product designers address the constraints of various supply chain operations. 7) C

Prototypes are used to flesh out the detailed design. 8) B

QFD is a tool used in design for the customer. 9) D

RPN = severity × occurrence × undetectability 10) A

This question actually covers several parts of the chapter. Innovation projects apply to all types of organizations, and integrated or simultaneous execution has many benefits. The chapter emphasizes multifunctional input.

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11) B

Efficient innovators can both fund more new design and development projects than other firms and sell at lower prices or lower the total sales needed for a new product to pay back its initial development costs. High-quality innovators can satisfy customers more effectively, building strong brand image and customer loyalty. 12) B

Over the long term, innovation is the engine of growth and profits for firms. 13) D

Crowdsourcing involves customers directly in new product development, giving them a sense of ownership. 14) C

Modular design enables a wide range of product configurations to be built from a small number of different product platforms by switching product modules in and out. 15) A

3D printing (aka additive manufacturing) uses welding processes to rapidly build a physical prototype. 16) C

Using existing technologies to develop new products is a next generation development project. 17) A

Virtual reality tools create opportunities for designers, customers, and others to interact with virtual products in realistic ways. In this way, virtual reality tools essentially create virtual prototypes. 18) C

By overlapping and integrating product and process development, time is saved due to parallel work and lowered redesign, and production problems are identified and fixed while the product design is still malleable. 19) D

Once the product matures, competition shifts to cost and efficiency. 20) A

Product/process innovation is critical to successful operations management. 21) C

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A stage-gate process requires management evaluation and go/no-go decisions near the end of each stage, thus imposing a disciplined scrutiny and identification of risks many times throughout the life of the innovation project. 22) D

Concurrent engineering extends beyond product development to include development of processes for sales, distribution, and servicing. 23) B

ESI helps suppliers and buyers identify improvements and avoid problems early in product design phases. 24) C

The house of quality (also known as customer requirements planning matrix) is an aspect of QFD that guides the identification and translation of requirements into product specifications. 25) C

A smartphone is a platform in that it is an assembly of modular components, both of hardware and software. It is also a service platform because it uses connectivity (through cellular or wi-fi or other networks) to deliver all kinds of services, many of which can be configured by the owner of the device. 26) B

Integrated/concurrent engineering helps identify and solve problems earlier. 27) B

Sequential development lowers development costs because each function focuses only on its concerns, but it generally takes longer to complete. 28) B

High-quality innovators have fewer problems in launching new products and fewer failures in the marketplace. Efficient innovators can sell at lower prices or lower the total sales needed for a new product to pay back its initial development costs. Fast innovators produce a more continuous stream of new product introductions that create a greater and more constant market awareness of their brands. 29) B

Failure mode and effects analysis is a procedure for accomplishing this purpose. 30) D

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Functional or sequential product development postpones up-front process development until product design and development are mostly complete. 31) A

Crowdsourcing solicits inputs from many different sources outside the firm, efficiently. It is a type of “open innovation.” 32) B

This is the definition of new process design and development projects. 33) D

Also called "open innovation," codevelopment focuses on using partnerships to jointly develop new products and processes. 34) B

Product life cycle management systems store and organize customer preferences, design specifications, and other product data to support product development. 35) A

VOC is specifically oriented toward collecting detailed data on customers' perceptions and needs. 36) D

Operations managers can play leading or supporting roles in innovation, depending on the nature of the project. 37) A

Component standardization actually decreases each of the items listed. 38) C

Design for manufacture (DFM) is specifically oriented toward reducing production cost. 39) B

Finding new core technologies to develop new products is a research and advanced development project. 40) C

Innovation is the process of finding and developing a wide range of new ideas and opportunities, evaluating them, and pursuing the few most promising ones. 41) D

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In concept development, product attributes, expected volumes, and prices are determined. 42) A

Functions must be identified before they can be analyzed. 43) D

Innovative firms have well-defined, well-executed processes to manage innovation projects.

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Student name:__________ 1) John Jones, CEO of Jones Corporation, is unhappy because each product his company makes

takes a unique route through the facility, so processing times tend to be high. His company most likely has a: A) Functional layout. B) Sequential action layout. C) Fixed-position layout. D) Product layout. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-03 Describe how each of the operations layouts-fixed-position, functional, pr Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-17 John Jones, CEO of Jones Corporation, is unhappy...

2) A college of business building that has classrooms on the first floor, faculty offices on the

second floor, and graduate assistance offices on the third floor has which type of layout? A) Cellular B) Fixed-position C) Product D) Functional Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-40 A college of business building...

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3) Wanda Corporation currently uses a job shop process. It wants to maintain the advantages of

this but increase efficiency. Wanda should investigate: A) Project process. B) Cellular manufacturing. C) Job shop processes. D) Mass customization. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-4 Wanda Corporation currently uses a job shop...

4) A company must make 800 units per day. The company has two eight-hour shifts. What is

the efficiency if the total time to complete all tasks is 11 minutes and the company is using 15 workstations? A) 83 percent B) 94 percent C) 61 percent D) 33 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-49 A company must make...

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5) What is the takt time in minutes if 500 units are needed per day? The company has two eight-

hour shifts per day. A) 31.3 minutes B) 62.5 minutes C) 1.9 minutes D) 0.5 minutes Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-45 What is the takt time in...

6) Which of the following products would be most likely “make to stock”? A) A commercial passenger airplane B) A communications satellite C) A train locomotive D) An automobile Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-33 Which of the following products...

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7) Ensuring that all the right people, equipment, and materials arrive on time is especially

challenging when using which layout? A) Functional layout B) Fixed-position layout C) Product layout D) Service factory layout Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-03 Describe how each of the operations layouts-fixed-position, functional, pr Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-14 Ensuring that all the right people...

8) Which of the following types of businesses would most likely use a batch process structure? A) A glass beverage bottle manufacturer. B) An automotive assembler such as Ford Motor Company C) A company that produces automobile seats. D) Company that builds cruise ships. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-3 Which of the following types of businesses...

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9) The _________ shows process structures based on output volume and product variety. A) Back office B) Service process matrix C) Product-process matrix D) Fixed-position layout Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-26 The _____________ shows process...

10) A process layout in which product "families" with similar processing characteristics are

identified and produced on a number of small assembly lines is referred to as: A) Cellular layout. B) Mass customization. C) Flexible manufacturing systems. D) Fixed-position layout. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-04 Analyze a product layout using line balancing. Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-21 A process layout in which...

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11) Which of the following is the best example of a service shop? A) An electrical utility company B) A computer repair shop C) A fast-food restaurant such as McDonald’s D) A dentist Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Unique Aspects of Service Processes Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-35 Which of the following...

12) A company needs to produce 1,000 units per day (the day is defined as eight hours of

production). There are six tasks to be completed, with a total task time of 12 minutes. The company should have: A) 84 workstations. B) 2 workstations. C) 25 workstations. D) 14 workstations. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-04 Analyze a product layout using line balancing. Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-20 A company needs to produce...

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13) Cybersecurity risks are: A) Decreasing as more companies adopt Internet of Things (IoT) B) Leading to more offshoring C) Only a concern for mobile apps D) Higher for smaller suppliers that have fewer resources Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-05 Explain how technology is used in the supply chain and the benefits and ch Topic : Capacity Enabling Technologies Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-53 Cybersecurity risks are:

14) A company must make 30 units per hour. What is the efficiency if the total time to complete

all tasks is eight minutes and the company is using five workstations? A) 20 percent B) 75 percent C) 80 percent D) 63 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-48 A company must make...

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15) What is the takt time in seconds if 1,000 units are needed per day? The company has one

eight-hour shift per day. A) 125 seconds B) 60 seconds C) 48 seconds D) 29 seconds Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-47 What is the takt time in...

16) A common goal when designing a functional layout is to: A) Avoid downtime at any workstation. B) Reduce the time and cost of moving people and materials between departments. C) Balance the flow of materials through the process. D) Ensure materials arrive on schedule. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-03 Describe how each of the operations layouts-fixed-position, functional, pr Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-15 A common goal when designing a functional...

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17) When a process is automated: A) Low-wage jobs increase B) Quality always improves C) Fixed costs increase D) Less maintenance is needed. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-05 Explain how technology is used in the supply chain and the benefits and ch Topic : Capacity Enabling Technologies Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-25 When a process is automated:

18) In line balancing: A) The time at each workstation is driven by actual customer demand B) Efficiency is not affected by the takt time C) Once determined, the balanced line should not be changed D) The number of actual workstations should always equal the theoretical number of

workstations Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-44 In line balancing:

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19) Stitch Fix, an online company that provides personal shopping services for clothing based on

each customer’s style and budget, is an example of: A) Mass customization B) A continuous process C) A service factory D) Cellular manufacturing Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-32 Stitch Fix, an online company that...

20) Compared to a functional layout, cellular layouts have: A) Less work-in-process inventory. B) Lower efficiency. C) More frequent setups. D) More complexity in scheduling. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-04 Analyze a product layout using line balancing. Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-22 Compared to a functional layout, cellular...

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21) Zanadu Corporation has dedicated equipment and workers in a regularly occurring sequence

of activities. Zanadu has which type of operations layout? A) Functional layout B) Product layout C) Fixed-position layout D) Service factory layout Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-03 Describe how each of the operations layouts-fixed-position, functional, pr Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-16 Zanadu Corporation has dedicated equipment and...

22) Which product is likely to use a fixed-position layout in its production process? A) A mobile phone B) A refrigerator C) A commercial airplane D) Customized equipment Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-39 Which product is likely to...

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23) Zanda Corporation wants to have a process structure that has cost advantages similar to

continuous or repetitive processes, but wants to produce greater variety than those processes normally allow. Zanda should consider: A) Mass customization. B) Cellular manufacturing. C) Project process. D) Job shop processes. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-5 Zanda Corporation wants to have a process...

24) Choose the service type that is correctly matched with one of its key characteristics. A) Mass service—transactions are very varied from customer to customer. B) Professional service—transactions tend to be fairly standardized. C) Service factory—facilities and equipment represent a large proportion of total costs. D) Service shop—there is a low degree of customer interaction. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Unique Aspects of Service Processes Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-10 Choose the service type that is correctly...

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25) A law firm is an example of a: A) Service factory B) Professional service C) Service shop D) Mass service Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Unique Aspects of Service Processes Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-36 A law firm is an example of a:

26) A hospital emergency room would most likely be classified as a: A) Repetitive process B) Job shop C) Continuous process D) Batch process Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-27 A hospital emergency room would most likely be...

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27) Which process type is not correctly matched with its descriptive characteristic? A) Repetitive process—customized products B) Continuous flow—low-skilled workers C) Job shop—high flexibility D) Project—high complexity Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-2 Which process type is not correctly matched...

28) What is the primary objective of line balancing? A) To group similar activities together B) To match output rates with actual demand C) To minimize materials handling costs D) To minimize the travel time between workstations Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-04 Analyze a product layout using line balancing. Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-18 What is the primary objective of line...

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29) For which market orientation is accurately forecasting the amount of finished goods needed

likely to be the most important for a firm's financial performance? A) Make to stock B) Assemble to order C) Make to order D) Engineer to order Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-8 For which market orientation is accurately...

30) A restaurant chain that assembles meals at a centralized facility is using: A) A service factory B) Group technology C) Back-office processes D) A fixed-position layout Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Unique Aspects of Service Processes Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-37 A restaurant chain that assembles...

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31) Which of the following products is most likely to require an assemble to order market

orientation? A) An upholstered sofa B) A race car C) A mobile phone D) Shampoo Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-9 Which of the following products is most like...

32) Which process structure is most likely used by a company that makes plastic water bottles? A) Project B) Batch C) Job shop D) Continuous process Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-30 Which process structure is most...

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33) Which of the following would not be considered processing technology? A) CRM B) Chatbots C) Collaborative robots D) Additive manufacturing Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-05 Explain how technology is used in the supply chain and the benefits and ch Topic : Capacity Enabling Technologies Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-51 Which of the following...

34) A company must make 400 units per day. The company has one 12-hour shift. What is the

efficiency if the total time to complete all tasks is 23 minutes and the company is using 18 workstations? A) 71 percent B) 88 percent C) 50 percent D) 22 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-50 A company must make...

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35) Which of the following is NOT considered to be part of the service process matrix? A) Customization B) Customer interaction C) Volume D) Labor intensity Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Unique Aspects of Service Processes Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-11 Which of the following is NOT considered ...

36) In line balancing, takt time is the time: A) That is the maximum allowable time at each workstation based on customer demand B) It takes a product to go through the entire process C) Needed to change over a process between different types of products D) Required for the entire product fulfillment process Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-42 In line balancing, takt time...

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37) The connection of products and machines with software and sensors for sharing data with

other devices is: A) Unmanned autonomous vehicles (UAV) B) Radio frequency identification (RFID) C) Enterprise resource planning (ERP) D) Internet of Things (IoT) Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-05 Explain how technology is used in the supply chain and the benefits and ch Topic : Capacity Enabling Technologies Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-52 The connection of...

38) A company needs to produce 400 units per day (the day is defined as 12 hours of

production). There are three tasks to be completed, with a total task time for all three tasks of six minutes. The company should have: A) Five workstations. B) Three workstations. C) Four workstations. D) Two workstations. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-04 Analyze a product layout using line balancing. Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-19 A company needs to produce...

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39) All of the following typically require a “make to stock” market orientation except: A) Wedding cake B) Coffee makers C) Men’s jeans D) Televisions Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-34 All of the following typically...

40) An example of an integrative technology is a/an: A) Radio frequency identification (RFID) system. B) Enterprise resource planning (ERP) system. C) Industrial robot. D) Transportation management system. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-05 Explain how technology is used in the supply chain and the benefits and ch Topic : Capacity Enabling Technologies Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-23 An example of an integrative technology is...

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41) Which of the following process structures can produce the widest variety of products? A) Job shop B) Continuous flow C) Repetitive process D) Batch operation Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-1 Which of the following process structures...

42) Using technology such as self-checkouts in grocery stores to enable customers to complete

the service delivery and transaction themselves is most commonly used for: A) Service factories. B) Professional services. C) Service shops. D) Mass services. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Unique Aspects of Service Processes Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-12 Using technology such as self-checkouts in...

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43) 3D printing is most likely to be used when the process structure is: A) Mass customization B) Continuous process C) Cellular manufacturing D) Repetitive process Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-31 3D printing is most likely...

44) Which of the following is NOT a drawback to a product layout? A) Lack of flexibility to change product features B) Work-in-process inventory is typically very high C) A problem at any workstation can stop the entire production line D) The potential for employee boredom Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-38 Which of the following is NOT a ...

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45) All of the following are potential benefits of decoupling front and back offices in service

processes EXCEPT: A) Use of remotely located back-office employees. B) Standardization across multiple locations. C) Easier customization of services. D) Economies of scale. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Unique Aspects of Service Processes Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-13 All of the following are potential benefits...

46) One of the major challenges with a job shop process is that: A) Employees become bored from doing the same task over and over again B) Many activities must be outsourced to a variety of different suppliers C) Planning and scheduling are difficult D) It is very costly to stop production Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-28 One of the major...

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47) New home construction uses which type of layout? A) Fixed-position B) Functional C) Cellular D) Product Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-41 New home construction...

48) Companies with a make to stock orientation are most likely to use which of the following

process structures? A) Mass customization B) They are likely to use any one of these process structures. C) Repetitive process D) Job shop Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-7 Companies with a make...

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49) Which is false with respect to a process structure? A) It is the same across an entire supply chain B) Different structures have different capabilities C) The selection of a process structure should consider competitive priorities D) Determines how inputs, activities, flows, and outputs are organized Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-29 Which is false with respect...

50) What is the takt time in minutes if 200 units are needed per day? The company has one 12-

hour shift per day. A) 17 minutes B) 1 minute C) 0.3 minutes D) 3.6 minutes Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-46 What is the takt time in...

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51) In line balancing, the relationships between among tasks in a process is are shown in a: A) Service blueprint B) Followers diagram C) Product families diagram D) Precedence diagram Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-02 Compare and contrast the goals and challenges associated with a service fa Topic : Operations Layout Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-43 In line balancing, the...

52) Jones Company has a make to order orientation. It most likely does NOT use: A) Continuous process structure. B) Job shop process structure. C) Batch process structure. D) Cellular manufacturing process structure. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 05-01 Compare and contrast the seven process structures: project, job shop, batc Topic : Process Structures Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-6 Jones Company has a make...

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53) The use of a tablet computer, such as an iPad, for a restaurant's menu is an example of: A) Warehouse management system. B) Point of sale system. C) Mobility. D) Enterprise resource management system. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 05-05 Explain how technology is used in the supply chain and the benefits and ch Topic : Capacity Enabling Technologies Source : Chapter 05 Test Bank - Static > TB MC Qu. 05-24 The use of a tablet computer such as...

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Answer Key Test name: Chapter 5: Manufacturing and Service Process Structures 1) A

Unique routes and high processing times are characteristics of functional layouts. 2) D

The college of business building is arranged by functions and departments, and thus uses a functional layout. 3) B

Cellular manufacturing attempts to maintain flexibility of job shops but at lower costs. 4) C

The takt time is the [time available] ÷ customer demand, which is [2 shifts per day × 8 hours per shift × 60 minutes per hour] ÷ 800 units = 1.2 minutes. The efficiency is [Sum of all task times ÷ (Actual workstations × takt time)] × 100, which is [(11 minutes) ÷ (15 workstations × 1.2 minutes)] × 100 = 61%. 5) C

The takt time is the [time available] ÷ customer demand. In this case [2 shifts per day × 8 hours per shift × 60 minutes per hour] ÷ 500 units = 1.9 minutes. 6) D

Most cars are produced based on a forecast and sent to auto dealers as inventory to be available for sale. 7) B

In a fixed-position layout, all of the necessary resources must come to the work site. 8) C

Automobile seats have moderate volumes and varieties considering such factors as differences in upholstery and thus would use a batch process (see Table 5-1). 9) C

Process structures are categorized based on volume and variety on the product-process matrix. 10) A

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A cellular layout arranges workstations to form work cells to produce parts that have similar processing characteristics. 11) B

A computer repair shop tends to have a high degree of customization and customer interaction and relatively low labor intensity since much of the diagnosis is automated, making it the best example of a service shop. 12) C

Theoretical number of stations (N) = (Total of all task times) ÷ (Takt time). The takt time is the [time available] ÷ customer demand, which is [1 shift per day × 8 hours per shift × 60 minutes per hour]/1,000 units = 0.48 minutes. Number of stations = (12 minutes ÷ 0.48 minutes) = 25 workstations. 13) D

Small suppliers often do not have the resources to invest in cybersecurity expertise and thus can become targets for cybercriminals. 14) C

The takt time is the [time available] ÷ customer demand, which is [60 minutes ÷ hour] ÷ 30 units per hour = 2 minutes. The efficiency is [Sum of all task times ÷ (Actual workstations × takt time)] × 100, which is ((8 minutes) ÷ (5 workstations × 2 minutes)) × 100 = 80%. 15) D

The takt time is the [time available] ÷ customer demand. In this case [1 shift per day × 8 hours per shift × 60 minutes per hour × 60 seconds per minute] ÷ 1,000 units =29 seconds. 16) B

Because each product or customer takes a unique route through the process, the time and cost for movement can be very high. 17) C

Generally more investment is needed increasing an organization’s fixed costs. 18) A

When designing a process, the time at each workstation is what is needed to meet customer demand. 19) A

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Stitch Fix is an example of mass customization. Fashion items are assembled from standard choices but put together to match each individual’s style, budget, and size. 20) A

Compared to a functional layout, a cellular layout is less complex and has fewer setups, higher efficiency, and less work-in-process inventory. 21) B

When resources are arranged in a regular sequence of activities, a product layout is being employed. 22) C

Because of its large size and complexity, a commercial airplane is likely to require a fixedposition layout, in which the employees, equipment, and materials are brought to the plane. 23) A

Mass customization attempts to maintain cost advantages similar to continuous or repetitive processes, but allows a firm to produce greater variety than those processes normally allow. 24) C

A service factory requires high capital investment. The other descriptions are opposite of the reality. See Figure 5-3. 25) B

A law firm has high customer interaction and customization and is very labor-intensive, making it the best example of a professional service. 26) B

Treatments at a hospital emergency room are highly customized to each patient’s needs, and at most hospitals, during a specific time period, any single type of treatment is low volume. Equipment is general purpose and staff are highly skilled. 27) A

Repetitive processes typically produce standardized products. The other choices are correct (see Table 5-1). 28) B

Lines are balanced so that each workstation does not exceed the takt time, which is the time required at each station to produce exactly what the customer demands. 29) A

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In a make to stock orientation, products are made in advance of actual customer orders and held in inventory. Thus, forecasting is critical to both costs and sales. Firms using the other orientations do not produce finished goods until after a customer order is received. 30) C

A centralized facility that prepares meals for a restaurant is not visible to the customer and is an example of a back-office process that is used to increase efficiency. 31) A

For an upholstered sofa requiring an assemble to order orientation, the premade frames are held in inventory but the fabric is not added until a customer order is placed. Sofas can also be make to stock. 32) D

Water bottles are made in high volume, low variety continuous processes. 33) A

Customer relationship management is a system that combines data management, communications, decision support, and processing capabilities so is considered to be an integrating technology. 34) A

The takt time is the [time available] ÷ customer demand, which is [1 shift per day × 12 hours per shift × 60 minutes per hour] ÷ 400 units = 1.8 minutes. The efficiency is [Sum of all task times ÷ (Actual workstations × takt time)] × 100, which is ((23 minutes) ÷ (18 workstations × 1.8 minutes)) × 100 = 71% 35) C

The degree of customization/customer interaction and labor/capital intensity form the axes of the service process matrix as shown in Figure 5-3. 36) A

The takt time is the maximum time allowed at each workstation, as determined by customer demand. 37) D

The Internet of Things (IoT) allows products and machines to connect to the Internet and share data with other devices. 38) C

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Theoretical number of stations (N) = (Total of all task times) ÷ (Takt time). The takt time is the [time available]/customer demand, which is [1 shift per day × 12 hours per shift × 60 minutes per hour] ÷ 400 units = 1.8 minutes. Number of stations = (6 minutes ÷ 1.8 minutes) = 3.33, so round up to four workstations. 39) A

A wedding cake is customized for each wedding and requires a “make to order” market orientation. 40) B

See Table 5-5. An ERP system combines data management, communications, decision support, and processing capabilities. 41) A

Job shops produce the widest variety of products. 42) D

Because there is moderate to low customization/customer interaction, meaning that large groups of customers have similar requirements, mass services technology can be used to create "selfservices." This helps to reduce labor costs and can increase service availability for customers. 43) A

3D printing provides the flexibility to make a wide range of products quickly and at a low cost. This process flexibility is necessary for mass customization. 44) B

Because of the process flows, work-in-process inventory tends to be low. 45) C

Decoupling allows for back-office work to be done at a remote centralized location, allowing for standardization and economies of scale. Decoupling may actually reduce the ability to customize services. 46) C

Because of the high variety of products and jumbled flows through the process, job shop planning and scheduling can be difficult. 47) A

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In traditional home construction, the employees, materials, and equipment are brought to the work site; thus, a fixed-position layout is used. 48) C

Of the alternatives, only repetitive process applies to make to stock. The others are make or assemble to order. 49) A

In a supply chain, when going from raw materials all the way to the end consumer, the process structures change. For example, raw materials are often produced using continuous process, parts in batch process, and final assembly in repetitive processes. 50) D

The takt time is the [time available] ÷ customer demand. In this case [1 shift per day × 12 hours per shift × 60 minutes per hour] ÷ 200 units = 3.6 minutes. 51) D

A precedence diagram shows the relationships among tasks in a process. 52) A

Continuous process structures are used for make to stock orientations. The others are primarily make to order. 53) C

The use of tablet computers to provide information at the source where it is needed is mobility.

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Student name:__________ 1) An organizational culture is shaped by: A) The organization’s value statement or motto. B) The actions taken by leadership. C) The experiences of certain charismatic leaders. D) Leadership memos and meeting statements. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-45 An organizational...

2) The focus of the first step in the DMAIC process is on: A) Critical-to-quality characteristics. B) Process variability. C) Problem solving. D) Cost. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-25 The focus of the first step in the DMAIC process is...

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3) In its promotional material for bed linens, Scarsdale Corporation states that all sheets and

pillowcases sold to customers should have a thread count of exactly 600 threads per inch. Scarsdale is apparently emphasizing: A) Reliability. B) Design quality. C) Total quality management. D) Product quality. E) Conformance quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-01 In its promotional material for bed linens...

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4) Maxmo Corporation identified the following costs for the most recent fiscal year:

Vendor evaluation = $20,000 Design engineering = $100,000 Scrap = $15,000 Training = $30,000 Warranty = $40,000 What was Maxmo's total prevention cost for the year? A) $85,000 B) $55,000 C) $205,000 D) $150,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-22 Maxmo Corporation identified the following...

5) Implementation of a Six Sigma program typically involves: A) Applying for the Malcolm Baldrige Award. B) Outsourcing quality control to an external party. C) Setting up training at various levels, including Green Belt and Black Belt. D) A cost of quality analysis. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-30 Implementation of a Six Sigma program...

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6) Some consider any level of quality short of perfection to be unacceptable. However,

managers who must set quality targets should consider: A) The fact that six sigma is a universally accepted standard. B) The quality level required by ISO 9000. C) The relative costs of failure to prevention, and appraisal, D) The effects of product quality on stock prices. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-38 Some consider any level of quality...

7) If a product includes features that customers care most about, we will say that it has high: A) Aesthetics. B) Reliability. C) Design quality. D) Conformance quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-16 If a product includes features that...

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8) Why is product quality sometimes poorly defined in a firm? A) Managers in different areas may emphasize different dimensions of quality and these

differences are unresolved. B) Managers are not clear on what characteristics customers care most about. C) Managers work closely with customers (especially key customers). D) Holistic measures of quality are important to develop. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-02 Explain the roles that operations and other functional managers play in de Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-18 Why is product quality sometimes poorly...

9) ISO 9000 defines a set of internationally accepted standards for: A) Quality control. B) Product quality. C) Operations management quality. D) Business quality management. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-06 Compare and contrast various quality standards and certification programs. Topic : Certifying Progress in Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-13 ISO 9000 defines a set of internationally...

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10) A process with Six Sigma quality is expected to produce how many defects? A) Zero defects B) 6 defects per million opportunities C) 66,807 defects per million opportunities D) 3.4 defects per million opportunities Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-28 A process with Six Sigma quality is expected...

11) If a company spends more on prevention, what would be the expected impact on other costs

of quality? A) Appraisal costs will go up. B) Other costs will be unaffected. C) Failure costs will go down. D) Failure costs will go up. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-23 If a company spends more on prevention...

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12) The idea that variability is the source of most quality problems was a major contribution of

which quality management thought leader? A) Imai B) Crosby C) Juran D) Deming Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-04 The idea that variability is the source...

13) Two dimensions of product quality are hard to measure objectively and are therefore subject

to subjective assessment. One of those subjective dimensions is: A) Reliability. B) Features. C) Support. D) Perceived quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-44 Two dimensions of...

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14) The degree to which the product meets its design specifications is called: A) Total quality. B) Perceived quality. C) Aesthetic quality. D) Performance quality. E) Conformance quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-43 The degree to which...

15) "Quality at the source" suggests quality should be: A) Built into the product. B) An inspector's function. C) Inspected at multiple points. D) Ensured by the quality control lab. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-03 Apply the core values and typical practices associated with quality manage Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-10 "Quality at the source" suggests quality...

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16) Phil Bord is a CEO for a large auto manufacturer and is interested in improving the product

quality. Phil had overheard his friend mention Six Sigma. Considering that Phil has no idea what Six Sigma is, what are some key points to help Phil out? A) To achieve truly world-class quality and performance, we need to focus on individual employee job functions. B) Six sigma quality means that he would have exactly half as many quality defects as he would have with three sigma quality. C) Six Sigma requires advanced analytics, big data, and machine learning. D) Six sigma quality is the result of a well-defined and structured process. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-06 Compare and contrast various quality standards and certification programs. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-11 Phil Bord is a CEO for a large auto...

17) The managers of a production line that fills cereal boxes would like to reach a Six Sigma

level of quality in terms of product weight. The desired range of output extends from 10 to 16 ounces. In order to reach Six Sigma quality, what would the maximum standard deviation of output need to be? A) 1 ounce B) 0.25 ounces C) 2 ounces D) 0.5 ounces Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-27 The managers of a production line that...

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18) Which of the following statements is NOT consistent with core values of TQM? A) Front line workers usually have the best ideas for solving problems. B) Managers should support workers, not the other way around. C) Opinions are as important as data. D) Every employee has a stake in product quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-03 Apply the core values and typical practices associated with quality manage Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-37 Which of the following statements...

19) Suppose that a producer of 50-pound bags of potting soil decides that bag weight variation

within a range of +/- 2 pounds will be acceptable to customers. To deliver a six sigma level of quality for this product, the bagging process will need to have a standard deviation not larger than: A) 2 pounds. B) 0.17 pounds. C) 4 pounds. D) 0.33 pounds. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-39 Suppose that a producer of 50-pound...

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20) Factors contributing to the success of a TQM effort do not include: A) An existing crisis. B) Trust between labor and management. C) A charismatic leader. D) An uncomplicated product. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-03 Apply the core values and typical practices associated with quality manage Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-41 Factors contributing to the success...

21) Which of the following statements is false? A) Some firms still have a poor understanding of quality and quality management. B) Many dimensions of service quality are similar to the dimensions of quality for

tangible goods. C) Quality is most influenced by design. D) Quality dimensions are easy to measure for tangible goods, while they are difficult to measure for services. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-02 Which of the following...

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22) Xanadu Incorporated decided to increase the training received by new employees. The

expense of this training is an example of which of the following costs of quality? A) External failure costs B) Appraisal costs C) Quality control costs D) Internal failure costs E) Prevention costs Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-07 Xanadu Incorporated decided to increase the training...

23) In a Cost of Quality analysis, “failure costs” refers to: A) Costs associated with defects. B) Costs of not considering customer needs. C) Costs of not achieving goals. D) Costs associated with mistakes. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-35 In a Cost of Quality...

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24) All of the following represent external failure cost EXCEPT the cost of: A) Repairing items covered by warranty. B) Scrapping defective raw material. C) Loss of goodwill and reputation. D) Replacing defective items found by customers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-09 All of the following represent external...

25) Stu Johnson, CEO of Johnson, Incorporated, attended a seminar on Total Quality

Management (TQM). Which of the following is NOT something he is likely to have learned at that seminar? A) Quality is primarily the responsibility of operations management. B) Some aspects of quality are difficult to measure because they depend on customers' judgments. C) Quality results from design as well as operations and delivery. D) Cross-functional teams are important in TQM decision making. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-02 Explain the roles that operations and other functional managers play in de Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-03 Stu Johnson, CEO of...

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26) An application of the DMAIC process to product design is known as: A) Quality Function Deployment. B) Design for Six Sigma. C) Cause and Effect Analysis. D) Design for Quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-26 An application of the DMAIC process to...

27) At the heart of the Six Sigma program is a five-step process called DMAIC. These letters

denote a major activity that must be completed to achieve the objectives of Six Sigma. These activities are: A) Define, Measure, Analyze, Improve, and Compare. B) Define, Measure, Analyze, Improve, and Control. C) Define, Measure, Analyze, Involve, and Cost. D) Define, Measure, Analyze, Inquire, and Compare. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-12 At the heart of the Six Sigma program is...

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28) Training Material scrap Warranty

$ 10,000 $ 20,000 $ 50,000

Rework Product redesign Process improvement

$ 30,000 $ 40,000 $ 10,000

After digging through many expense reports, Marsha identified the costs shown above. If these costs are accurate, then the total cost of prevention would be: A) $160,000 B) $100,000 C) $60,000 D) $80,000 Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-36 After digging through many...

29) “Product quality” is best explained as: A) B) C) D)

Desirable features. Customer satisfaction. The result of both design quality and conformance quality. Absence of defect.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-31 &#8220;Product quality&#8221; is best explained...

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30) Which of the following statements that might be made by a business executive best expresses

the overall philosophy of Total Quality Management? A) "The workers need to work harder to prevent quality problems." B) "We never sell defective products to customers." C) "We've achieved Six Sigma. That's good enough." D) "There's always room for improvement." Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-03 Apply the core values and typical practices associated with quality manage Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-15 Which of the following statements that...

31) If a tangible good or service performs the promised function dependably, we say that it has

high: A) B) C) D)

Perceived quality. Durability. Conformance. Reliability.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-17 If a tangible good or service performs the...

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32) “Quality management” is: A) B) C) D)

The achievement of all dimensions of quality. Six sigma. An approach that develops culture and tools with a focus on quality. A measure of how well managers achieve goals.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-32 "Quality management" is:

33) The TQM view of organizational structure states that: A) Customers want quality products. B) Employees must support management decisions. C) Management must support employees. D) Middle management must support and enforce top management decisions. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-03 Apply the core values and typical practices associated with quality manage Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-8 The TQM view of organizational structure...

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34) Bill wants to purchase a new machine that is expected to hold tighter tolerances on

production parts. What functional managers are likely to have a stake in this decision? A) Finance, Manufacturing, Engineering B) Sales, Finance, Logistics C) Logistics, Human Resources, Manufacturing D) Engineers, Manufacturing, Marketing Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 06-02 Explain the roles that operations and other functional managers play in de Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-33 Bill wants to purchase a new machine...

35) Sanford Corporation bought new technological systems to inspect the quality of products as

they come off the production line. The expense of operating these systems would be an example of which of the following types of quality-related costs? A) Internal failure cost B) Prevention cost C) Appraisal cost D) External failure cost Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-06 Sanford Corporation bought new technological...

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36) Ted wants to hire more inspection personnel to ensure that all products shipped are free of

defects. What TQM core value would this action violate? A) Prevention is better than rework. B) Better quality leads to long-term success. C) A PDCA cycle should always be followed. D) Workers are more valuable than managers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-03 Apply the core values and typical practices associated with quality manage Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-34 Ted wants to hire more inspection personnel...

37) The types of costs included in a cost of quality analysis include: A) Production, delivery, and marketing. B) Prevention, appraisal, and failure. C) Internal and external. D) Direct and indirect. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-04 Perform a cost of quality analysis. Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-21 The types of costs included in a cost of...

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38) Persons with responsibilities in which business function will make decisions regarding new

product testing programs? A) Logistics B) Marketing C) Manufacturing D) Finance Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-02 Explain the roles that operations and other functional managers play in de Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-42 Persons with responsibilities...

39) When buying from suppliers, what decisions do supply managers make that potentially

impact quality? A) Design of product prototyping procedures B) Design of manufacturing and service processes C) Design of packaging D) Design of contracts and associated incentives and penalties Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-02 Explain the roles that operations and other functional managers play in de Topic : Defining the Dimensions of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-19 When buying from suppliers, what decisions...

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40) "Zero defects" is a concept of quality management of which thought leader? A) Deming B) Imai C) Crosby D) Juran Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-01 Explain what the concepts of product quality and quality management entail Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-05 "Zero defects" is a concept of quality...

41) XYZ distribution center receives 1,000 deliveries each day. Arrivals are on time if they are

within plus or minus 10 minutes of the targeted arrival. In order to have only 3.4 late or early arrivals per million deliveries, what would the standard deviation of arrival times need to be? A) 6.67 minutes B) 1.67 minutes C) 0.83 minutes D) 3.33 minutes Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-29 XYZ distribution center receives...

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42) Which of the following is NOT a core value of TQM? A) Product quality should be viewed holistically. B) Prevention is better than inspection. C) Problem solving should occur at the lowest organizational levels possible. D) Quality assurance managers should have the most power in the organization. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-03 Apply the core values and typical practices associated with quality manage Topic : TQM: A Total View of Quality Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-20 Which of the following is NOT a core value...

43) The objective of the “control” step in the DMAIC process is: A) B) C) D)

To create controlled experiments to analyze sources of variation. To be rigorous in following the DMAIC steps. To prevent an improved process from becoming highly variable again. To consider differing opinions regarding the root causes of problems.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-05 Apply the Six Sigma DMAIC approach to quality improvement. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-40 The objective of the...

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44) Which of the following statements is most true regarding ISO 9000? A) ISO 9000 is a quality award given by the U.S. government B) ISO 9000 was designed specifically for the electronics industry C) ISO 9000 lays out general practices aimed at improving quality. D) ISO 9000 tells management specifically how to ensure quality Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06-06 Compare and contrast various quality standards and certification programs. Topic : Certifying Progress in Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-14 Which of the following statements...

45) The Plan-Do-Check-Act cycle (PDCA) is best defined as: A) A method used to guide problem identification and solution. B) A rigorous procedure for strategic planning. C) A method first proposed by Joseph Juran. D) A method for assessing process capabilities. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06-06 Compare and contrast various quality standards and certification programs. Topic : Guiding Methodologies for Quality Management Source : Chapter 06 Test Bank - Static > TB MC Qu. 06-24 The Plan-Do-Check-Act cycle (PDCA)...

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Answer Key Test name: Chapter 6: Managing Quality 1) B

Leaders have to recognize that their actions, more than their words, help shape an organization’s culture. 2) A 3) E

Conformance quality is meeting design specifications. 4) D

Vendor evaluation, design engineering, and training are all prevention costs. Scrap and warranty are failure costs. 5) C

Six Sigma starts with training at different levels. 6) C

For some products, failure costs do not justify the cost of the investments required to eliminate them. 7) C

Design quality occurs when product features meet customers' desires and needs. 8) A

There are many reasons why quality might be poorly defined in a firm. Except for the first statement, the others are reasons for having well defined quality. 9) D

ISO 9000 is a broad set of standards applied to business quality management, not just product quality, quality control, or operations management. 10) D

Six Sigma quality means 3.4 defects per million opportunities. 11) C

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Appraisal costs are a choice, independent of prevention costs, whereas failure costs are likely to go down with well-framed prevention efforts. Some costs need to be impacted, otherwise the investment in prevention cost is not of any value. 12) D

The idea that variability was the source of most quality problems originated with W. Edwards Deming. 13) D

Perceived quality is a subjective assessment based upon image, advertising, reputation, or other information related to the product’s attributes. The other subjective dimension of product quality is aesthetics. 14) E

Conformance quality refers to the degree to which the product meets its design specifications. 15) A

The “quality at the source” philosophy is opposed to the idea that quality comes from thorough inspection after the fact. 16) D

Six Sigma is an approach that seeks to use projects to eliminate causes of defects and variation in processes. 17) D

In order to reach Six Sigma quality, the specification range needs to be at least 12 standard deviations wide. 6 ounce ÷ 12 = 0.5 ounce. 18) C

Problem solving is most effective when decisions are based on the analysis of actual data rather than on conjecture or opinion. 19) D

The target standard deviation is 4 pounds divided by 12 equals 0.33 pounds. 20) D

Labor/management trust, charismatic leadership, and a compelling motivation are among the factors contributing to the success of a TQM project. 21) D

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Both tangible goods and services have aspects of quality that are measurable and others that are subjective and difficult to assess. 22) E

Training is an expense aimed at defect prevention. 23) A

Failure costs are costs that arise from defects found in products either before or after the product reaches the customer. 24) B

Scrapping raw material is an internal failure cost. The others are external failure costs. 25) A

Quality is not only the responsibility of operations management; all functions are responsible for quality. The other statements are true (see the text). 26) B

The acronym DMAIC stands for: Define, Measure, Analyze, Improve, and Control. In turn, design for Six Sigma aims to develop products that fit the Six Sigma processes. DMAIC is centered on continuous improvement, which is the ultimate goal of any Six Sigma process. Design for Six Sigma is like DMAIC but applied to product design rather than improvement of existing products and processes. 27) B

The acronym DMAIC stands for: Define, Measure, Analyze, Improve, and Control. 28) C

Training, product redesign and process improvement costs are related to defect prevention, so the total is: $10,000 + $40,000 + $10,000 = $60,000 29) C

Product quality is a product’s fitness for consumption, which is determined by both its design and conformance quality. 30) D

Continuous process improvement should be every employee’s job. 31) D

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Reliability is the length of time (or number of instances) a product performs as planned before a failure occurs. 32) C

Quality management establishes an organizational focus on quality—developing an organizational culture of quality and equipping employees with appropriate quality management tools. 33) C

The TQM view is that managers must support workers, not the other way around. 34) A

Process engineers, manufacturing management, and financial management will all have input to the decision to purchase new equipment. 35) C

Inspection is an appraisal cost. 36) A

TQM’s emphasis is on prevention of defects, not inspection to find defects. 37) B

Prevention, appraisal, and failure costs are included in a cost of quality analysis. 38) B

Marketing management make decisions regarding how new products and new product ideas will be tested. 39) D

Supply managers also potentially impact quality management of and interaction with suppliers. 40) C

Phillip Crosby’s quality programs were built on the concept of zero defects. 41) B

In order to reach Six Sigma quality, the specification range needs to be at least 12 standard deviations wide. 20 ÷ 12 = 1.67 42) D

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Workers at the lowest levels should be empowered to prevent and solve problems when they occur. 43) C

Monitoring and adjustment systems are installed to ensure that process variations remain minimized. 44) C

All of these statements are false, except for the last one. 45) A

PDCA is a simple problem-solving method, also called the "Deming wheel."

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Student name:__________ 1) You are given the following data for taillight assemblies: Orders 7am - 9am 9am - 11am 11am - 1pm 1pm - 3pm 3pm - 5pm sum Insuffic vvvvvvv v vvvvvv 15 ient v plating Inabilit vvvvvv vvvvvvv vvvvvvv vvvvvvv vvvvvvvv 42 y to vv vvv vv meet heat specs scratche vvvvvvv vv vvv vvv vvvvvvvv 28 d lens vvv vvv Failed vv vv v vvv vv 12 leak test Glue on vvv vvv v 7 lens Cracked v vv vv 5 body 27 16 18 20 28 10 9

Management has decided to carry out a Pareto analysis focusing on problem areas. Which of the following conclusions does the Pareto analysis support? A) We are receiving faulty lenses from our suppliers. B) Management should focus attention on "inability to meet heat specs" and "scratched lens." C) Management should focus attention on either the early morning or late afternoon time periods. D) The Pareto analysis should not be used since it is inappropriate in this situation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Pareto Analysis Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-21 You are given the following data...

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2) Suppose that you are a process manager in a manufacturing plant, and you suspect that there

is a relationship between the room temperature of the plant and the weights of the plastic caps produced by an injection moulding process. What quality improvement tool would you use to investigate this claim? A) Pareto analysis B) Histogram C) Scatter diagram D) Fishbone diagram E) Check list Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-06 Suppose that you are a process...

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3) You have been given the following data:

Specification information: Anything between 10 and 20 units per order is acceptable. Process Mean: 13 Upper limit of the process: 16 Lower limit of the process: 10 Using this information, which of the following conclusions is most appropriate? A) The process is capable and centered. B) The process is not capable since it is not centered. C) The process is not capable and centered. D) The process is barely capable and not centered. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Cp and Cpk charts Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-18 You have been given the following...

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4) You are given the following data for taillight assemblies: Orders 7am - 9am 9am - 11am 11am - 1pm 1pm - 3pm 3pm - 5pm sum Insuffic vvvvvvv v vvvvvv 15 ient v plating Inabilit vvvvvv vvvvvvv vvvvvvv vvvvvvv vvvvvvvv 42 y to vv vvv vv meet heat specs scratche vvvvvvv vv vvv vvv vvvvvvvv 28 d lens vvv vvv Failed vv vv v vvv vv 12 leak test Glue on vvv vvv v 7 lens Cracked v vv vv 5 body 27 16 18 20 28 10 9

Management has decided that they must do something about the inability of the taillight assemblies to meet the quality specifications. Yet currently they do not know what areas they should look at. To help management in dealing with this issue, which of the following quality control tools would be most appropriate? A) Scatterplots B) Cause-and-effect diagrams C) Plan-Do-Check-Act D) Histogram Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Cause-and-Effect Diagrams Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-22 You are given the following data...

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5) You are involved in the implementation of a quality improvement program. Your immediate

goal is to identify what problems you should focus on (ideally you want to focus on those that give you the biggest bang for the buck). Which of the following quality control procedures is the most appropriate? A) Fishbone diagrams B) Pareto analysis C) Process flow charts D) Histograms Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-05 You are involved in the implementation...

6) Zanda Corporation has determined that it has too many products returned from customers.

Zanda is interested in determining what factors or elements could contribute to the large number of returns. Which of the following quality tools would Zanda use to achieve this objective? A) Scatter diagram B) Process flowchart C) Pareto analysis D) Fishbone diagram E) Run diagram Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-04 Zanda Corporation has determined that it...

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7) To determine whether two variables are related to each other, you would use: A) Capability analysis B) Moment of Truth analysis C) Scatter diagram D) Histograms E) Pareto analysis Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-37 To determine whether...

8) Hugging in a control chart usually indicates: A) The process is in control. B) Something is occurring that is masking natural variation. C) Systematic problems in the process that require attention. D) The process is out of control. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-14 Hugging in a control chart usually...

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9) Measuring quality in brief customer interactions is particularly difficult, as each customer’s

interaction with a company employee has the potential to be personal and unique. Some service firms have attempted to measure the effectiveness of these brief customer interactions using which of the following scales? A) Exceptional, Positive, Neutral, Exasperating B) A point scale awarding one to five stars based on the interaction C) Did not meet expectations, Met expectations, Exceeded expectations D) Excellent, Good, Indifferent, Poor E) Good, Better, Best Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-36 Measuring quality in...

10) Which of the following quality improvement tools is not a particularly good brainstorming

tool? A) B) C) D)

Fishbone diagrams Ishikawa chart Cause-and-effect analysis Process capability analysis

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-38 Which of the following quality...

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11) Which of the following conclusions does the p data shown below support?

P = 0.10 UCL = 0.2022 LCL = 0.−0154 Batch number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A) B) C) D)

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p 0.10 0.11 0.10 0.10 0.11 0.09 0.12 0.10 0.10 0.11 0.09 0.09 0.10 0.10 0.11 0.11 0.12 0.10 0.13 0.13 0.14 0.15 0.17 0.18 0.18

The process is showing hugging. Except for one point, the process is under control. The process is under control The process is showing trending.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/p Attribute Control Chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-35 Which of the following...

12) Which of the following types of control charts would be most appropriate if the data that we

are dealing with is binary in nature (good/bad, pass/fail, accept/reject)? A) X-bar-R chart B) Cp/Cpk C) Histogram D) p attribute chart Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/p Attribute Control Chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-32 Which of the following types of control charts would...

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13) The objective of statistical process control (SPC) is to: A) Identify variable versus attribute measures. B) Detect assignable cause variations versus normal random variations in the process. C) Determine whether a batch of finished goods should be accepted or rejected. D) Determine whether a batch of raw materials should be accepted or rejected. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-13 The objective of statistical process control...

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14) Which of the following conclusions does the p data shown below support?

P = 0.10 UCL = 0.2022 LCL = 0.−0154 Batch number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A) B) C) D)

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p 0.10 0.12 0.10 0.12 0.06 0.06 0.12 0.10 0.06 0.10 0.10 0.16 0.22 0.20 0.12 0.10 0.06 0.10 0.10 0.12 0.10 0.12 0.06 0.08 0.10

Except for one batch, the process is under control. The process is showing trending. The process is showing hugging. The process is under control.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/p Attribute Control Chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-34 Which of the following...

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15) Twenty samples of size 8 were taken from a stable process. From past studies of the process,

you know that the overall mean is 42.5 and that the average of the samples range is 2.0. What is the upper control limit for the x-bar chart? Use the information contained in the attached chart to determine your answer. n 2 3 4 5 6 7 8 9 10 11 12 13 14 15 A) B) C) D)

A2 1.880 1.023 0.729 0.577 0.483 0.419 0.373 0.337 0.308 0.285 0.266 0.249 0.235 0.223

D4 3.267 2.574 2.282 2.114 2.004 1.924 1.864 1.816 1.777 1.744 1.717 1.693 1.672 1.653

43.25 44.50 48.50 46.22

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Constructing an xbar-R chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-29 Twenty samples of size 8 were taken from...

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16) The two types of data involved in quality control are: A) Variables and attributes. B) Accuracy and precision. C) Random measurements and 100 percent measurements. D) Assignable factors and random factors. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-02 Identify the importance of data in quality management. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-01 The two types of data involved...

17) Which of the following categories of causes would be most appropriate for a Marriott (an

international hotel chain), a McDonalds (an international fast food chain), or the local hair stylist? A) Machine, Method, Material, Manpower/Mindpower, Measurement, Mother Nature B) People, Machine/Equipment, Methods/Processes, Materials C) People, Price, Machine, Materials, Mother Nature D) Product, Price, Place, Promotion, People/personnel, Process, Physical evidence Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Cause-and-Effect Diagrams Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-16 Which of the following categories of...

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18) The width of a histogram showing a distribution of data indicates the _________ of the

process that generated the distribution. A) Bias B) Average C) Predictability D) Central tendency Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-03 The width of a histogram showing...

19) Forty samples of 100 are taken, with the total number of defective units being 150. What is

the lower control limit for the three sigma (z = 3) p-chart?" A) 0.0190 B) 0.000 C) 0.0570 D) 0.0375 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/p Attribute Control Chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-27 Forty samples of 100 are taken, with the total...

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20) The specifications for the diameter of a moulded part are 10 mm ± 0.5 mm. The actual

average and standard deviation from 250 parts sampled is 10.1 mm and 0.1 mm, respectively. The process can be characterized as: A) Out of control. B) Capable. C) Unreliable. D) Just barely capable. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-09 The specifications for the diameter of...

21) You have been given the following sample information that has been drawn from the last

sample taken: Mean of the sample: 13.67 Lower control limit for the range: 0 Upper control limit for the range: 10.6 Observations: 13, 12, 8, 10, 11, 16, 17, 8, 17, 18, 20, 14 Which of the following conclusions does this data support? A) The sample is out of specification. B) The sample is within specifications. C) The process is under control. D) The process is not under control. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Process Control Charts Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-19 You have been given the following...

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22) Sample means and ranges were obtained for five samples of 10 units per sample from a

production process. Assume the process was considered to be in control during the period these samples were collected. The results are as follows: Sample 1 2 3 4 5

Mean 10.58 9.97 9.99 10.23 10.23

Range 0.23 0.25 0.21 0.28 0.28

LCL for the three sigma X chart for the process is approximately (for a sample size of 10, A2 = 0.31): A) 10.12. B) 10.94. C) 9.44. D) 9.75. E) 10.05. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-12 Sample means and ranges were obtained...

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23) Which of the following tools is most appropriate when we are interested in determining if a

process that was generating attribute-type data (pass/fail, good/bad) was under control? A) Cpk analysis B) Scatterplot C) Histogram D) p control chart Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/p Attribute Control Chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-17 Which of the following tools is...

24) Which of the following quality improvement tools is most appropriate for identifying

patterns in the data? A) Process capability analysis B) Cause-and-effect diagrams C) Process flow analysis D) Check sheets Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-31 Which of the following quality improvement tools is...

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25) A packaging plant is running a filling process where packages are filled with 24 oz. +/− 0.08

oz. A capability study reveals that the process mean is 24 oz. with a standard deviation of 0.02 oz. What is the capability of the packaging line? A) 0.50 B) 1.33 C) 0.67 D) 1.50 Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Process Capability Analysis: Cp and Cpk Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-25 A packaging plant is running a...

26) The specifications for the diameter of a moulded part are 10 mm ± 0.5 mm. The actual

average and standard deviation from 250 parts sampled is 10.1 mm and 0.1 mm, respectively. What is Cpk? A) 0.81 B) 1.01 C) 0.80 D) 0.33 E) 1.34 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-08 The specifications for the diameter of...

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27) Sample means and ranges were obtained for five samples of 10 units per sample from a

production process. Assume the process was considered to be in control during the period these samples were collected. The results are as follows: Sample 1 2 3 4 5

Mean 10.58 9.97 9.99 10.23 10.23

Range 0.23 0.25 0.21 0.28 0.28

What is the central line of the X chart for this process? A) 9.75 B) 10.20 C) 10.00 D) 10.05 E) 9.45 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-11 Sample means and ranges were obtained...

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28) A process can be said to be capable when: A) The Cp is less than 1.0. B) The Cpk is greater than 1.5. C) The process is perfectly centered within the specification. D) The Cpk is less than 1.0. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Process Capability Analysis: Cp and Cpk Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-24 A process can be said to...

29) Under what conditions would we be required to recalculate the parameters for an X-bar-R

chart? A) B) C) D)

When we change the production process When the first sample mean crosses either the UCL or LCL When dealing with a two-shift operation When there is hugging observed in the data

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-30 Under what conditions would we be...

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30) A firm has an existing process that it would like to use for producing a part it will sell to an

industrial customer. The customer requires that defective (out of specification) parts be kept to 3,000 parts per million (three-tenths of 1 percent) or less. A process capability study done on the process revealed that it has a process capability index (Cpk) of 1.00 for this part. What should the firm conclude from the study? A) The process is highly capable, and when operating in control, a very high percentage of output will meet the customer's requirements. B) The process is not capable, but with careful process control, it could be used to meet the customer's requirements. C) The process is not capable, and even with careful control, it will not be able to meet the customer's requirements. D) The process is capable, but just barely, and will require careful monitoring in order to meet customer requirements. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-10 A firm has an existing process...

31) The Taguchi methods link product design to: A) Unexplained variance. B) Process improvement. C) Production availability. D) Customer expectations. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-15 The Taguchi methods link...

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32) Fifteen samples of size 10 are taken from a stable process. The average of the sample means

is 32.8, and the average range of the samples is 1.5. What is the upper control limit for the R chart? Use the information contained in the attached chart. n 2 3 4 5 6 7 8 9 10 11 12 13 14 15 A) B) C) D)

A2 1.880 1.023 0.729 0.577 0.483 0.419 0.373 0.337 0.308 0.285 0.266 0.249 0.235 0.223

D4 3.267 2.574 2.282 2.114 2.004 1.924 1.864 1.816 1.777 1.744 1.717 1.693 1.672 1.653

2.666 1.777 2.480 1.653

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Constructing an xbar-R chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-28 Fifteen samples of size 10 are taken from a stable...

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33) Effective quality management requires: A) Charismatic leadership. B) Willingness to spend time and money measuring output. C) Workers skilled in statistics and math. D) Data. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-02 Identify the importance of data in quality management. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-40 Effective quality management...

34) A process has been operating very capably with all of its output falling between the UCL and

the LCL. Nonetheless, there is some level of variation in the measurements of the output of the process. What is the source of this variation? A) Natural variation B) Less experienced operators C) Inconsistent raw materials D) Equipment wear and vibration Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-39 A process has been operating...

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35) Which of the following conclusions does the p data shown below support?

P = 0.10 UCL = 0.2022 LCL = 0.−0154 Batch number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A) B) C) D)

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p 0.10 0.12 0.10 0.12 0.06 0.06 0.12 0.10 0.06 0.10 0.10 0.16 0.22 0.20 0.12 0.10 0.06 0.10 0.10 0.12 0.10 0.12 0.06 0.08 0.10

The process is under control. The process is showing trending. The process is showing hugging. Except for batch 13, the process is under control.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/p Attribute Control Chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-33 Which of the following conclusions does the...

36) Forty samples of 100 are taken, with the total number of defective units being 150. What is

the upper control limit of the three sigma (z = 3) p-chart? A) 0.793 B) 0.165 C) 0.0375 D) 0.0945 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/p Attribute Control Chart Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-26 Forty samples of 100 are taken...

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37) We are experiencing a problem where the output of a process keeps shifting over time. If we

were to use a histogram to collect and display the resulting data, what type of shape would it most likely display? A) Plateau-shaped distribution B) Bimodal distribution C) Bell (normal) distribution D) Skewed distribution Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Histograms Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-23 We are experiencing a problem where...

38) "Pass/ fail" and "go/no go" are both examples of: A) Variable data. B) Decision data. C) Process flow data. D) Attribute data. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-02 Identify the importance of data in quality management. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-02 "Pass/ fail" and "go/no go" are...

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39) You are given the following data for taillight assemblies: Orders 7am - 9am 9am - 11am 11am - 1pm 1pm - 3pm 3pm - 5pm sum Insuffic vvvvvvv v vvvvvv 15 ient v plating Inabilit vvvvvv vvvvvvv vvvvvvv vvvvvvv vvvvvvvv 42 y to vv vvv vv meet heat specs scratche vvvvvvv vv vvv vvv vvvvvvvv 28 d lens vvv vvv Failed vv vv v vvv vv 12 leak test Glue on vvv vvv v 7 lens Cracked v vv vv 5 body 27 16 18 20 28 10 9

Which of the following tools does this data represent? A) Control chart B) Histogram C) Cp/Cpk analysis D) Check sheet Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools/Check Sheets Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-20 You are given the following data...

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40) The specifications for the diameter of a moulded part are 10 mm ± 0.5 mm. The actual

average and standard deviation from 250 parts sampled is 10.1 mm and 0.1 mm, respectively. What is the process capability as measured by Cp? A) 1.67 B) 1.00 C) 0.60 D) 1.01 E) 0.84 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 06S-01 Apply quality management tools for problem solving. Topic : Quality Improvement Tools Source : Chapter 06S Test Bank - Static > TB MC Qu. 06S-07 The specifications for the diameter of...

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Answer Key Test name: Chapter 6: Chapter Supplement: Quality Improvement Tools 1) B

“Inability to meet heat specs” and “scratched lens” problems dominate the check sheet, and management should focus their attention on these areas first. 2) C

A scatter diagram will graphically illustrate the relationship between two variables. 3) D

Cp = (20 − 10) ÷ (16 − 10) = 1.67 K = (15 − 13) ÷ ((20 − 10) ÷ 2) = 0.40 Cpk = (1 − 0.4) × 1.67 = 1.00 4) B

Cause-and-effect (fishbone) diagrams help uncover the (sometimes) hidden root causes and link them to the symptoms observed. 5) B

Pareto analysis examines the relative intensity of problems and aids in determining where remedial action will have the greatest impact. 6) D

The fishbone diagram displays the relationships between observed effects and their possible causes. 7) C

Scatter diagrams help determine whether two different variables are related to each other. 8) B

Hugging is a term that refers to points in a control chart showing almost no variation at all. This raises suspicion that something is happening that masks the normal variation of the process and it is impossible to tell whether the process is in control or not. 9) C

These “Moment of Truth” interactions are usually rated on a simple three-point scale: “Did not meet expectations, Met expectations, Exceeded expectations.” 10) D

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Fishbone diagrams, Ishikawa charts, and Cause-and-effect analysis are each used as tools to stimulate discussion in brainstorming sessions. 11) D

A plot of this data reveals a significant upward trend after batch 14. 12) D

A p-Attribute control chart is useful when dealing with binary data. 13) B

Statistical process control is used to identify variations that arise from other than normal variations in a process. The terms “statistical process control” and “process control charts” convey the same concept. 14) A

The average of batch 13 exceeds the upper control limit. 15) A

x-double bar UCL = x-double bar + A2 × R-bar = 42.5 + 0.373 × 2 = 43.246 16) A

The two types of data involved in quality control are variable data and attribute data. 17) D

Marriott, McDonalds, and the stylist are all services, so you would choose the 7 Ps: Product, Price, Place, Promotion, People/personnel, Process, Physical evidence. 18) C

The wider the histogram, the less predictable it is. 19) B

P=150 ÷ 4000 = 0.0375. UCL = P − 3 × Sqrt (P × (1 − P) ÷ 100) UCL = 0.0375 − 3 × SQRT (0.0375 × (1 − 0.0375) ÷ 100) UCL = −0.0195 = 0 Note: (LCL cannot be negative) 20) B

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Cp = (10.5 − 9.5) ÷ (6 × 0.1) = 1 ÷ 0.6 = 1.67; K = Absolute Value ((10.5 + 9.5) ÷ 2 − 10.1) ÷ ((10.5 − 9.5) ÷ 2) = 0.2 Cpk = (1 − 0.2) × 1.67 = 1.336 Since Cpk is greater than one this indicates a capable process that can reliably meet design specifications. 21) A

The sample is out of specification—the mean of the sample is outside the upper control limit. 22) A

Average range per sample = 0.25 × 0.31 = 0.0775 and 10.2 − 0.0775 = 10.1225 23) D

The p control chart is useful to determine whether processes generating attribute data are under control. 24) D

Check sheets are simple tools used to collect, organize, and display data. Patterns of problems are revealed by the use of check sheets. 25) B

Cp = (24.08 − 23.92) ÷ (6 × .02) = 1.333 26) E

Cp = (10.5 − 9.5) ÷ (6 × 0.1) = 1 ÷ 0.6 = 1.67; K = Absolute Value ((10.5 + 9.5) ÷ 2 − 10.1) ÷ ((10.5 − 9.5) ÷ 2) = 0.2 Cpk = (1 − 0.2) × 1.67 = 1.336 27) B

The central line of the X chart is the mean value of the sample means = 10.20 28) B

A process with Cpk > 1.5 is considered capable. 29) A

The x-bar and R charts will need to be modified when the production process changes. 30) D

A Cpk score of 1 means that this process is capable, but just barely.

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31) B

Professor Taguchi was the first to recognize the importance of linking product design to process improvement. 32) A

R-Chart UCL = D4 × R-bar = 1.777 × 1.5 = 2.666 33) D

Effective quality management is data driven. 34) A

Processes have natural variation. 35) D

The average of batch 13 exceeds the upper control limit. 36) D

P = 150 ÷ 4000 = 0.0375. UCL = P + 3 × Sqrt (P × (1 − P) ÷ 100) UCL = 0.0375 + 3 × SQRT (0.0375 × (1 − 0.0375) ÷ 100) UCL = 0.0945 37) A

The plateau-shaped distribution often results from combining multiple data sets where the means of the data sets, themselves, are shifting over time. 38) D

Pass/fail, go/no go and good/bad are all attribute data. 39) D

Check sheets collect, organize, and display data to reveal patterns. 40) A

Cp = (10.5 − 9.5) ÷ (6 × 0.1) = 1 ÷ 0.6 = 1.67

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Student name:__________ 1) University Bookstore buys women's polo T-shirts from a supplier according to the price

schedule shown below. The store sells 500,000 T-shirts each year. The annual carrying cost of T-shirts is 25 percent, and the ordering cost is $40. Quantity per order 1 to 2,499 2,500

Unit price $ 35.00 $ 32.00

The lowest total annual acquisition cost for the bookstore quantity is closest to: Note: Due to possible differences in rounding, choose the closest answer. A) $17,518,707 B) $16,018,708 C) $16,018,000 D) $16,258,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-15 University Book Store buys women&#39;s...

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2) HighLife Corporation has the following information:

Average demand = 30 units per day Average lead time = 40 days Item unit cost = $45 for orders of less than 400 units Item unit cost = $40 for orders of 400 units or more Ordering cost = $50 Inventory carrying cost = 15 percent The business year is 300 days. Standard deviation of demand during lead time = 90 Desired service level = 95 percent What is the TAC at $40 per unit? Note: Pick the number closest to the correct answer. A) $355,840 B) $362,240 C) $362,325 D) $351,750 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-24 HighLife Corporation has the following...

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3) A retail store’s average sales are $100,000 per week. On average it holds $500,000 worth of

inventory valued at cost to the retailer. The retailer’s average pricing includes a mark-up of 30 percent. The retailer’s annual inventory turnover is: A) 10.4 B) 0.2 C) 13.5 D) 8 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-03 Explain and compute asset productivity and customer service-related measur Topic : Measures of Inventory Performance Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-41 A retail store&#39;s average sales...

4) You have a one-time opportunity to buy an item. It costs $50 and sells for $100. It’s disposal

value equals its salvage value. What is the target service level? A) 80 percent B) 66.67 percent C) 25 percent D) 50 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : Single Period Inventory Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-42 You have a one-time opportunity...

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5) Steve’s shop sells seashells by the seashore. Steve buys shells from local collectors for an

average price of $0.50 per shell. Steve sells on average 1,000 shells each month. Each time he orders shells from collectors, there is a $20 shipping and handling fee. Steve estimates a unit holding cost of $0.50 per shell per year (many of them get broken if held in inventory too long). How often should Steve order seashells? A) about three times per month B) about one time every other month C) about one time each month D) about one time each year Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-48 Steve&#8217;s shop sells seashells by...

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6) Bryson Carpet Mills produces a variety of different carpets. Changing from production of

one carpet to another involves a setup cost of $500. One particular carpet costs $8 per yard to produce. Annual demand for this style is 50,000 yards. Bryson Mills produces carpet 200 days per year. The production process is most efficient when 2,000 yards per day are produced. Inventory carrying cost is estimated at 20 percent annually. What should be the production order quantity? A) 2,500 yards B) 5,976 yards C) 4,675 yards D) 8,750 yards Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-20 Bryson Carpet Mills produces a...

7) You have a one-time opportunity to buy an item. It costs $20 and sells for $50. It has $4

salvage value if it does not sell. What is the target service level? A) 65.21 percent B) 66.67 percent C) 80 percent D) 50 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : Single Period Inventory Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-31 You have a one-time opportunity...

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8) Jones Company has calculated that the EOQ for a particular item is 1,000 units. However,

Jones does not have enough capital to order that many units each time, so it only orders 250 units at a time. This will result in: A) Lower annual ordering cost than ordering the EOQ quantity. B) Higher annual inventory carrying cost than ordering the EOQ quantity. C) Cannot be determined. D) Lower annual inventory carrying cost than ordering the EOQ quantity. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-18 Jones Company has calculated that...

9) Which of the following is NOT often associated with supplier-managed inventory (SMI)

arrangements? A) Supplier representative located at the customer site. B) Long-term commitments from both parties. C) All of these are typically associated with SMI. D) Supplier places replenishment orders. E) Customers recommend to suppliers how they should schedule production. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : Managing Inventory Across the Supply Chain Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-39 Which of the following is...

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10) A company has average demand of 30 units per day. Lead time from the supplier averages

seven days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent. 1 standard deviation covers 84.13% 1.04 standard deviations covers 85% 1.28 standard deviations covers 90% 1.65 standard deviations covers 95% 1.96 standard deviations covers 97.5% 2 standard deviations covers 97.72% 2.33 standard deviations covers 99% 3 standard deviations covers 99.86% 6 standard deviations covers 99.99966% Suppose management decides it wants to offer a 95 percent service level. That is, it is willing to experience a stockout probability of 5 percent during the order cycle. What is the annual carrying cost of this safety stock policy? A) $87.50 B) $62.50 C) $115.00 D) $82.50 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-05 Determine the cost of a company's service level policy. Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-21 A company has average demand...

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11) Alpha Company places 10 orders per year with its supplier. Each order is for an amount

exactly equal to the EOQ. Alpha has determined its annual inventory carrying cost is $2,000. Alpha carries no safety stock at all. What is Alpha's order cost per order? A) $2,000 B) $200 C) Cannot be determined without further information D) $1,500 Question Details AACSB : Reflective Thinking AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-17 Alpha Company places 10 orders...

12) A company recently lowered its service performance from 99 percent product availability to

97 percent product availability. The change saved the company exactly $1 million per year in inventory carrying cost. Senior management now wants to lower the service level to 95 percent from 97 percent. Such a further change is likely to save: A) Less than $1 million. B) More than $1 million. C) Exactly $1 million. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-05 Determine the cost of a company's service level policy. Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-26 A company recently lowered its service...

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13) Bill's Food Emporium uses the periodic system to order cans of Cajun seasoning every 30

days. It typically takes the supplier 10 days to resupply Bill. Sales average eight units per day with a standard deviation of two units per day. Bill does not carry any safety stock of Cajun seasoning. If he runs out for a period of time, he doesn't care. Bill just counted his inventory of Cajun seasoning and found 22 cans on the shelf. How many cans should Bill order? A) 262 B) 218 C) 342 D) 298 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Periodic Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-29 Bill&#39;s Food Emporium uses the...

14) Which of the following is NOT a role of inventory? A) Increasing quality of finished goods B) Enabling geographical specialization C) Balancing supply and demand D) Buffering uncertainty in supply or demand Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-01 Define the different types and roles of inventory in the supply chain. Topic : Types and Roles of Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-02 Which of the following is...

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15) Suppose a chief supply chain officer takes the total of all purchasing managers’ annual

salaries and divides this number by the number of purchase orders placed in a year. This calculation would provide insight into what kind of inventory cost? A) System management costs B) Ordering costs C) Holding costs D) Purchasing costs Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-03 Explain and compute asset productivity and customer service-related measur Topic : Measures of Inventory Performance Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-43 Suppose a chief supply chain...

16) Independent demand inventory models can be used to determine: A) All of these selections. B) Stock levels for regular and one-time buys. C) When to buy and how much to buy. D) Safety stock levels. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : Inventory Management Systems Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-12 Independent demand inventory models...

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17) Johnson Manufacturing has decided to consolidate its warehouses and reduce the number of

locations from 12 to four. However, Johnson desires to maintain the same service level in terms of the risks of running out of stock in attempting to meet customer demand. As a result, Johnson can expect that: A) The required safety stock will decline by approximately 58 percent. B) The time to fill customer orders will decrease. C) The required safety stock will increase by approximately 73 percent. D) The required safety stock will decline by approximately 42 percent. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-06 Explain the advantages and disadvantages of different inventory location s Topic : Impact of Location on Inventory Requirements Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-33 Johnson Manufacturing has decided...

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18) University Bookstore buys women's polo T-shirts from a supplier according to the price

schedule shown below. The store sells 500,000 T-shirts each year. The annual carrying cost of T-shirts is 25 percent, and the ordering cost is $40. Quantity per order 1 to 2,499 2,500 or more

Unit price $ 35.00 $ 32.00

What order quantity would give the bookstore the lowest total acquisition cost? Note: Due to possible differences in rounding, choose the closest answer. A) 2,237 B) 2,614 C) 2,139 D) 2,500 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-14 University Book Store buys women&#39;s...

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19) A company has average demand of 30 units per day. Lead time from the supplier averages

seven days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent. 1 standard deviation covers 84.13% 1.04 standard deviations covers 85% 1.28 standard deviations covers 90% 1.65 standard deviations covers 95% 1.96 standard deviations covers 97.5% 2 standard deviations covers 97.72% 2.33 standard deviations covers 99% 3 standard deviations covers 99.86% 6 standard deviations covers 99.99966% What is the reorder point for the company if it decides on a 99 percent service level? A) 243 units B) 77 units C) 257 units D) 210 units Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-22 A company has average demand...

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20) John Jones of Jones Corporation determined that the cost related to processing an invoice

from a supplier was approximately $100 per invoice. This cost is an example of: A) Inventory holding (or carrying) cost. B) Inventory investment. C) Wasted expense. D) Order cost. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-02 Explain the financial impact of inventory on firm performance. Topic : The Financial Impact of Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-06 John Jones of Jones Corporation...

21) If beginning inventory is $1,000,000, ending inventory is $1,400,000, sales are $10,000,000,

and anticipated sales are $50,000 per day, what is the days of supply? A) 70 days B) 28 days C) 60 days D) 32 days Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-03 Explain and compute asset productivity and customer service-related measur Topic : Measures of Inventory Performance Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-09 If beginning inventory is $1,000,000,...

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22) The ABC analysis used for analyzing inventory is an example of: A) Pareto's law. B) Safety stock calculation. C) Regression analysis. D) Inventory carrying cost. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : Managing Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-36 The ABC analysis used for...

23) Jasper's Grocery places an order for Monster every 15 days. Once the order is placed,

delivery to the store typically occurs in three days. Average demand is five cases per day, and the standard deviation of demand is 1.5 cases per day. The store policy is to stock an amount of inventory that allows for an average stockout condition of 5 percent (1.65 standard deviations) while waiting for replenishment. It is time to place an order, and there are 20 cases on hand. How many units should be ordered? A) 75 cases B) 86 cases C) 90 cases D) 80 cases Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Periodic Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-30 Jasper&#39;s Grocery places an order...

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24) Texas Manufacturing has decided to triple the number of distribution centers it operates

around North America in order to locate inventories within 500 miles of each major city. What effects should they expect? A) Total operating costs for the distribution centers will decrease. B) The time to fill customer orders will increase. C) Inventory holding costs will triple. D) The required safety stock will increase. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-06 Explain the advantages and disadvantages of different inventory location s Topic : Impact of Location on Inventory Requirements Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-44 Texas Manufacturing has decided to...

25) Which of the following might a company try to do to reduce the total amount of safety stock

it holds? A) Implement demand management approaches. B) Implement and use ABC analysis of inventory items. C) Attempt to reduce variation in supplier lead times. D) All of these selections. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : Managing Inventory Across the Supply Chain Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-35 Which of the following might...

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26) Natalie's Cabinets makes cabinets at an average cost of $2,000. Last year, Natalie sold 5,000

units of the cabinets and had an annual turnover rate of four times. Natalie has estimated her inventory carrying cost to be 25 percent. What was Natalie's annual inventory carrying cost? A) $250,000 B) $312,500 C) $625,000 D) $125,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-03 Explain and compute asset productivity and customer service-related measur Topic : Measures of Inventory Performance Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-10 Natalie&#39;s Cabinets makes cabinets at...

27) A batch of Raisin Bran that has been made at Kellogg's but not yet packaged in its final

cereal box would be an example of what type of inventory? A) Finished goods B) Maintenance, repair, and operating supplies (MRO) C) Work in process D) Raw material Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-01 Define the different types and roles of inventory in the supply chain. Topic : Types and Roles of Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-03 A batch of Raisin Bran...

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28) When calculating a reorder point (ROP), which of the following factors WOULD NOT affect

the calculation? A) Standard deviation of demand during delivery lead time. B) Item's EOQ. C) All of these would affect the ROP. D) Average demand during the delivery lead time. E) Delivery lead time. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-27 When calculating a reorder...

29) Johnson Company had beginning inventory of $1,000,000 and ending inventory of

$1,200,000. Johnson has determined inventory carrying cost to be 25 percent. Johnson's inventory carrying cost was: A) $275,000. B) $250,000. C) $500,000. D) $300,000. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-02 Explain the financial impact of inventory on firm performance. Topic : The Financial Impact of Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-07 Johnson Company had beginning inventory...

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30) Suppose you are positioning “meals ready to eat” (MREs) for humanitarian aid in an area

prone to experiencing hurricanes. If a hurricane occurs, the number of MREs that might be demanded by affected residents of the area is normally distributed with a mean of 10,000 and a standard deviation of 500. MREs cost $1 each to purchase and store. In the event of a hurricane, unused MREs are unlikely to be needed again before they spoil, in which case they must be disposed of at a cost of $0.25 per MRE. If during a hurricane there are not enough stored MREs to meet people’s needs, then more MREs can be purchased and quickly shipped in to the site at a cost of $8 each. How many MREs should you preposition in anticipation of a hurricane? Note: Pick the number closest to the correct answer. A) 11,000 B) 10,980 C) 10,640 D) 10,520 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : Single Period Inventory Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-47 Suppose you are positioning &#8220;meals ready to eat&#8221;...

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31) Suppose demand is 45 units a month, average inventory is 60 units, and unit cost is $20.

What is the annual inventory turnover? A) 10 B) 0.75 C) 15 D) 9 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-03 Explain and compute asset productivity and customer service-related measur Topic : Measures of Inventory Performance Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-08 Suppose demand is 45 units...

32) Jay’s Café orders cans of beans every two weeks. It typically takes the supplier two days to

fulfill the order. Jay uses five cans per day on average, with a standard deviation of two units per day. Assume that Jay wants to have a 50 percent service level on the availability of beans. There are currently fifteen cans of beans in Jay’s inventory. How many cans should Jay order? A) 65 B) 70 C) 75 D) 90 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Periodic Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-45 Jay&#39;s Caf&#233; orders cans of...

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33) Jones Manufacturing Incorporated purchases a component from a Chilean supplier. The

demand for that component is exactly 70 units each day. The company is open for business 250 days each year. When the company reorders the product, the lead time from the supplier is exactly 10 days. The product costs $14.00. The company determined that its inventory carrying cost is 20 percent. The company's order cost is $30.00. If the company decides to order 1,750 units each time it places an order, what will be the total annual cost of this policy? Note: Do not include the product cost in your answer. A) $1,500 B) $2,750 C) $2,400 D) $3,400 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-13 Jones Manufacturing Incorporated purchases a...

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34) Ball Corporation sells aluminum cans to Anheuser-Busch to use in making six-packs of

Budweiser. Anheuser-Busch has a warehouse located at its plant in St. Louis that contains boxes of empty cans received from Ball. From Anheuser-Busch's perspective, the cans in this warehouse represent: A) Work in process inventory. B) Finished goods inventory. C) MRO inventory. D) Raw materials and components inventory. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-01 Define the different types and roles of inventory in the supply chain. Topic : Types and Roles of Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-04 Ball Corporation sells aluminum cans...

35) The main advantage of blockchain over conventional ways to manage transactions across

supply chain partners is: A) Unnecessary transactions are blocked from occurring. B) Legal documents are no longer required. C) Blockchains are easy to construct. D) There is no need for a central authority to validate transactions. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : Managing Inventory Across the Supply Chain Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-50 The main advantage of blockchain...

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36) Safety stock exists for which of the following reasons? A) To provide protection against the uncertainties of supply and demand. B) To allow for transportation time. C) None of these selections. D) To allow less expensive purchases by buying more. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-01 Define the different types and roles of inventory in the supply chain. Topic : Types and Roles of Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-01 Safety stock exists for which...

37) When small changes generated by a customer produce progressively larger changes at each

stage upstream in the supply chain, this is known as: A) Pareto effect. B) Buffering. C) Bullwhip effect. D) Supplier-managed inventory. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : Managing Inventory Across the Supply Chain Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-38 When small changes generated by...

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38) Next year a tire company wants to have an inventory turnover rate of 22 times per year. To

achieve this turnover rate, what should be the average number of days of supply? A) 16.6 days B) 36 days C) 0.6 days D) 22 days Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-03 Explain and compute asset productivity and customer service-related measur Topic : Measures of Inventory Performance Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-11 Next year a tire company...

39) Blue Star Company has been using the production order quantity inventory model. If annual

demand, daily demand, and the production rate increase to four times their original amounts, which of the following is/a possible consequence? A) The order quantity will double. B) The order quantity will be cut in half. C) The order quantity will increase by four times. D) There is no impact on order quantity. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Evaluate Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-19 Blue Star Company has been using...

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40) Which of the following statements is true regarding a periodic review inventory system? A) Safety stock is not needed when periodic review systems are used. B) The same quantity of inventory is ordered each time an order is placed. C) None of the selections are true. D) Inventory replenishment orders are placed in equal increments of time. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Periodic Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-28 Which of the following statements...

41) Taxes and insurance costs are an example of which of the following costs? A) Carrying (or holding) costs. B) Governmental costs. C) Ordering cost. D) None of these selections. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-02 Explain the financial impact of inventory on firm performance. Topic : The Financial Impact of Inventory Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-05 Taxes and insurance costs are...

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42) At each of its home games, the Washington Check-Kiters football team sells programs that

give statistics of the teams involved in the current game's contest. Since each game brings a different visiting team, a program is only of value for one contest, and no returns will be accepted by the supplier. On a per-program basis, the selling price is twice the cost. The target service level that will yield the most profits is: A) 33 percent B) 50 percent C) 67 percent D) 75 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : Single Period Inventory Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-32 At each of its home...

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43) Suppose your company decides to create a more “service-oriented” distribution network by

doubling the number of independently operated stores located around the country. Assuming demands are spread equally across the stores and inventory policies continue to be optimized, how much would you expect total cycle and safety stocks to increase? Note: Pick the nearest answer. A) 40 percent B) 250 percent C) 25 percent D) 100 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-06 Explain the advantages and disadvantages of different inventory location s Topic : Impact of Location on Inventory Requirements Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-51 Suppose your company decides to...

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44) HighLife Corporation has the following information:

Average demand = 30 units per day Average lead time = 40 days Item unit cost = $45 for orders of less than 400 units Item unit cost = $40 for orders of 400 units or more Ordering cost = $50 Inventory carrying cost = 15 percent The business year is 300 days. Standard deviation of demand during lead time = 90 Desired service level = 95 percent What is the safety stock that HighLife Corporation should carry for its desired service level of 95 percent? 1.28 standard deviations cover 90 percent 1.65 standard deviations cover 95 percent 1.96 standard deviations cover 97.5 percent A) 90 B) 112 C) 86 D) 149 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-05 Determine the cost of a company's service level policy. Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-25 HighLife Corporation has the...

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45) HighLife Corporation has the following information:

Average demand = 30 units per day Average lead time = 40 days Item unit cost = $45 for orders of less than 400 units Item unit cost = $40 for orders of 400 units or more Ordering cost = $50 Inventory carrying cost = 15 percent The business year is 300 days. Standard deviation of demand during lead time = 90 Desired service level = 95 percent What is the EOQ if HighLife pays $45 per unit? Due to possible differences in rounding, choose the closest answer. A) 287 B) 398 C) 365 D) 300 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-23 HighLife Corporation has the following...

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46) Alpha Company places 10 orders per year with its supplier. Each order is for an amount

exactly equal to the EOQ. Alpha's order cost has been determined to be $50 per order. Alpha carries no safety stock at all. What is Alpha's annual inventory carrying cost? A) $250 B) Cannot be determined without further information C) $50 D) $500 Question Details AACSB : Reflective Thinking AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Continuous Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-16 Alpha Company places 10 orders...

47) What might a company do to reduce the amount of cycle stock it holds? A) Attempt to reduce order costs. B) Attempt to reduce demand variation. C) Attempt to reduce supplier lead time. D) Always take advantage of supplier quantity discounts. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : Managing Inventory Across the Supply Chain Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-34 What might a company do...

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48) A difference between periodic review and continuous review inventory systems is: A) In one system, time triggers orders; in the other, quantity triggers orders B) Periodic review requires real-time monitoring systems C) Periodic review is more expensive than continuous review D) Continuous review usually requires more safety stock than periodic review Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Periodic Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-40 A difference between periodic review...

49) General Hospital uses disposable diapers at a rate of 200 per day, with a standard deviation

of 20. To place and receive a replenishment of diapers from the third-party logistics provider typically takes three days. The hospital never wants to run out of diapers, so it holds enough safety stock to ensure 99.9 percent availability. Hospital purchasing managers order diapers along with other items every 30 days. It is time to place an order, and there are 800 diapers on hand. How many units should be ordered? Note: Pick the closest answer. A) 5,252 B) 5,852 C) 5,800 D) 5,817 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-04 Calculate inventory policy parameters to minimize total acquisition cost i Topic : The Periodic Review Model Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-46 General Hospital uses disposable diapers...

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50) _________ inventory is the costliest form of inventory one can hold. A) Finished goods B) Components C) Work-in-process D) Raw materials Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 07-07 Describe practical techniques for improving inventory planning and managem Topic : Managing Inventory Across the Supply Chain Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-37 ___________ inventory is the costliest...

51) Steve’s shop sells seashells by the seashore. Steve desires to offer at least a 90 percent in-

stock availability of shells for his customers. He sells 40 shells each day on average, with a standard deviation of 20. When he orders replenishments of shells, it typically takes one day for the supplier to deliver, with a standard deviation of one day. If Steve’s holding cost is $0.50 per shell per year, how much money will he spend each year in holding costs in order to provide a 90 percent service level? Note: Pick the number closest to the correct answer. A) $58 B) $13 C) $125 D) $29 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 07-05 Determine the cost of a company's service level policy. Topic : Determining a Service Level Policy Type : Static Source : Chapter 07 Test Bank - Static > TB MC Qu. 07-49 Steve&#8217;s shop sells seashells by...

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Answer Key Test name: Chapter 7: Managing Inventories 1) C

EOQ @ $35 price = sqrt[(2 × 500,000 × $40) ÷ ($35 × 0.25)] = 2,138 units ICC @ $35 = (2,138/2) × ($35) × (0.25) = $9,353.75 Order cost @ $35 price = (500,000 ÷ 2,138) × $40 = $9,354.54 Product cost @ $35 price = 500,000 × $35 = $17,500,000 Total cost @ $35 price = $17,500,000 + $9,354.54 + $9,353.75 = $17,518,708.29 EOQ @ $32 price = sqrt[(2 × 500,000 × $40) ÷ ($32 × 0.25)] = 2,237 units; however, you must order 2,500 to obtain the $32 price. ICC @ $32 = (2,500 ÷ 2) × ($32) × (0.25) = $10,000 Order cost @ $32 price = (500,000 ÷ 2,500) × $40 = $8,000 Product cost @ $32 price = 500,000 × $32 = $16,000,000 Total acquisition cost @ $32 price = $16,000,000 + $8,000 + $10,000 = $16,018,000 2) C

However, it is necessary to order at least 400 units to obtain the $40 price. Therefore the TAC of ordering 400 units is: Inventory carrying cost = 400 ÷ 2 = 200 × ($40) × (0.15) = $1,200 Ordering cost = ((300) × (30) ÷ 400) × $50 = $1,125 Product cost = 9,000($40) = $360,000 TAC = $1,200 + $1,125 + $360,000 = $362,325 3) D

To calculate inventory turnover using sales, the inventory must be valued at price. Turnover = (52 × $100,000) ÷ ($500,000 × 1.3) = 8 4) D

Cso = Unit selling price − Unit cost = $100 − $50 = $50 Cos = Unit cost + Disposal cost − Salvage value = $50 + X − X = $50

5) C

EOQ = ((2 × 12,000 × 20.00) ÷ 0.50)1/2 ((2 × 12,000 × 20.00) ÷ 0.50)raised to the power of 1 by 2= 980 shells; Order cycle = (980 ÷ 12,000) × 12 months = order every 0.98 months

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6) B

Average daily demand is 50,000 ÷ 200 days = 250 yards per day.

7) A

Cso = Unit selling price − Unit cost = $50 − $20 = $30 Cos = Unit cost + Disposal cost − Salvage value = $20 + 0 − $4 = $16

8) D

Ordering less than EOQ results in lower average inventory and more orders. Therefore annual carrying cost will be lower but annual order costs will be higher. 9) E

In SMI, all of these items frequently occur except for customers having input to the supplier regarding production schedules. 10) D

A 95 percent service level is 1.65 standard deviations. 1.65 × 20 = 33. Therefore, (33 units × $10 × 0.25) = $82.50. 11) B

Since the EOQ equates annual carrying cost and annual order cost, and there is no safety stock, cost per order is $2,000 ÷ 10 = $200. 12) A

Since inventory carrying cost increases at an increasing rate as the level of inventory goes up, a 2 percent reduction in safety stock (from 97 percent to 95 percent) would not save as much expense as a reduction from 99 percent to 97 percent. 13) D

(30 days + 10 days)(8 per day) − 22 on hand = 298 cans 14) A

Inventory does not have a role in increasing quality. The other alternatives are roles of inventory. 15) B

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Purchasing managers’ salaries represent a large portion of the cost to process purchasing transactions. 16) A

This question draws on understanding of all of the inventory models. All answers are true. 17) A

18) D

EOQ @ $35 price = sqrt[(2 × 500,000 × $40)/($35 × 0.25)] = 2,138 units ICC @ $35 = (2,138 ÷ 2) × $35 × 0.25 = $9,353.75 Order cost @ $35 price = (500,000 ÷ 2,138) × $40 = $9,354.54 Product cost @ $35 price = 500,000 × $35 = $17,500,000 Total cost @ $35 price = $17,500,000 + $9,354.54 + $9,353.75 = $17,518,708.29 EOQ @ $32 price = sqrt[(2 × 500,000 × $40) ÷ ($32 × 0.25)] = 2,237 units; however, you must order 2,500 to obtain the $32 price. ICC @ $32 = (2,500 ÷ 2) × ($32) × (0.25) = $10,000 Order cost @ $32 price = (500,000 ÷ 2,500) × ($40) = $8,000 Product cost @ $32 price = 500,000 × ($32) = $16,000,000 Total acquisition cost @ $32 price = $16,000,000 + $8,000 + $10,000 = $16,018,000 Thus, ordering 2,500 units in each order gives the lowest total annual ordering cost. 19) C

(30 × 7) + (2.33 × 20) = 210 + 46.6 = 257 rounded. 20) D

Payment processing is one component of order cost. 21) B

$1,400,000 ÷ $50,000 = 28 22) A

ABC analysis identifies the items that have the highest importance, typically a small number of items. This is an example of Pareto's law. 23) D

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The uncertainty period is 18 days. Q = (5 per day × 18 days) + (1.65 × 6.36) − 20 = 90 + 10.49 − 20 = 80.49 cases 24) D

Safety stock requirements will increase because demand variabilities (which lead to forecasting errors) are not pooled as much as before. 25) D

All of these approaches can be used to reduce inventory levels. 26) C

Sales = $2,000 × 5,000 units = $10,000,000. With a turnover rate of four times, average inventory = $10,000,000 ÷ 4 = $2,500,000. Inventory carrying cost for the year = $2,500,000 × 0.25 = $625,000. 27) C

Inventory that is still in the production process is work in process. 28) B

The order quantity does not affect reorder point. Lead time and demand both do, as does the variability (because of its impact on safety stock requirements). 29) A

(($1,000,000 + $1,200,000)/2) × .25 = $275,000 30) D

Cso = Unit cost of emergency shipped MREs − unit cost of propositioned MREs = $8 − $1 = $7 Cos = Unit cost + Disposal cost − Salvage value = $1 + 0.25 = $1.25 TSL = = $7/($7 + $1.25) = 85 percent; Z = 1.04 (from Z table) Z = 1.04 = (x − 10,000)/500; x = 10,520 31) D

(45 per month × 12 months) ÷ 60 units = 9. The unit cost is not needed, but students could convert from units to dollars. 32) A

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(14 days + 2 days)(5 per day) − 15 on hand = 65 cans; (no safety stock is required for a 50 percent service level). 33) B

Because there is no variability, no safety stock is needed. Inventory carrying cost = 1,750 units ÷ 2 × $14 per unit × 0.20 = $2,450. Ordering cost = 17,500 units/1,750 units order quantity × $30 per order = $300. Total cost = $2,750. 34) D

Inventory of items to be used in production is raw materials and component parts inventory. 35) D

Because all parties engaged in a blockchain track and approve transactions, there is no longer a need for a central authority (such as a bank or logistics provider) to validate them or to serve as a central manager of the information. 36) A

The role of safety stock is to provide protection against the uncertainties of supply and demand. 37) C

The bullwhip effect occurs when small disturbances generated by a customer generate successively larger changes at each stage upstream in a supply chain. 38) A

365 days ÷ 22 turns = 16.6 days 39) A

If all three of these variables increase by four times, understanding the calculation for POQ will show that the order quantity doubles. The denominator remains the same, but the numerator increases by four times; thus, the square root is twice the original amount. 40) C

Periodic review models still may need safety stock, as different quantities may be ordered; however, while inventory is checked periodically, the replenishment orders may not be placed in equal increments of time if we skip ordering in certain review periods. So, really NONE of the selections are true. 41) A

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Taxes and insurance are both examples of inventory carrying costs. 42) B

In this case, the cost of a stockout is equal to the cost of overstock (assume $1 cost, $2 selling price for example). Therefore, TSL = $1 ÷ ($1 + $1) = 0.5, or 50 percent. 43) A

Using the square root rule, (2 ÷ 1)1/2 (2 ÷ 1)raised to the power of 1 by 2 = 1.41. This indicates approximately a 40 percent increase in inventory. 44) D

Safety stock level = 90 (1.65 standard deviations) = 148.5, rounded to 149. 45) C

46) D

Since the EOQ equates annual carrying cost and annual order cost, and there is no safety stock inventory, 10 × $50 = $500. 47) A

Alternatives A, B, and C would not reduce order quantity, so cycle stock would not be affected. Reducing order costs would reduce order quantity. 48) A

The order cycle in periodic review is defined by a time period; in continuous review the order cycle is defined by the quantity of inventory demanded. 49) B

The uncertainty period is 33 days. = (33 × 32)1/2 (33 × 323 squared)raised to the power of 1 by 2 = 17.23 diapers From the Z table, three standard deviations yields a service level of 99.9 percent. Q = (200 per day × 33 days) + (3 × 17.23) − 800 = 5,851.7 => Round to 5,852 to ensure at least a 99.9 percent service level. 50) A

As value is added to an item, it becomes more expensive to hold. 51) D

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= (1 × 202 + 402 × 12)1/2 [1 × 20220 squared + 40240 squared × 121 squared ]raised to the power of 1 by 2 = 44.7 Z at 90% = 1.28 SS = 1.28 × 44.7 = −57.24; round up to 58 shells in safety stock Annual holding cost = 58 × 0.50 = $29 per year

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Student name:__________ 1) The use of Lean and Lean Systems is most supportive of which of the following competitive

priorities, as described in Chapter 2? A) Timeliness B) Innovation C) Quality D) Cost Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-30 The use of Lean and Lean Systems is most...

2) Kaizen events are most effective when applied to problems involving which of the following

elements? A) Customers B) Processes C) Products D) Measures Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-31 Kaizen events are most effective...

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3) Which of the following is NOT associated with quality at the source? A) Jidoka B) Total productive maintenance C) Stop-and-fix systems D) Andons (trouble lights) Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-23 Which of the following is NOT associated...

4) In our accounting department, one of the actions taken by a clerk has been to identify the

most frequently used forms and to put them in an area where they can be easily accessed. The other less frequently used forms have been tagged and put in their own separate area. This action likely occurred from the use of which lean tool? A) A 5-S program B) Poka-yoke C) Jidoka D) Kanban scheduling Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-11 In our accounting department, one of the...

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5) The goal of total productive maintenance is: A) Rigorous equipment design and upkeep. B) To fix equipment breakdowns before they happen. C) Disciplined adherence to operating procedures. D) Zero unplanned downtime. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-37 The goal of total productive...

6) The purpose of the kanban card is to: A) Inform the maker of the exact specification of the required parts. B) Keep track of defective products. C) Be a signal from the user authorizing the maker to start producing the required parts. D) Keep track of the total labor hours spent on a finished product. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-21 The purpose of the kanban card is to:

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7) Which of the following would you NOT expect to find in a company attempting to

implement lean/just-in-time production? A) Inspections after each piece is produced B) Emphasis on preventive maintenance for equipment C) Frequent changeovers from one product to another D) Emphasis on flexible, cross-trained workers Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-19 Which of the following would you NOT expect...

8) In reviewing the COVID 19 Pandemic and its impact on the supply chain, which of the

following statements best describes the impact of Lean on the response of the supply chain? A) Lean was able to quickly communicate needs through the supply chain. B) Lean amplified the problems because it was unable to deal with the extreme levels of variability. C) Lean was well positioned to address the challenges uncovered by the COVID 19 pandemic. D) Lean could not deal with the challenges of global supply chains and suppliers that were located far away. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Lean and the COVID19 Pandemic&#8212;Lessons Learned Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-41 In reviewing the COVID 19 Pandemic...

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9) What is the possible impact of lean systems, if taken to its extreme, on supply chain risk? A) Positive impact – lean reduces risk B) Negative impact – lean increases risk C) Yet to be determined – the data is not yet in D) No impact – they are not related Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Lean Systems: Range of Application Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-33 What is the possible impact of lean...

10) John Jones is a plant manager. He believes his plant is guilty of "waste of overproduction."

Which of the following symptoms might he have observed that led to this belief? A) Excess inventory. B) Idle equipment. C) All of these. D) High customer returns of products. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-05 John Jones is a plant manager. He believes...

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11) Which of the following is an important belief found in lean cultures? A) Cost must be reduced. B) Management must be done through the use of appropriate tools and procedures. C) Waste is a symptom. D) Inventory is to be reduced. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-27 Which of the following is an important...

12) An initial step in implementing lean is: A) Outsource any non-core activity that can be done more efficiently by a supplier than

by the firm. B) Empower Kaizen teams to improve specific processes/activities. C) Increase the contribution margin of product being sold. D) Lower the break-even point so smaller quantities can be economically produced. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-35 An initial step in...

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13) Which two of the following areas does lean/just-in-time production focus its attention on? 1. Cost 2. Quality 3. Variance 4. Waste A) 3 and 4 B) 2 and 4 C) 1 and 3 D) 1 and 2 Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-16 Which two of the following areas does...

14) Zanadu Corporation produces several different colors of a product on a single production

line. It used to take several hours to switch colors, but now Zanadu has found a way to prepare for changing colors in a few minutes. This was most likely accomplished by: A) TAKT time flow balancing. B) Converting internal to external setups. C) Converting external to internal setups. D) Implementing andon lights. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-10 Zanadu Corporation produces several different...

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15) Applying lean systems to supply chain relationships has which of the following risks? A) It makes the supply chain more vulnerable to performance breakdowns. B) It encourages firms in the supply chain to hold extra inventory to protect themselves

from failure. C) All of these. D) It encourages companies to buy at the lowest unit price. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Lean Systems: Range of Application Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-14 Applying lean systems to supply chain...

16) Achieving the goal of producing at the output rate that matches the rate of customer demand

is the goal of: A) Total productive maintenance. B) TAKT time flow balancing. C) Poka-yoke. D) Jidoka. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-08 Achieving the goal of producing at the...

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17) Misuse of automation is a root cause of which of the following types of waste? A) Overproduction B) Motion C) Rework D) Process Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-17 Misuse of automation is a root...

18) Lean design strives to achieve which of the following objectives? A) Design products that can be built with existing equipment B) Design products that exactly meet customers’ needs C) Design products with the fewest number of options D) Design products at the lowest cost Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-04 Apply the concept of lean systems to product design. Topic : Lean Systems: Range of Application Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-32 Lean design strives to achieve...

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19) Which phrase/word best captures what lean is? A) A set of effective, well defined tools designed to reduce waste B) A corporate philosophy C) A procedure to be used within operation management and supply chain systems D) A quantitative methodology for attacking variance Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-34 Which phrase/word best captures...

20) Responsibility for a Kaizen event is in the hands of: A) A manufacturing/industrial engineer B) An employee of the process being studied C) Cross-functional team D) A member of top management E) A facilitator Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-36 Responsibility for a Kaizen...

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21) We have a situation where we have many different processes; high quantities are required to

deliver the product's value both on the factory floor and in the customer's use. Which of the following categories of waste in product design have we encountered in this situation? A) Sensitivity B) Complexity C) Precision D) Danger Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Lean Systems: Range of Application Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-28 We have a situation where we have many...

22) When lean systems are implemented: A) Fixed and variable costs both tend to decrease. B) Contribution margin tends to decrease. C) Fixed costs tend to increase, while variable costs tend to decrease. D) Variable costs tend to increase, while fixed costs tend to decrease. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-03 When lean systems are implemented:

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23) Taichi Ohno, the founder of lean/just-in-time, when he came to America in the 1950s was

most impressed with which of the following American developments? A) Ford's River Rouge assembly plant B) The American supermarket C) The productivity of American workers D) The assembly line Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-25 Taichi Ohno, the founder of...

24) Most of the tools and techniques used in lean systems seek to: A) Improve product quality. B) Increase the operator’s ability to make changes in processes as they see necessary. C) Reduce variability from the system. D) Reduce the operator's discretion. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-07 Most of the tools and techniques used...

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25) In the lean systems approach, as a system improves, it should have _________ inventory on

hand. A) B) C) D)

More Twice the amount of Less The same amount of

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-01 In the lean systems approach, as a system...

26) Footprinting is an example of which of the following elements of the 5-S program? A) Seiri/Sort/Clear out B) Seiso/Scrub/Clean and check C) Seiketsu/Systematize/Confirm D) Seiton/Straighten/Configure Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-22 Footprinting is an example of...

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27) Lean systems applications have found the most acceptance and adoption in: A) Manufacturing firms. B) Service firms. C) Entire supply chains. D) Design activities. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Lean Systems: Range of Application Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-13 Lean systems applications have...

28) Which of the following is NOT one of the principles associated with lean/just-in-time

production? A) Specify value for each specific product. B) Let the customer pull value from the producer. C) Encourage use of unique components. D) Pursue perfection. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-24 Which of the following is NOT one of the...

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29) Which of the following lean principles best communicates the notion of demand

synchronization? A) Build only as quickly as customers want them. B) Produce only the products that the customer wants. C) Build with perfect quality. D) Build only with features that the customers want and no others. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-26 Which of the following lean principles best...

30) A standard electrical plug fits into an outlet in only one way because one of the two prongs is

larger than the other. This ensures that people will insert the plug properly to create a grounded circuit. This is an example of: A) Poka-yoke. B) A benefit of Pareto analysis. C) Cause-and-effect analysis. D) Kanban. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-04 Apply the concept of lean systems to product design. Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-12 A standard electrical plug fits into an outlet in only...

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31) Johnson Corporation has so strongly embraced the lean philosophy that it wants to apply the

approach to all processes in the organization. Doing this may actually have the most severe negative impact on: A) All of these. B) Radical product innovation. C) TAKT time. D) Incremental product innovation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Lean Systems: Range of Application Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-15 Johnson Corporation has so strongly embraced the...

32) We observe an activity in a hospital where there are needless tests, filling out different forms

with the same information, performing data entry with more than one system. These are examples of which form of healthcare waste? A) Overproduction B) Overprocessing C) Motion D) Inventory Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Applying Lean to Healthcare Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-40 We observe an activity in...

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33) McGreen Burger Shop sells about two burgers per minute. Although the cook can cook up to

10 burgers per minute, he starts to cook another burger only after the salesperson removes a burger from the ramp. The ramp is large enough to hold only five burgers and keep them warm until a sale is made. This is an example of a: A) Poka-yoke. B) Group technology. C) Push system. D) Pull system. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-20 McGreen Burger Shop sells about two burgers...

34) A production kanban authorizes a worker to: A) Add an empty bin. B) Withdraw a standard lot of a specific item. C) Withdraw any item he feels is needed. D) Replenish an empty bin. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Implementing Lean Systems: Tools and Techniques Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-09 A production kanban authorizes a worker to:

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35) What is the defining objective of lean? A) Reducing cost B) Eliminating waste and its causes C) Reducing process variance D) Producing a product that a customer will want Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-39 What is the defining...

36) As lean systems thinking is implemented, the amount of training that employees receive: A) Tends to be reduced dramatically, replaced instead by continuous improvement. B) Tends to increase. C) Tends to be about the same as with other manufacturing philosophies. D) Is focused exclusively on statistical process control. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-02 As lean systems thinking is implemented...

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37) In which operational setting has lean/just-in-time experienced the lowest levels of

acceptance/implementation? A) Services B) Across the supply chain C) Turbulent business settings D) Manufacturing Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 08-03 Recognize the strengths and limitations of lean systems. Topic : Lean Systems: Range of Application Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-29 In which operational setting has...

38) Which of the following most accurately describes the role of quality in a lean/just-in-time

manufacturing environment? A) The important thing is to screen the defects out of incoming components and raw materials. If this is done, the production process can carry on without much concern for quality. B) Because everything is being done just in time, there is no time to worry about quality during the production process. Instead, we rely on screening out defects during finished goods inspection. C) High quality is an important waste reduction tool. Reducing defects reduces wasted material and capacity, and reduces the need for safety stocks. D) Quality has little to do with JIT. JIT is primarily a scheduling and inventory control tool. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-18 Which of the following most accurately...

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39) A lean systems culture is one that: A) Places high value on respect for the people in the system. B) Focuses on maximizing output while minimizing input. C) Values accountability for errors and requires conformance. D) Produces mass-market products with wide appeal or applicability. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-02 Describe the cultural changes; tools; and techniques needed to implement a Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-38 A lean systems culture...

40) We observe a man working on a setup. During the process of setting up, the man positions

the die at a first position. He then runs through a few pieces to check whether they are acceptable. He then repositions the die and repeats the process. What we have observed is which of the following forms of waste? A) Waste from product defects B) Inventory waste C) Processing waste D) Waste of motion Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-06 We observe a man working on a setup...

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41) In a lean system, waste is any action that A) Costs money. B) Must be performed manually. C) Does not generate value. D) Could be done by an outside supplier. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 08-01 Explain how the lean system approach improves value for internal operation Topic : Lean Systems Defined Source : Chapter 08 Test Bank - Static > TB MC Qu. 08-04 In a lean system, waste is any action that

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Answer Key Test name: Chapter 8: Lean Systems 1) D

The use of lean and lean systems operates favourably on cost, quality, timeliness, and innovation—each of which drives operations to significantly reduce cost, which is the ultimate competitive priority supported by lean and lean systems. 2) B

A Kaizen event is a short-term project aimed at improving an existing process or an activity within a process. 3) B

The techniques associated with quality at the source do not include total productive maintenance. 4) A

The example suggests that the clerk sorted and straightened the various forms, which is part of a 5-S program. 5) D

Total productive maintenance (TPM) works to achieve the ambitious goal of zero unplanned downtime. 6) C

The word “kanban” is described in the text as the Japanese term for “signal.” Its purpose is to authorize manufacture of the required parts. 7) A

Inspections after each piece is produced violates the Lean Systems Objectives of building with perfect quality and with no waste of labor, materials or equipment. 8) B 9) B

The lean supply chain produces benefits, yet it can also open up risks. 10) A

Excess inventory is one of the symptoms of waste of overproduction. The other items are indicators of other types of waste. 11) C

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As discussed in the section dealing with lean culture, the only belief that is central to the lean culture is the notion that waste is a symptom. Consequently, it should not be attacked directly. Rather, it should be studied to identify the underlying root causes, and management should then attack these root causes. 12) A

An initial step in implementing lean is to outsource any activity that a supplier can do better than the firm and that is not a core competency of the firm. 13) A

As pointed out in the text, the key focal points for lean are variance and waste. 14) B

A key step in faster changeover is converting internal to external setups. 15) A

Lean systems eliminate buffers (like inventory, lead times, excess capacity), and therefore the supply chain becomes more vulnerable to potential performance problems. 16) B

TAKT Time flow balancing is a lean scheduling technique that aims to synchronize the output rate with the rate of consumer demand. 17) A

Misuse of automation is one of the root causes of both overproduction and waiting types of waste. 18) B

One of lean design’s three major goals is to design products that exactly meet the customer’s needs. 19) B

The lean systems approach is a philosophy of operations management used in various activities of the enterprise. 20) C

Responsibility for a Kaizen event is placed in the hands of a cross-functional team. 21) B

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This is a straight definition-based question. The description provided directly corresponds to the definition of complexity as provided in Table 8-6. 22) A

A benefit of lean systems is that both fixed and variable costs tend to decrease. 23) B

In the American supermarket, Ohno found his vision of the ideal operating system. 24) C

Standardization, reduction of variability, is fundamental to improvement. Most tools in lean seek this objective. Workers are empowered to do this. The focus is on value, not just product quality. 25) C

One of the prime reasons for the lean approach is to reduce inventory. 26) D

In the 5-S program, footprinting is making a painted outline of each item to ensure that there is “a place for everything” used in an operation or a task. 27) A

While lean systems have been employed in all of these environments, most application has occurred in manufacturing. 28) C

Encouraging use of unique components is not one of the guiding principles of lean/JIT production. 29) A

“Build only as quickly as customers want them” articulates the notion of demand synchronization. 30) A

Poka-yoke refers to design that reduces potential errors, which the electrical plug design accomplishes. 31) B

Lean systems thinking tries to eliminate slack and complexity, which may be needed in radical product innovation. Lean design approaches are most compatible with incremental product innovation.

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32) B

As noted on page 315, such forms are examples of overprocessing. 33) D

This describes a pull system (as in the case of a kanban)—the other options are not appropriate. 34) D

Authorizing a worker to replenish an empty bin is the definition of a production kanban. 35) B

The elimination of waste and its causes is the defining objective of lean. 36) B

Lean systems rely on well-trained workers for implementation. Employees must be given the training, tools, and authority to make continuous process improvements. 37) C

In turbulent business environments, lean/just-in-time has found very limited application (Table 8-4). 38) C

High quality contributes to less waste and lower variance. 39) A

A lean systems culture places high value on respect for the people in the system. 40) C

Sorting, testing, and inspection are symptoms of processing waste. 41) C

Because the purpose is to create value for the customer, waste is any action that does not generate value.

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Student name:__________ 1) Suppose your job is to reduce the number of times production is halted because of a shortage

of raw materials. Which of the following items would be of most help to you? A) Better demand forecasts B) Advance shipment notices C) Line fill rate D) Resource utilization rate Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-31 Suppose your job is to reduce...

2) Which of the following statements most clearly expresses a company's commitment to

customer success? A) All of these are clear expressions of commitment to customer success. B) "We attempt to meet the requirements of our customers." C) "We attempt to meet our standards of providing perfect order performance to all of our customers." D) "We attempt to meet or exceed the expectations of all of our customers." Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Segment customers and tailor service strategies. Topic : Customer Relationship Management Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-25 Which of the following statements...

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3) Customers who are both low revenue generators and low profit generators for a firm should

be: A) B) C) D)

Reviewed for possible termination or continuation. Terminated as customers. Provided with a minimum level of customer service. Treated with customer success relationships to improve revenue and profit.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Segment customers and tailor service strategies. Topic : Customer Relationship Management Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-23 Customers who are both low...

4) Customer relationship management attempts to: A) Ensure the development of customer success for customers. B) Use technology to replace human interaction with customers. C) Meet the expectations of customers. D) Ensure the development of strategically appropriate relationships with customers. Question Details AACSB : Technology AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-06 Describe the technological and relational aspects of customer relationship Topic : Customer Relationship Management Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-20 Customer relationship...

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5) If shorter lead times are also typically the most reliable, then which market orientation is

likely to provide more reliable order fulfillment? A) Make to order B) Assemble to order C) Make to stock D) Engineer to order Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-29 If shorter lead times are...

6) Jones Company makes every effort to consistently meet the expectations of all of its

customers. It is clear that Jones Company is focused on: A) Customer happiness. B) Customer success. C) Customer service. D) Customer satisfaction. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-11 Jones Company makes every effort...

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7) Anthony Company has analyzed its customer base and realizes that it has a few customers

who provide both high revenue and high profitability. This suggests that the appropriate commitment to those customers would be: A) Good basic customer service. B) Customer satisfaction. C) Customer success. D) Review reason for doing business. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Segment customers and tailor service strategies. Topic : Customer Relationship Management Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-24 Anthony Company has analyzed its...

8) From an operations perspective, companies should strive to: A) Never refuse to do business with a customer. B) Provide customer success to all customers. C) Realize that all customers desire close customer success types of relationships. D) Realize different customer management approaches may be appropriate for different

customers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-01 Describe how operations management helps establish and fulfill different l Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-01 From an operations perspective, companies...

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9) Which customer management approach requires a comprehensive supply chain perspective

on the part of operations executives? A) Customer happiness B) Customer service C) Customer satisfaction D) Customer success Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 09-05 Explain the requirements for a commitment to customer success. Topic : Customer Success Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-19 Which customer management approach requires...

10) Alpha Company has a performance standard of 97 percent fill rate. Last month it achieved a

94 percent fill rate. This is an example of: A) A performance gap. B) A standards gap. C) A perception gap. D) A knowledge gap. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-13 Alpha Company has a performance...

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11) Refer to the following information. What is the order fill rate? Orders Units Number of Units Lines Ordered Order Lines Delivered Delivered Complete 2,000 30,000 6,000 28,500 5,600 A) B) C) D)

Order Delivered Complete 1,820

98 percent 95 percent 91 percent 92 percent

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-05 Refer to the following...

12) Senior management thought customers expected a rate of at least 96 percent for on-time

delivery. However, senior management established a standard of 94 percent. The difference is the: A) Standards gap. B) Knowledge gap. C) Performance gap. D) Satisfaction gap. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-16 Senior management thought customers expected...

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13) Which measure of basic service will most likely show poorest performance for a firm? A) Unit fill rate B) Perfect orders C) Order fill rate D) Line fill rate Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-08 Which measure of basic service...

14) Jones Company promised a customer that the customer would receive at least 98 percent of

all items ordered. In fact, the customer received 95 percent of the items. This is an example of which "gap" in the customer satisfaction model? A) Performance gap B) Communications gap C) Standards gap D) Knowledge gap Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-12 Jones Company promised a customer...

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15) If a company has some customers who express that they are satisfied with the company's

performance, the company can count on the fact that: A) Those customers will continue to buy and be loyal. B) Those customers are happy. C) None of these selections. D) The company meets requirements of those customers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-17 If a company has some...

16) An example of a major shift in customer expectations driven by the actions of a leading

competitor is: A) Google gambit. B) Omni-channel. C) Customer relationship management. D) Amazon effect. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-30 An example of a major...

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17) Refer to the following information. What is the unit fill rate? Orders Units Number of Units Lines Ordered Order Lines Delivered Delivered Complete 2,000 30,000 6,000 28,500 5,600 A) B) C) D)

Order Delivered Complete 1,820

99 percent 95 percent 98 percent 92 percent

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18) Given the following information for the last two months, which fill rate measure showed the

greatest improvement? Month

Orders

Units Ordered

1 2

2,000 2,500

30,000 25,000

A) B) C) D)

Number of Order Lines 6,000 8,000

Units Lines Order Delivered Delivered Delivered Complete Complete 28,500 5,600 1,820 22,000 7,000 2,400

Order fill rate None of the fill rates improved Unit fill rate Line fill rate

19) Commitment to "customer success" is likely the best approach for a firm to use with: A) Customers who have high expectations. B) None of these selections. C) All of its customers. D) Customers who represent a small source of revenue for the firm. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-07 Segment customers and tailor service strategies. Topic : Customer Relationship Management Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-22 Commitment to "customer success" is...

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20) A firm has found that it provides a 90 percent order fill rate (orders shipped complete), 90

percent on-time delivery, 90 percent of its orders arrive at customers' destinations in perfect condition, and 90 percent of the time all documentation is correct. These are all of the elements of a perfect order for this company's customers. If the firm improves its performance in on-time delivery to 98 percent, what is its new perfect order performance? A) 88 percent B) 71.4 percent C) 0 percent D) 98 percent E) 80 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-10 A firm has found that...

21) A service strategy that allows customers many different options for ordering and fulfillment

of purchases is known as: A) Omni-channel. B) Customer convenience. C) Flexible purchasing. D) Customer success. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 09-01 Describe how operations management helps establish and fulfill different l Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-28 A service strategy that allows...

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22) With respect to lead-time performance, most customers would prefer which of the following

from a supplier? A) All of these are equally preferable. B) A lead time that averages two days with a range of one to four days. C) A lead time that averages three days with a range of one to four days. D) A consistent three-day lead time. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Evaluate Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-06 With respect to lead-time performance,

23) A company surveyed both its customers and its senior management about customer

expectations. Senior management's perceptions of customer expectations did not match customers' actual expectations. This is an example of: A) A knowledge gap. B) A performance gap. C) A standards gap. D) A perception gap. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-14 A company surveyed both its...

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24) The use of technology to collect and analyze data concerning customers' buying behavior is

an important aspect of: A) Customer relationship management. B) Customer success. C) Basic customer service. D) Customer satisfaction. Question Details AACSB : Technology AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-06 Describe the technological and relational aspects of customer relationship Topic : Customer Relationship Management Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-21 The use of technology to...

25) Lead-time performance is an element of: A) Basic service. B) Customer satisfaction. C) Customer success. D) Minimal importance to most industrial customers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 09-01 Describe how operations management helps establish and fulfill different l Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-26 Lead-time performance is an...

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26) Using a service like Uber to deliver orders is broadly known as: A) Amazon Prime B) Uberizing C) Third-party distribution D) Crowdsourcing Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-32 Using a service like Uber...

27) Johnson Company has the following data about customer orders for the month of June:

Orders Received: 5,000 orders Total Units Ordered: 40,000 units Total Units Delivered: 37,800 Total Orders Delivered Complete: 4,600 What was Johnson's unit fill rate? A) 91 percent B) 92 percent C) 12.5 percent D) 94.5 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-02 Johnson Company has the following...

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28) The difference between a "customer success" focus and a "customer satisfaction" focus is

that: A) Customer satisfaction deals with expectations, while customer success deals with

requirements. B) Customer success deals with expectations of customers, while customer satisfaction deals with their requirements. C) Customer satisfaction is more difficult to achieve. D) There really isn't any difference. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 09-05 Explain the requirements for a commitment to customer success. Topic : Customer Success Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-18 The difference between a "customer success"...

29) A firm has found that it provides a 90 percent order fill rate (orders shipped complete), 90

percent on-time delivery, 90 percent of its orders arrive at customers' destinations in perfect condition, and 90 percent of the time all documentation is correct. These are all of the elements of a perfect order for this company's customers. What is the best estimate of its perfect order performance? A) 60 percent B) 0 percent C) 90 percent D) 66 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-09 A firm has found that...

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30) Zanda Company has told a supplier that it is difficult to contact people in the supplier's

company to learn the status of its orders and when they might arrive. Zanda is explaining which type of expectation it has of this supplier? A) Reliability B) Access C) Credibility D) Courtesy Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-04 Describe a model of customer satisfaction. Topic : Customer Satisfaction Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-15 Zanda Company has told a...

31) Order-to-delivery lead time generally would be longest for which type of product? A) One that is engineered to order B) One that is assembled to order C) One that is made to stock D) One that is made to order Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 09-02 Define the elements of basic service and explain how they are measured. Topic : Basic Service Type : Static Source : Chapter 09 Test Bank - Static > TB MC Qu. 09-07 Order-to-delivery lead time generally would...

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32) Refer to the following information. What is the line fill rate? Orders Units Number of Units Lines Ordered Order Lines Delivered Delivered Complete 2,000 30,000 6,000 28,500 5,600 A) B) C) D)

Order Delivered Complete 1,820

96.30 percent 93.33 percent 95.80 percent 97.58 percent

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Answer Key Test name: Chapter 9: Customer Service Management 1) B

Suppliers and carriers often provide customers with advance shipment notices (ASN), electronically communicated documents that provide detailed information about pending deliveries. The purpose of an ASN is to notify the customer when product movements occur, as well as providing physical characteristics about a shipment, so the customer can be prepared to accept delivery and to make adjustments in its plans to use the items if needed. 2) B

Customer success is an approach that tries to fulfill customer requirements. 3) A

Low profit or low revenue customers should not necessarily be terminated, but they should be reviewed to determine whether termination is appropriate. If not, the appropriate relationship should be determined. 4) D

This answer is the definition of customer relationship management. 5) C

Make to stock has the shortest order-to-delivery lead time, because most of the work is done before an order is placed. 6) D

Meeting expectations is the definition of customer satisfaction. 7) C

High profit or high revenue customers are those most likely to be considered for customer success relationships. 8) D

A key point of this chapter is that customers are not all alike, and therefore operations management must adapt to the customer. 9) D

Achieving customer success requires in-depth understanding of customers and customers' customers to truly meet requirements.

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10) A

The difference between a performance standard and actual performance is the performance gap. 11) C

1,820 ÷ 2,000 = 91 percent 12) A

The difference between management perceptions of customer expectations and standards of performance is the standards gap. 13) B

Because perfect orders not only involve availability measures but also lead time and reliability, the rate of perfect orders will always be lower than the other alternatives. 14) B

The difference between what is communicated to a customer and actual performance is the communications gap. 15) C

Meeting some customers' expectations (not requirements) may satisfy those customers, but satisfaction does not guarantee happiness or loyalty. 16) D

Through a number of actions, Amazon has raised the bar on delivery and service expectations of retail customers. 17) B

28,500 ÷ 30,000 = 95 percent 18) A

Month 1 Month 2

Unit fill

Line fill

Order fill

28,500 ÷ 30,000 = 0.95 22,000 ÷ 25,000 = 0.88

5,600 ÷ 6,000 = 0.93 7,000 ÷ 8,000 = 0.88

1,820 ÷ 2,000 = 0.91 2,400 ÷ 2,500 = 0.96

(most improved)

19) B

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Customer success relationships are resource-intensive and typically should be reserved only for a few customers who represent the highest revenue and profit potential for a firm. 20) B

0.90 × 0.98 × 0.90 × 0.90 = 0.71441 rounded to 71.4 percent 21) A

An omni-channel strategy allows customers to place orders in different ways (phone, internet, in person) and receive orders in different ways (in-store, home delivery). 22) D

In general, customers prefer lead times that are reliable over lead times that are shorter but less consistent. 23) A

The difference between management's perceptions of customer expectations and customers' actual expectations is called the knowledge gap. 24) A

CRM is a software and information technology-based approach used to collect and analyze customer data from numerous sources for the purpose of developing strategically appropriate relationships with customers. 25) A

Lead-time performance is at the lowest level of service to customers. 26) D

For years Amazon, Walmart, and other retailers have been hiring people like you and me to deliver products to homes and businesses, one order at a time. They are using third-party crowdsource providers such as Uber, as well as their own crowdsourcing platforms. 27) D

37,800 ÷ 40,000 = 94.5 percent 28) A

This answer is the definition of satisfaction and success. 29) D

0.90 × 0.90 × 0.90 × 0.90 = 0.6561 rounded to 66 percent 30) B

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Access refers to the expectation that suppliers have processes to facilitate contact to obtain information. 31) A

ETO has the most lead-time components. 32) B

5,600 ÷ 6,000 = 93.33 percent

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Student name:__________ 1) Competitive bidding should be used when: A) The spend is small. B) Product specifications are known and clear. C) Product innovation is more important than price. D) There is only one qualified supplier. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-54 Competitive bidding should be used when:

2) A company’s supplier for a critical part was selected based on the lowest purchase price. Six

months later, the company’s warranty costs began to rise because of defective parts. The company has experienced: A) Problems with availability of resources. B) Higher total costs of ownership. C) Reduced sustainability. D) Higher levels of spend analysis. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-36 A company&#8217;s supplier for...

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3) Zanda Corporation is considering trying to develop a full partnership with a particular

supplier. This suggests that the item Zanda buys from the supplier is: A) An item appropriate for a "leverage" strategy. B) A noncritical part. C) A strategically important part. D) A "bottleneck" item. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-19 Zanda Corporation is considering trying to...

4) Negotiation is typically used when: A) Price is the most important factor. B) Early supplier involvement is needed in new product development. C) There are standard product specifications that are clear and complete. D) There are many equally qualified suppliers who are willing to compete. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-26 Negotiation is typically used when:

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5) A company has decided that it no longer needs to extensively count and inspect the products

it receives from a particular supplier. This suggests that the purchasing company has begun: A) Time reduction analysis. B) Supplier certification. C) Spend analysis. D) Process simplification. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-07 Understand ways to manage ongoing supplier relationships. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-29 A company has decided that it no longer need...

6) In its own country, a former supplier to your company recently began selling its own product

that is identical to a product that was developed by your company. This is an example of: A) Sustainability. B) Strategic sourcing. C) Supply chain risk. D) Insourcing. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-02 In its own country, a former supplier to you...

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7) All of the following are true about supplier scorecards EXCEPT: A) They are used to provide performance feedback to suppliers. B) They are often used to categorize suppliers based on an overall score. C) They are used to measure supplier performance based on key performance indicators. D) They reduce the need for incoming quality inspection. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-07 Understand ways to manage ongoing supplier relationships. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-28 All of the following are true about supplier...

8) Advanced Manufacturing Company is evaluating two suppliers for a component sourcing.

After much internal discussion, AMC's management has determined that the critical factors in choosing suppliers are: quality, delivery, price, and service. Further, management has rated the importance of these factors as 0.4, 0.3, 0.2, and 0.1, respectively. On a scale of 1 to 5, Supplier A is rated at 5, 3, 3, and 3, respectively. Supplier B's ratings are 4, 4, 3, and 4. Which supplier has the better-weighted score? A) Supplier A B) Neither, they both have the same weighted score. C) Supplier B Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-23 Advanced Manufacturing Company is evaluating...

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9) Which activity is most likely to be outsourced by an automotive company such as Ford

Motor Company? A) Production of tires. B) Design of the engine. C) Final car assembly. D) The concept design for future cars. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-43 Which activity is most likely to...

10) Which of the following is not uncovered during an analysis of supply market intelligence? A) Which of the company’s current purchases are from which supplier. B) The potential level of supply chain risk. C) The number of potential suppliers. D) The number of other buyers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-44 Which of the following is not...

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11) Supply management: A) Should always strive for the lowest purchase price. B) Is only involved with supplier selection. C) Only focuses on direct materials that are used in a company’s products. D) Is essential for an organization to attain its strategic objectives. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-01 Define supply management and understand its impact on a firm s performance Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-32 Supply management:

12) Outsourcing: A) Always uses suppliers from developing countries. B) Is only done for services. C) Can reduce a company’s capital requirements. D) Should be used for an organization’s core activities. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-40 Outsourcing:

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13) Jones Company has identified an item for which the supply risk is high and the value of the

purchase to the firm is low. A recommended sourcing strategy for Jones is to: A) Use multiple sourcing. B) Increase efficiencies. C) Build partnerships. D) Consolidate purchases. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-11 Jones Company has identified an item for...

14) Which activity at a university is the least likely to be outsourced? A) Information technology support services. B) Operation of the residence halls. C) Classroom instruction. D) Operation of the bookstore. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-42 Which activity at a...

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15) Which of the following is NOT true with respect to an RFQ or RFP? A) It is the first step in competitive bidding. B) It is often communicated to suppliers electronically. C) It describes the purchase requirements. D) It is used to determine weights in supplier scorecards. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-05 Explain the steps in the sourcing process. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-22 Which of the following is NOT true...

16) Which of the following would NOT be a step in conducting an insourcing/outsourcing

analysis? A) Assessing quantitative costs of outsourcing B) Conducting a detailed internal audit of purchasing practices C) Assessing the relationship of the product to the firm's core competencies D) Evaluating new suppliers who could make the SKU Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-05 Which of the following would NOT be a step...

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17) The Rodriguez Manufacturing Company uses a weighted-point model to evaluate new

suppliers. Based on its competitive priorities, quality performance is weighted 50 percent, delivery performance is 20 percent, and cost is 30 percent. On a five-point scale, a supplier is rated 3 on quality, 2 on delivery, and 5 on cost. What is its overall weighted score? A) 3. B) 10. C) 33. D) 3.4. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-53 The Rodriguez Manufacturing Company...

18) Which of the following is NOT a benefit of outsourcing? A) Greater flexibility to change technology B) Lower supply management costs C) Less capital needed for investment D) Better access to market information Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-08 Which of the following is NOT a benefit of...

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19) Stainless steel is an important raw material for an appliance company. Steel accounts for a

high level of spend and is critical to customer satisfaction. Further, only three suppliers worldwide can produce steel to meet the company’s quality standards. Which is appropriate in this situation? A) Using competition to select suppliers. B) Finding substitute materials. C) Using electronic catalogs for steel. D) Building collaborative partnerships with suppliers. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-05 Explain the steps in the sourcing process. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-46 Stainless steel is an important...

20) Outsourcing is least likely when: A) Products are in the mature phase of the life cycle. B) The process is highly innovative. C) The activity is not strategically important. D) The production processes are standard. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-41 Outsourcing is least likely when:

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21) Outsourcing is often a good choice when: A) There are only a few suppliers. B) Technology is new. C) The product is critical to a firm's competitiveness. D) A product is in the mature phase of the life cycle. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-06 Outsourcing is often a good choice when:

22) A company that had been using single sourcing decided to add a second supplier for one of

its key raw materials. Which supply management goal does this BEST accomplish? A) Identifying, assessing, and mitigating supply chain risk. B) Accessing technology and innovation. C) Fostering sustainability. D) Reducing total costs. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-34 A company that had...

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23) Sustainability: A) Does not include worker safety. B) Focuses only on social issues. C) Can lower a company’s total cost. D) Focuses primarily on increasing environmental compliance. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-39 Sustainability:

24) Williams Incorporated has acquired software to help manage interactions with its supply

base. This suggests that Williams Incorporated is involved in: A) Supplier auditing. B) Online reverse auctions. C) Vendor-managed inventory. D) Supplier relationship management. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-07 Understand ways to manage ongoing supplier relationships. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-30 Williams Incorporated has acquired software...

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25) All of the following are supply management goals EXCEPT: A) Purchase at the lowest price. B) Ensure timely availability of resources. C) Assess technology and innovation. D) Enhance quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-01 All of the following are supply management...

26) Which approach is likely to be used for leverage purchases? A) Vendor-managed inventory B) Purchasing cards C) Standardizing purchases D) Using executive champions Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-12 Which approach is likely to be used for...

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27) When you need to identify a supplier for a new purchase, the FIRST place that you should

look is: A) B) C) D)

The websites of industry groups. The list of your company's current suppliers. A local trade show. The list of suppliers that your company has used in the past.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-05 Explain the steps in the sourcing process. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-21 When you need to identify a supplier for...

28) The type and level of assessment of suppliers during the selection process: A) Should be the same for all of a company’s purchases. B) Depends upon factors such as the level of spend and type of relationship desired. C) Is always done by cross-functional teams. D) Is normally very extensive for noncritical purchases. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-50 The type and level of assessment...

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29) A primary reason for using global suppliers is to: A) Reduce transportation costs. B) Work with the same suppliers in many different regions of the world. C) Improve sustainability. D) Take advantage of free trade agreements. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-16 A primary reason for using global suppliers...

30) Squeaky Klean, a small consumer products company, purchases custom-designed plastic

bottles for its cleaning products that are made at a single plant in Cleveland, Ohio. To make these bottles, specialized tooling must be purchased at a high cost and installed at a supplier's plant. Its sourcing strategy for bottles should be to: A) Dual source. B) Insource bottle production. C) Use three or more suppliers. D) Single source. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-15 Squeaky Klean, a small consumer products...

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31) The process of understanding how a firm is spending its money and with which suppliers is

called: A) B) C) D)

Market analysis. Spend analysis. Strategic sourcing. Make or buy analysis.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-09 The process of understanding how a firm is...

32) Which of the following is true about the use of weighted scoring models for supplier

selection? A) The supply management department should determine the weights. B) The highest-scoring supplier should always be selected to receive the business. C) Once developed, the model weights should never change. D) There is a good deal of subjectivity in developing and using the model. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-24 Which of the following is true about the use...

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33) Moderate- to high-risk purchases with low to moderate levels of spend are categorized as: A) Strategic. B) Leverage. C) Bottleneck. D) Noncritical. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-13 Moderate- to high-risk purchases with low to...

34) Many companies are automating the procure-to-pay process using: A) Robotic process automation (RPA). B) Collaborative planning, forecasting, and replenishment. C) IoT. D) Blockchain. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-07 Understand ways to manage ongoing supplier relationships. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-57 Many companies are...

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35) If you are evaluating whether a supplier's workforce is receiving fair wages, you are most

likely doing a(n): A) ISO 9000 assessment. B) Spend analysis. C) Assessment of sustainability and ESG. D) Total cost of ownership assessment. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-04 If you are evaluating whether a supplier...

36) Qualitative factors that should be assessed when making an insourcing/outsourcing decision

include all of the following EXCEPT: A) The skills and knowledge of the supplier's management team B) The importance assigned to the supplier's location C) The costs incurred at the start of the contract D) Compatibility of the supplier's organizational culture and values with your company Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-03 Analyze costs and make insourcing/outsourcing decisions. Topic : Making an Insourcing/Outsourcing Decision Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-07 Qualitative factors that should be assessed...

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37) Determining the right number of suppliers that a company should use is: A) Strategic sourcing. B) Supply base optimization. C) Supply chain resilience. D) Spend analysis. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-05 Explain the steps in the sourcing process. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-48 Determining the right number of...

38) Data on the supply market’s structure, price forecasts, and supply chain risk are assessed

during a/an: A) Supplier certification process. B) Spend analysis. C) Insourcing/outsourcing decision. D) Analysis of supply market intelligence. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-45 Data on the supply...

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39) The identification, evaluation, selection, and management of suppliers is: A) Supply chain management. B) Spend analysis. C) Supply management. D) Sourcing. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-01 Define supply management and understand its impact on a firm s performance Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-33 The identification, evaluation...

40) All of the following can increase supply chain risk except: A) Single sourcing. B) Selecting a supplier in a neighboring country that uses suppliers from a small Asian

country. C) Holding higher levels of inventory of critical materials. D) Using a supplier that is having financial difficulty. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-37 All of the following can increase...

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41) A comprehensive system, facilitated by software, that manages the firm’s interactions with its

supply base is: A) Supplier relationship management. B) Collaborative planning, forecasting, and replenishment. C) Supplier certification. D) Supplier scorecard. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-07 Understand ways to manage ongoing supplier relationships. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-56 A comprehensive system, facilitated...

42) Aspen Corporation has discovered that it uses 10 different suppliers for a particular type of

item, has bought 20 different models of that item, and total expenditures last year for the item were $100,000. Aspen most likely is conducting: A) Supplier audits. B) Make or buy analysis. C) Spend analysis. D) Supplier certification. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-10 Aspen Corporation has discovered that it use...

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43) Local sourcing: A) Is called “nearshoring.” B) Is used when cost is the primary objective. C) Takes advantage of lower trade barriers from trade agreements. D) Reduces delivery costs. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-05 Explain the steps in the sourcing process. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-49 Local sourcing:

44) A company requires its suppliers to make its products in at least three different locations

around the world. Which supply management goal does this BEST accomplish? A) Identifying, assessing, and mitigating supply chain risk. B) Fostering sustainability. C) Reducing total costs. D) Accessing technology and innovation. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-35 A company requires...

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45) The Smith Manufacturing Company uses a weighted-point model to evaluate new suppliers.

Based on its competitive priorities, quality performance is weighted 60 percent, delivery performance is 25 percent, and cost is 15 percent. On a five-point scale, a supplier is rated 4 on quality, 5 on delivery, and 5 on cost. What is its overall weighted score? A) 5. B) 4. C) 14. D) 4.4. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-51 The Smith Manufacturing Company...

46) The capability to resist and recover from supply chain disruptions is: A) Total cost of ownership. B) Supply chain resilience. C) Supply chain risk. D) Sustainability. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-38 The capability to...

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47) The most important stage in the negotiation process is: A) Forming the negotiating team. B) When the contract is signed. C) Planning for the negotiation. D) The face-to-face meeting. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-55 The most important stage...

48) Zanda Corporation had outsourced its production to a company located in Asia. Recently it

decided to continue to outsource but bring the production back to a company located in the United States. This decision was likely made after Zanda: A) Developed supplier certification processes. B) Conducted a make or buy analysis. C) Examined total cost of ownership. D) Conducted a spend analysis. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-02 Define and describe each of the six supply management goals. Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-03 Zanda Corporation had outsourced its production to...

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49) A legally binding document that signals to a supplier that goods and services are needed is

a(n): A) B) C) D)

Supplier relationship management document. Purchase order. Purchase requisition. Electronic data interchange.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-07 Understand ways to manage ongoing supplier relationships. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-27 A legally binding document that signals to...

50) Which of the following is (are) advantage(s) of full partnerships with suppliers, as compared

to traditional adversarial relationships? 1. They help reduce uncertainties for both buyer and supplier. 2. The full partnership is easier to establish and maintain than other relationships, so more suppliers can be dealt with. 3. The full partnership assures the lowest material price. A) II and III only B) II only C) I and II only D) I only E) III only Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-18 Which of the following is (are) advantages...

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51) Floor cleaning supplies for an elementary school would be considered: A) Bottleneck. B) Strategic. C) Noncritical. D) Leverage. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-05 Explain the steps in the sourcing process. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-47 Floor cleaning supplies for an...

52) A global food products company makes soups that are specifically tailored to the tastes of

consumers in individual countries. What sourcing strategy is the company likely to use for its fresh ingredients such as vegetables? A) Low-cost country sourcing. B) National, using suppliers within each country. C) Local, close to its production plant when possible. D) Global, using the same suppliers across the world. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-17 A global food products company makes...

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53) The identification, acquisition, positioning, and management of resources and capabilities

that a firm needs to attain its strategic objectives is: A) Spend analysis. B) Supply chain management. C) Sourcing. D) Supply management. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-01 Define supply management and understand its impact on a firm s performance Topic : Supply Management's Impact on Firm and Supply Chain Performance Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-31 The identification, acquisition, positioning, and management...

54) Benefits of single sourcing include all of the following EXCEPT: A) Better supplier relationships. B) Less supply risk. C) Quantity discounts. D) More consistent quality. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-14 Benefits of single sourcing include all of...

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55) The Williams Manufacturing Company uses a weighted-point model to evaluate new

suppliers. Based on its competitive priorities, quality performance is weighted 40 percent, delivery performance is 30 percent, and cost is 30 percent. On a five-point scale, a supplier is rated 5 on quality, 3 on delivery, and 4 on cost. What is its overall weighted score? A) 1.2. B) 4. C) 4.1. D) 12. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-52 The Williams Manufacturing Company...

56) An online auction is used for sourcing: A) When supplier needs to help develop a new product. B) When price is the only difference among suppliers. C) If purchase specifications are not clearly defined. D) In situations similar to negotiation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-06 Describe how to assess and select suppliers. Topic : Examining the Sourcing Process Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-25 An online auction is used for sourcing:

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57) A relationship with a supplier that is characterized by high levels of distrust, little

communication, and short-term transactions is called a(n): A) Acceptance of mutual goals. B) Arm's-length relationship. C) Adversarial relationship. D) Full partnership. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 10-04 Describe the steps in supply category management. Topic : Supply Category Management Source : Chapter 10 Test Bank - Static > TB MC Qu. 10-20 A relationship with a supplier that is...

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Answer Key Test name: Chapter 10: Sourcing and Supply Management 1) B

Competitive bidding is used when price is the most important factor, the specifications are known and clear, the spend level is large enough, and there are a number of equally qualified suppliers who are willing to compete. 2) B

Higher warranty costs because of supplier quality problems is an example of a cost that occurs after the transaction that increases the total cost of ownership. 3) C

Full partnerships are appropriate for strategically important items. 4) B

Negotiation is used when early supplier involvement is needed. If price is the most important factor, there are many capable and willing suppliers, or there are clear standard specifications, then competitive bidding should be used. 5) B

After certifying a supplier, a company may decide it no longer needs to perform certain activities such as counting and inspecting. 6) C

Theft of intellectual property is one type of supply chain risk. 7) D

Supplier scorecards do not reduce the need for incoming inspection, but they do provide feedback on key performance indicators, and they are used to categorize suppliers. 8) B

Supplier A's score = 0.4(5) + 0.3(3) + 0.2(3) + 0.1(3) = 3.8. Supplier B's score = 0.4(4) + 0.3(4) + 0.2(3) + 0.1(4) = 3.8 9) A

Tires are standard products that do not fit with the automotive company’s core capabilities. The production of tires is most likely to be outsourced. 10) A

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Analyzing current purchases within a company is part of spend analysis, not analysis of supply market intelligence. All of the other items are part of an analysis of supply market intelligence. 11) D

Supply management plays a strategic role in an organization. 12) C

Outsourcing reduces a company’s capital requirements because the company does not need to invest in equipment or facilities to make the sourced product. 13) A

When supply risk is high and the value of the purchase to the firm is low, multiple sourcing is recommended (see Figure 10-2). 14) C

Classroom instruction is a core activity for a university and therefore is least likely to be outsourced. 15) D

Weights in supplier scorecards are determined based on the importance to the organization. An RFQ or RFP is used to communicate the purchase needs to suppliers, usually electronically. 16) B

All of these are steps in insourcing/outsourcing analysis except reviewing internal purchasing practices. 17) D

The ratings are weighted by the weights and then added together. 0.5 × 3 + 0.2 × 2 + 0.3 × 5 = 3.4. 18) B

When outsourcing, a company has to spend more time and effort managing a supplier, so supply management costs are likely to increase rather than to decrease. 19) D

The high value of spend and the high level of supply risk suggest that this is a strategic situation. Building collaborative partnerships is appropriate in this situation. 20) B

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When a product is highly innovative it is more likely to be insourced to protect intellectual property. 21) D

Outsourcing is often a good choice for mature products. There should be many capable suppliers and known technology. Critical competitive items generally shouldn't be outsourced. 22) A

Using more than one supplier for critical purchases so that there is a "backup" just in case can reduce supply chain risk. 23) C

Sustainability can reduce a company’s total costs by reducing waste and avoiding problems. 24) D

SRM is a comprehensive system utilizing software for managing interactions with the supply base. 25) A

Only purchasing at the lowest price is not a goal of supply management. Rather than reduce purchase price, the appropriate goal is to reduce total cost of ownership. 26) C

Standardizing purchases across the company increases the purchase volume needed for leverage purchases. Purchasing cards and VMI are used for noncritical purchases, and executive champions are used for strategic purchases. 27) B

The starting point should be the list of current suppliers. If a current supplier can be used, the time required to evaluate and manage the supplier can be reduced. 28) B 29) B

When expanding globally, many companies want their suppliers to be able to expand with them. 30) D

For a small company, with a single production location, and high tooling costs, the lower capital investment needed for single sourcing will outweigh the potential cost savings and risk reduction of using dual or multiple sourcing. Plastic bottle production does not fit with the core competencies of a cleaning products manufacturer.

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31) B

Spend analysis refers to analyzing the dollars spent with which suppliers. 32) D

Both the weights (which should be developed by a team that includes the key departments influenced by the purchase) and the supplier ratings are subjective. Judgment should be used to make the final selection decision. Weights should change when company priorities change. 33) C

Moderate- to high-risk purchases with low to moderate levels of spend are categorized as bottleneck, as shown in Figure 10-2. 34) A

Robotic process automation is being used to automate routine transactions. 35) C

Wage disputes can affect the ability of a supplier to deliver on its commitments. 36) C

The costs incurred at the start of a contract are quantitative, not qualitative, costs. 37) B

Determining the right number of suppliers that a company should use is supply base optimization. 38) D

Data on the supply market’s structure, price forecasts, and supply chain risk are assessed during an analysis of supply market intelligence. 39) D

Sourcing is the identification, evaluation, selection, and management of suppliers. 40) C

Holding higher inventory levels is one way to mitigate supply chain risk. 41) A

A comprehensive system, facilitated by software, that manages the firm’s interactions with its supply base is supplier relationship management. 42) C

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Spend analysis refers to analyzing the dollars spent with which suppliers. 43) D

Because of proximity, local sourcing reduces delivery costs. 44) A

Requiring suppliers to have geographically dispersed operations reduces supply chain risk. 45) D

The ratings are weighted by the weights and then added together. 0.6 × 4 + 0.25 × 5 + 0.15 × 5 = 4.4. 46) B

Supply chain resilience is the capability to resist and recover from supply chain disruptions. 47) C

Planning is the most important stage in negotiation. 48) C

The decision to bring production closer to home could only come after an analysis of total cost of ownership. 49) B

A legally binding document that signals to a supplier that goods and services are needed is a purchase order. 50) D

The information shared as part of a full partnership, such as production schedules and long-term forecasts, helps to reduce uncertainty for both the buyer and the supplier. Full partnerships focus on total cost, not on material price (see Figure 10-3). 51) C

The level of spend and risk for floor cleaning supplies for a school are both low. This is a noncritical purchase. 52) C

Although the company is global, fresh ingredients such as vegetables should be purchased locally, if possible, to ensure high quality. 53) D

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Supply management is the identification, acquisition, positioning, and management of resources and capabilities that a firm needs to attain its strategic objectives. 54) B

Single sourcing increases supply risk. 55) C

The ratings are weighted by the weights and then added together. 0.4 × 5 + 0.3 × 3 + 0.3 × 4 = 4.1. 56) B

In an online auction, suppliers are equally qualified and the difference is on price. 57) C

The characteristics describe an adversarial relationship (see Figure 10-3).

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Student name:__________ 1) Transportation from a local distribution center or retail location to the customer’s location is

referred to as: A) Pooled delivery consolidation B) Less-than-truckload (LTL) C) Last mile delivery D) Scheduled delivery consolidation Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-28 Transportation from a local distribution...

2) Computer-controlled systems that use robots for materials handling activities are: A) AS/RS. B) RFID. C) Value-added systems. D) Unitization. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-05 Explain the importance of packaging and materials handling. Topic : Materials Handling and Packaging Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-40 Computer-controlled systems that...

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3) Which of the following is an example of economic regulation? A) C-TPAT. B) Restrictions on shipping hazardous materials. C) Restrictions on truck driver hours. D) Restrictions on the type of logistics services a provider can offer. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-14 Which of the following is an example...

4) Which transportation mode has the highest level of greenhouse gas emissions per ton? A) Air. B) Rail. C) Long-haul truck. D) Light duty delivery truck. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-18 Which transportation mode has the highest...

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5) 3PLs: A) B) C) D)

Typically only operate fulfillment centers. Increase supply chain risk. Consolidate storage and shipments across customers. Have minimal investment in information systems.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-07 Describe the benefits of third-party logistics service providers (3PLs). Topic : Third-Party Logistics Service Providers Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-59 3PLs:

6) Stockouts are very costly for a medical device company. The logistics manager has decided

to hold more inventory to reduce stockouts. This is an example of: A) Market consolidation strategy. B) Value density. C) Cost-to-service trade-offs. D) Cost-to-cost trade-offs. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-53 Stockouts are very costly for a medical...

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7) Generally, the most expensive transportation mode (from among the following choices) is: A) Air. B) Rail. C) Water. D) Truck. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-21 Generally, the most expensive transportation...

8) You are shipping 200 diamonds to one customer located 2,000 miles away. The value of a

diamond is $1,500. You can ship via air for $500 and the diamonds will arrive in two days, or you can ship via a specialty ground carrier for $250 and the diamonds will arrive in four days. You figure your inventory carrying cost is 25 percent. Your customer will immediately transfer funds to your bank account on receipt of the shipment. Using the air carrier would save approximately how much money in total cost? Note: Use 365 days as the number of days in a year. A) Nothing, it would actually cost more. B) $150.00 C) $247.95 D) $160.96 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-31 You are shipping 200 diamonds to one...

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9) Zanda Corporation decided to use a more expensive mode of transportation to deliver orders

to customers. This decision was likely made after an examination of: A) Consolidation strategies. B) Cost-to-cost trade-offs. C) Product availability problems. D) Cost-to-service trade-offs. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-44 Zanda Corporation decided to use a more...

10) Inventory levels: A) Are not affected by the choice of transportation mode. B) Increase when air rather than truck transportation is used. C) Are higher when rail rather than truck transportation is used. D) Are not affected by the number of warehouses used. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-26 Inventory levels:

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11) Your company needs to ship a large piece of construction equipment that costs about

$500,000 to a customer across the country. Shipping by rail costs $3,000 and will take eight days. Your company uses 20 percent to determine the annual inventory carrying cost. What are the approximate total costs of shipping and in-transit inventory? Note: Use 365 days as the number of days in a year. A) $3,000. B) $5,192. C) $2,192. D) $10,000. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-33 Your company needs to ship a large piece...

12) Jones Company decided to limit deliveries to selected areas to specific days of the week to

save money on transportation. This is an example of: A) Transportation consolidation. B) Scheduled delivery consolidation. C) Market consolidation. D) Pooled delivery consolidation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-06 Jones Company decided to limit...

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13) Logistics management is important to an organization because: A) Offshoring of services is increasing. B) Its primary role is managing inbound logistics. C) Logistics affects customer service. D) Typically, 50 percent to 75 percent of an organization’s costs are attributed to

logistics. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-01 Describe logistics and the six major activities of integrated logistics ma Topic : The Role of Logistics in Supply Chain Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-04 Logistics management is important...

14) Returned products are generally handled at a warehouse that provides: A) Reverse logistics support. B) Production support. C) Cross-docking. D) Stockpiling. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-04 Explain the primary functions of distribution and fulfillment centers. Topic : Distribution/Fulfillment Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-38 Returned products are generally...

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15) Which of the following is NOT a role of logistics management? A) Planning the forward flow of materials. B) Controlling the storage of goods. C) Designing the reverse flow of goods. D) Selecting suppliers for parts and components. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-01 Describe logistics and the six major activities of integrated logistics ma Topic : The Role of Logistics in Supply Chain Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-01 Which of the following is NOT a role of...

16) A company decides to reduce its number of distribution centers (logistically postpone). This

decision would result in _________ or _________. A) Poorer service to customers or higher transportation cost B) Better service to customers or higher transportation cost C) Confusion for customers or for the company D) Better service to customers or less transportation cost Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Evaluate Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-51 A company decides to reduce its number of...

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17) All of the following can improve order processing EXCEPT: A) Automating order entry using robotic process automation. B) Redesigning the website so it is easier for customers to use. C) Increasing the number of orders entered manually. D) Integrating internal information systems. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-01 Describe logistics and the six major activities of integrated logistics ma Topic : Order Processing Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-05 All of the following can improve...

18) All of the following are safety and security regulations EXCEPT: A) Restrictions on truck driver hours. B) Restrictions on who can form a logistics company. C) C-TPAT. D) Controls on hazardous materials transportation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-15 All of the following are...

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19) As the shipping distance increases: A) The cost per unit of distance decreases. B) The shipping costs per pound increase. C) Variable costs are spread over more miles. D) Economies of scale are achieved. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-17 As the shipping distance increases:

20) Zanda Corporation can make three individual deliveries to three different customers at a cost

of $500 each or can consolidate them into one shipment with a cost of $1,300 and a stop-off charge of $100 per stop. Should Zanda do this? A) Yes, it is simpler to do. B) No, it will increase cost by $100. C) Yes, it will save $100. D) It doesn't matter based on cost. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-08 Zanda Corporation can make three individual...

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21) Falcon Enterprises has four orders to be shipped to different customers located in Houston,

Texas. The weights of the respective orders are 4,000 pounds, 5,000 pounds, 8,000 pounds, and 6,000 pounds. The cost to ship each order individually is $12 per 100 pounds. The shipments can be consolidated into a single order for a cost of $10 per 100 pounds with an additional charge of $200 per stop. Should the shipments be consolidated? A) Yes, the cost is $700 lower with consolidation. B) It does not matter; the cost is the same. C) No, the cost is $700 higher with consolidation. D) No, the cost is $340 higher with consolidation. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-12 Falcon Enterprises has four orders to be...

22) In the United States, most freight is shipped by: A) Pipeline. B) Rail. C) Truck. D) Air. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-22 In the United States, most freight...

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23) In determining the number of facility locations, the lowest total cost is typically: A) Not the lowest cost of either transportation or inventory. B) Not related to transportation or inventory. C) Difficult to generalize. D) The lowest cost of either transportation or inventory. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-50 In determining the number of facility...

24) With respect to the following operating service characteristics of the modes of transportation,

which combination is CORRECTLY specified? A) Availability: air is best; pipeline is worst. B) Capability: rail is best; air is worst. C) Dependability: pipeline is best; truck is worst. D) Speed: air is best; pipeline is worst. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-20 With respect to the following operating...

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25) Last mile delivery A) Is lower cost than shipping goods from the manufacturer to a distribution center. B) Refers to the shipment of goods from a distribution center to a retail location. C) Is being automated using robots. D) Has declined in importance as online shopping has grown. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-29 Last mile delivery

26) A company finds the following information about its customers and their locations: Location X coordinate Y coordinate Weight shipped A 20 90 400,000 pound B 95 75 200,000 pound C 60 30 600,000 pound

The center of gravity is: A) X* = 58.33; Y* = 65. B) X* = 56.66; Y* = 61.66. C) X* = 52.5; Y* = 57.5. D) Cannot be determined. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-54 A company finds the following information...

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27) One function of distribution centers (DC) is "consolidation." This means that the

warehouse/distribution center is used to: A) Hold inventory to buffer the system from variability in either supply or demand. B) Collect products/packaging materials that are sent back for disassembly, reclamation, or disposal. C) Hold inventory needed because of seasonal requirements. D) Group small inbound loads into larger outbound loads. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-04 Explain the primary functions of distribution and fulfillment centers. Topic : Distribution/Fulfillment Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-34 One function of distribution...

28) Bill's glass store needs to ship an order of 10 chandeliers to a builder about 1,000 miles away.

The chandeliers cost about $10,000 each, and Bill will be paid upon delivery. Bill plans to ship the order by truck at a cost of $1,000. The delivery will take 10 days. Bill uses a 30 percent annual inventory carrying cost. What will be the approximate total shipping and transit inventory carrying cost of the shipment? Assume 365 days per year. A) $821.92 B) $1,000.00 C) $1,821.92 D) $633.33 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-30 Bill&#39;s glass store needs to ship...

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29) Which of the following best describes the concept of total landed cost? A) The difference between product-related and logistics-related costs. B) The lowest logistics cost for a product. C) The sum of all product-related and logistics-related costs. D) The sum of all logistics costs related to a product. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-45 Which of the following best describes the...

30) Splitting shipments into individual orders and arranging them for local delivery to customers

is: A) B) C) D)

Break-bulk. Cross-docking. Stockpiling. Reverse logistics.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-04 Explain the primary functions of distribution and fulfillment centers. Topic : Distribution/Fulfillment Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-36 Splitting shipments into individual orders...

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31) Which of the following is LEAST likely to be considered when determining total landed

costs? A) B) C) D)

Currency exchange rates. Product warranty costs. Raw material costs. The cost of inventory held as safety stock.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-49 Which of the following is LEAST likely...

32) Intermodal transportation: A) Achieves economies of distance. B) Achieves economies of scale and service availability. C) Is only used for international shipments. D) Always combines transportation by truck and rail. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-25 Intermodal transportation:

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33) What is not one of the factors that is leading to higher logistics costs? A) Shortage of warehouses B) A shortage of truckdrivers C) Digital freight brokers D) Increased rents for warehouses Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-08 Discuss future considerations for logistics and key influencing factors. Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-60 What is not one of the factors...

34) What is the center of gravity according to the following information? Retail X Coordinate Y Coordinate Shipments/Year Location A 55 10 500 B 30 40 800 C 75 30 1000 A) B) C) D)

X = 55, Y = 29.1. X = 160, Y = 80. X = 53.3, Y = 26.7. X = 14.4, Y = 28.8.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-57 What is the center of gravity according...

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35) The Smith Company has decided to change its shipping mode from truck to rail. Its inventory

levels will: A) Decrease. B) Increase. C) More information is needed to determine the change in inventory levels. D) Not change. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-27 The Smith Company has decided to...

36) Which of the following transportation modes has relatively low fixed costs but high variable

costs? A) B) C) D)

Truck. Air. Rail. Pipeline.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-24 Which of the following transportation...

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37) Products are received, sorted, sequenced, and selected into loads at a: A) Stockpiling center. B) Reverse logistics center. C) Transshipment point. D) Product support warehouse. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-04 Explain the primary functions of distribution and fulfillment centers. Topic : Distribution/Fulfillment Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-35 Products are received, sorted...

38) Logistics is responsible for all of the following EXCEPT: A) Selecting the mode of transportation used to ship products. B) Determining where to hold inventory in the supply chain. C) Setting product quality standards. D) Determining how much inventory to hold. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-01 Describe logistics and the six major activities of integrated logistics ma Topic : The Role of Logistics in Supply Chain Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-03 Logistics is responsible for all...

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39) Your company needs to ship two large machines that cost about $75,000 each to a customer

across the country. The machines will be shipped by rail at a cost of $2,000. Shipping will take 14 days. Your company uses 15 percent to determine the annual inventory carrying cost. What are the approximate total costs of shipping and in-transit inventory? Note: Use 365 days as the number of days in a year. A) $2,000. B) $2,863. C) $863. D) $2,026. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-32 Your company needs to ship two...

40) The sum of all product- and logistics-related costs is: A) Total landed costs. B) Cost-to-cost trade-offs. C) Cost-to-service trade-offs. D) Total cost of ownership. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-48 The sum of all product- and...

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41) The center-of-gravity method of determining a facility location: A) Does not require that qualitative factors be considered in location decisions. B) Evaluates all production and logistics costs, and other costs such as taxes. C) Requires that demand be estimated in terms of the dollar sales revenue in each

market. D) Requires that cost be measured in dollars of transportation cost. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-55 The center-of-gravity method of determining...

42) What is the center of gravity according to the following information? Retail X Coordinate Y Coordinate Shipments/Year Location A 20 40 100 B 35 30 50 C 10 80 300 A) B) C) D)

X = 65, Y = 150. X = 21.7, Y = 50. X = 15, Y= 65.6. X = 6.9, Y = 3.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-56 What is the center of gravity according...

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43) The increasing size of container ships is being driven by: A) Economies of scale. B) Economies of distance. C) Market consolidation. D) Total cost of ownership. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-16 The increasing size of container...

44) The process of removing products from storage and assembling them into appropriate

quantities and assortments to fill customer orders is: A) Consolidation. B) Order picking. C) In-storage handling. D) Staging. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-04 Explain the primary functions of distribution and fulfillment centers. Topic : Distribution/Fulfillment Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-39 The process of removing products from storage...

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45) Which of the following is NOT an activity of integrated logistics management? A) Order processing. B) Transportation management. C) Selecting raw material suppliers. D) Determining the number and locations of warehouses. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-01 Describe logistics and the six major activities of integrated logistics ma Topic : The Role of Logistics in Supply Chain Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-02 Which of the following is NOT an...

46) Your company needs to ship 10 heart pacemakers that cost $10,000 each from Indianapolis,

Indiana, to Miami, Florida. Which transportation mode should you use? A) Water. B) Rail. C) Air. D) Truck. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-23 Your company needs to ship...

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47) With respect to the following operating service characteristics of the modes of transportation,

which combination is INCORRECTLY specified? A) Capability: pipeline is best; water is worst. B) Dependability: pipeline is best; air is worst. C) Availability: truck is best; pipeline is worst. D) Speed: air is best; pipeline is worst. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-03 Assess and select transportation modes. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-19 With respect to the following operating...

48) Suppose you are shipping 1,000 pounds of product to a customer location that is 500 miles

away from you. The customer calls you and increases the order size to 10,000 pounds. In this case: A) The total cost of transportation for the order will decrease. B) The fixed cost will be spread over more miles. C) The cost per distance traveled will decrease. D) The cost per pound of transportation for the order will decrease. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-10 Suppose you are shipping...

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49) Bowling Green Manufacturing Company has three orders to be shipped to different

customers located in Seattle, Washington. The weights of the respective orders are 13,000 pounds, 9,000 pounds, and 10,000 pounds. The cost to ship each order individually is $17 per 100 pounds. The shipments can be consolidated into a single order for a cost of $14 per 100 pounds with an additional charge of $250 per stop. Should the shipments be consolidated? A) Yes, the cost is $750 lower with consolidation. B) It does not matter; the cost is the same. C) Yes, the cost is $210 lower with consolidation. D) No, the cost is $210 higher with consolidation. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-13 Bowling Green Manufacturing...

50) A company has determined the ideal number of locations by looking at the trade-offs

described in the text. It decides to open more distribution centers than this "ideal." This decision would most likely result in ___________ and __________. A) Poorer service to customers and lower cost B) Poorer service to customers and higher cost C) Better service to customers and lower cost D) Better service to customers and higher cost Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Evaluate Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-52 A company has determined the ideal number of...

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51) Packaging paper towels with six rolls in a package: A) Increases the complexity of materials handling. B) Is an example of unitization. C) Increases material handling costs. D) Is an example of the use of RFID. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-05 Explain the importance of packaging and materials handling. Topic : Materials Handling and Packaging Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-42 Packaging paper towels with...

52) The Williams Company combines all of its orders going to Tokyo, Japan, during the month

into a single shipment. This is an example of: A) Pooled delivery consolidation. B) Scheduled delivery consolidation. C) Market area consolidation. D) Economies of distance. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-11 The Williams Company combines all of its...

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53) All of the following are considered when determining total landed costs EXCEPT: A) Product liability costs. B) Fuel costs. C) Insurance. D) Supply chain risk. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-47 All of the following are considered...

54) The benefits of automated storage and retrieval systems (AS/RS) include all of the following

EXCEPT: A) Fewer errors in order picking. B) Lower fixed costs. C) Increased facility utilization. D) Lower direct labor costs. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-05 Explain the importance of packaging and materials handling. Topic : Materials Handling and Packaging Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-41 The benefits of automated storage and retrieval...

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55) Zanda Corporation's CEO watched in amazement and frustration as workers handled and

loaded individual products onto trucks. She felt handling the individual items was very cumbersome. She should investigate the possibility of: A) Using RFID. B) Private transportation. C) Containerization. D) AS/RS. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-05 Explain the importance of packaging and materials handling. Topic : Materials Handling and Packaging Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-43 Zanda Corporation&#39;s CEO watched...

56) Companies that provide a bundle of logistical services to their customers are called: A) Common carriers. B) 3PLs. C) Contract logistics companies. D) AS/RS providers. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-07 Describe the benefits of third-party logistics service providers (3PLs). Topic : Third-Party Logistics Service Providers Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-58 Companies that provide a bundle...

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57) Smith Company learned that several other shippers in its hometown had customers located in

the same markets that it serves. With this information, Jones should investigate the possibility of: A) Pooled delivery consolidation. B) Traffic consolidation. C) Market area consolidation. D) Scheduled delivery consolidation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-07 Smith Company learned that...

58) Zanda Corporation had established a production plant in Thailand. Recently it decided to

close the plant and move production to Mexico. This decision was likely made after Zanda: A) Evaluated consolidation strategies. B) Conducted a spend analysis. C) Conducted a make-or-buy analysis. D) Examined total landed cost. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-06 Discuss the logistics network design process and apply the center-of-gravi Topic : Logistics Network Design Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-46 Zanda Corporation had established a production...

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59) Cross-docking: A) Supports reverse logistics. B) Combines break-bulk and consolidation activities. C) Sorts items for production support. D) Stores inventory to support seasonal demand. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 11-04 Explain the primary functions of distribution and fulfillment centers. Topic : Distribution/Fulfillment Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-37 Cross-docking:

60) Miller Corporation can make three individual deliveries to three different customers at a

transportation cost of $600 each or can consolidate them into one shipment with a transportation cost of $1,200 and a stop-off charge of $100 per stop. Should Miller Corporation consolidate the shipments? A) No, it will increase cost by $100. B) Yes, it will save $100. C) Yes, it will save $300. D) It doesn't matter based on cost. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 11-02 Estimate cost savings from transportation consolidation. Topic : Transportation Management Source : Chapter 11 Test Bank - Static > TB MC Qu. 11-09 Miller Corporation can make three individual...

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Answer Key Test name: Chapter 11: Logistics Management 1) C

Last mile delivery is Transportation from a local distribution center or retail location to the customer’s location. 2) A

Automated storage and retrieval systems (AS/RS) are computer-controlled systems that use robots to automatically select, find, retrieve, and convey products from storage bins to loading docks. 3) D

An example of an economic regulation is placing restrictions on the types of services that a provider can offer. The other choices are safety and security regulations. 4) A

Transport by air emits the highest level of greenhouse gases. 5) C

3PLs can achieve lower costs by consolidating storage and shipments across customers. 6) C

Holding more inventory to avoid stockouts improves customer service and thus is a cost-toservice trade-off. 7) A

Air is generally the most expensive mode of transportation. 8) D

Cost of air = $500 + ($300,000 × 2 ÷ 365 × 0.25) = $910.96 Cost of ground = $250 + ($300,000 × 4 ÷ 365 × 0.25) = $1,071.92. Air will save $1,071.92 − $910.96 = $160.96. 9) D

Increasing cost to improve service performance represents a cost-to-service trade-off. 10) C

Because rail is a slower transportation mode than truck, in-transit inventory is higher.

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11) B

The total cost = the carrier cost + in-transit inventory. The cost = $3,000 + [($500,000) × (8 days ÷ 365 days) × 0.2] = $5,192. 12) B

This is the definition of scheduled delivery consolidation. 13) C

Logistics management affects customer service. 14) A

Returned products are processed at a warehouse that provides reverse logistics support. 15) D

Supplier selection for parts and materials is a role of supply management, not logistics management. 16) A

Reducing the number of locations will result in either longer times to deliver to customers or higher transportation cost to use a faster mode of transportation, a classic cost-to-service evaluation. 17) C 18) B

Restrictions on who can form a logistics company are an example of an economic regulation, not a safety and security regulation. 19) A

Economies of distance show that as the shipping distance increases, the cost per unit of distance decreases. 20) B

$1,300 + 3($100) = $1,600, an increase in cost of $100. 21) D

Nonconsolidated cost = [(4000 + 5000 + 8000 + 6000) ÷ 100] × $12 = $2,760. Consolidated cost = {[(4000 + 5000 + 8000 + 6000) ÷ 100] × $10} + (4 stops × $200 per stop) = $3,100. Consolidation is more expensive by $340.

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22) C

Trucks are used for the majority of freight shipped in the United States. 23) A

The lowest total cost is typically determined by the sum of inventory and transportation costs, but it is not the point at which either of the two is at its lowest point. 24) D

Air is the fastest mode, pipeline is the slowest. Air is low in availability (location of airports). Water can handle more different types/sizes of shipments than rail. Truck is more dependable than rail or air. 25) C

The last mile delivery is costly because it is manual. Companies are using robots to reduce the costs of the last mile delivery, for example food delivery. 26) C

X* = (20(400,000) + 95(200,000) + 60(600,000)) ÷ (400,000 + 200,000 + 600,000) = 52.5 Y* = (90(400,000) + 75(200,000) + 30(600,000)) ÷ (400,000 + 200,000 + 600,000) = 57.5 27) D

This is the definition of the consolidation role of distribution centers. 28) C

$1,000 + ($100,000 × 10 ÷ 365 × 0.3) = $1,821.92 29) C

Total landed cost is the sum of all product-related and logistics-related costs. 30) A

Break-bulk involves splitting shipments into individual orders and arranging them for local delivery to customers. 31) B

Product warranty costs occur after the product is in use and thus are not considered in total landed cost. 32) B

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Intermodal transportation uses two or more modes of transportation to reduce cost by achieving economies of scale with some modes while achieving service availability benefits by using other modes. 33) C 34) A

X Coordinate = [(55 × 500) + (30 × 800) + (75 × 1000)] ÷ (500 + 800 + 1000) = 55 Y Coordinate = [(10 × 500) + (40 × 800) + (30 × 1000)] ÷ (500 + 800 + 1000) = 29.1 35) B

Because rail is a slower transportation mode than truck, in-transit inventory is higher. 36) A

Trucks have relatively low fixed costs relative to the other modes but higher variable costs. 37) C

Products are received, sorted, sequenced, and selected into loads at a transshipment center. 38) C

Product quality standards are set by engineers, not logistics managers. 39) B

The total cost = the carrier cost + in-transit inventory. The cost = $2,000 + [(2 × $75,000/machine) × (14 days ÷ 365 days) × 0.15] = $2,863. 40) A

The sum of all product- and logistics-related costs make up total landed cost. 41) A

The method considers only the volume of demand and distance when determining location. 42) C

X Coordinate = [(20 × 100) + (35 × 50) + (10 × 300)] ÷ (100 + 50 + 300) = 15 Y Coordinate = [(40 × 100) + (30 × 50) + (80 × 300)] ÷ (100 + 50 + 300) = 65.6 43) A

With larger container ships fixed costs are spread across a larger volume of shipments, resulting in economies of scale. 44) B

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Order picking is the process of removing products from storage and assembling them into appropriate quantities and assortments to fill customer orders. 45) C

Selection of suppliers for raw materials is a role of supply management, not logistics management. 46) C

The small size, high product cost, and distance would lead to the use of air as the transportation mode. 47) A

Only the option regarding capability is incorrect. For capability, pipeline is worst, water is best. 48) D

This consolidation is likely to both decrease the cost per pound of transportation and increase the total cost. 49) C

Nonconsolidated cost = [(13,000 + 9000 + 10,000) ÷ 100] × $17 = $5,440. Consolidated cost = {[(13,000 + 9000 + 10,000) ÷ 100] × ($14)} + 3 stops × $250 per stop = $5230. Consolidation is less expensive by $210. 50) D

If a company has determined the "ideal" number of locations and decides to have more, this obviously results in higher cost. However, it may be done in order to provide more rapid delivery to customers. 51) B

Unitization occurs when several smaller units are grouped together into a larger container. 52) C

Market area consolidation occurs when a shipper combines all of its orders to a geographic region into a single shipment. 53) A

Product liability costs occur after a product’s use and therefore are not included in total landed costs. 54) B

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Fixed costs will be higher because of the investment in the robotic systems. 55) C

Containerization creates larger containers out of smaller units to facilitate handling. 56) B 57) A

Because other shippers are involved in this question, pooled delivery consolidation is the most appropriate answer. 58) D

Total landed cost requires examination of all product- and logistics-related costs. This type of examination may result in decisions regarding the lowest-cost place for manufacturing. 59) B

Cross-docking involves both break-bulk and consolidation activities. 60) C

Nonconsolidated cost = $600(3) = $1,800. Consolidated cost = $1,200 + $100(3) = $1,500. Consolidation saves $300.

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Student name:__________ 1) Designing postponable products has the potential to allow operations managers to: A) Move from build-to-stock to assemble or make-to-order operations. B) Influence the timing of demand. C) All the items are correct. D) Ignore forecasts. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-06 Explain how certain improvements to both product design and operations acr Topic : Improving the Constraints on Demand Planning Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-14 Designing postponable products has the...

2) What is the relationship between demand management and demand forecasting? A) All the answers are correct. B) Demand management plans are usually an input to demand forecasting. C) Demand management is done by operations managers, while demand forecasting is

done by marketing managers. D) The two planning activities are managed independently. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-02 Differentiate between demand planning, demand forecasting, and demand mana Topic : Demand Planning: An Overview Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-32 What is the relationship between...

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3) Increasing the value of alpha (α) in an exponential smoothing model would produce which of

the following results? A) Reduce the amount of data that needs to be stored to support the forecasting process B) Increase the sensitivity of the forecast process to recent changes in demand C) Reduce the ability of the forecast process to respond to seasonality in demand D) Reduce the influence of more recent demands in computing future forecasts Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-44 Increasing the value of alpha...

4) Over a six-month period, the demand for a product has been: June = 200, July = 210, August

= 240, September = 240, October = 260, and November = 280. The three-month moving average forecast for December is: A) 280. B) 260. C) 300. D) 240. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-10 Over a six-month period, the...

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5) Convex Computer Company makes many different forecasts. Which of the following

forecasts is probably the least accurate? A) Total number of computers (laptops and desktops) to be sold next month. B) Total number of laptops to be sold next month. C) Total number of desktops to be sold next year. D) Total number of laptops with 2 gigabyte RAM, 80 gigabyte hard drive, and 16x DVD drive to be sold next year. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-11 Convex Computer Company makes many...

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6) A company has the data shown in the chart below concerning its forecast performance over

the past four time periods. Period

Actual Demand

Forecast

Error

345

320

335

Absolute Value of Error

Absolute Percentage Error

10 350

340

−30

350

Complete the chart and compute the MAD. A) 20 B) 100 C) 2 D) 10 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-25 A company has the data...

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7) Assume that the forecast for the last period is FITt = 200 units, and recent experience

suggests a likely sales increase of 10 units each period. Actual sales for the last period reached 230 units. Assume a smoothing coefficient of α = 0.20 and a trend smoothing coefficient of β = 0.10. Demand in period t + 1 turned out to be 220. What is the adjusted forecast for period t + 2? Note: Choose the closest answer. A) 227.3 B) 217.3 C) 215.9 D) 221.3 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-18 Assume that the forecast for...

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8) Jones Company had sales of $100,000 last week. The company had forecasted that sales

would be $120,000. Using exponential smoothing with a smoothing constant of 0.2, what is the forecast for this week's sales? A) $112,000 B) $124,000 C) $104,000 D) $116,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-09 Jones Company had sales of...

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9) Zanda Corporation has experienced demand in the last four years as shown below. Period (t) Demand (dt) t*dt t2

Total Average

152

10 2.5

120 30

328

What is the trend value (b) in the data? Note: Choose the closest answer. A) −1.25 units per period B) 5.6 units per period C) 2.5 units per period D) 2.87 units per period Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-19 Zanda Corporation has experienced demand...

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10) Refer to the data below for Zanda Corporation What is the linear regression forecast for

period 5? Note: Choose the nearest number of whole units. Period (t) Demand (dt)

Total Average A) B) C) D)

t*dt

152

10 2.5

120 30

328

44 28 42 34

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-20 Refer to the data below...

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11) A computer program that uses algorithms to learn by analyzing many different types of

models applied to large amounts of data is called: A) Focused forecasting. B) Artificial intelligence. C) Historical analogy. D) Algorithmic modeling. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-36 A computer program that uses...

12) Which of the following statements most accurately describes the outcome of using a simple

moving average model to forecast demand that has a strong trend? A) Moving average models require less historical data than exponential smoothing models. B) Using more periods in the moving average calculation will produce better forecasts. C) Moving averages must be weighted in order to accurately predict a trend. D) Changes in forecasts produced by a moving average model will lag behind changes in demand. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-38 Which of the following statements...

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13) Which of the following statements best describes demand forecasting? A) Executives usually make better forecasts than machines. B) Better forecasts usually come from combinations of inputs. C) The objective of forecasting is to develop the best statistical model. D) Forecasting and demand planning have little to do with each other. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-37 Which of the following statements...

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14) Use the data below and the regression model. Gamma Sales

Gamma2

220

100

612

324

364

196

420

196

288

144

1,904

960

Total Average

Gamma × Sales

13.6

27.2

What is the sales forecast if Gamma is expected to be 21? Note: Round your forecast to the nearest number of whole units. A) 48 B) 36 C) 42 D) 39 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-22 Use the data below and...

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15) The demand for housing is characterized by a regular pattern of increasing to a peak, then

falling. When the demand reaches a low point, it then repeats the pattern. This pattern usually takes place over a three- to five-year period. This is an example of which type of demand pattern? A) Trend B) Step change C) Autocorrelation D) Seasonality and cycles Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-03 The demand for housing is...

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16) In examining the data below, the manager exclaimed that he was very happy to see no bias in

the forecasts. How would you respond to the manager? Period

Actual Demand

Forecast

Error

345

320

335

A) B) C) D)

Absolute Value of Error

Absolute Percentage Error

10 350

340

−30

350

I'm sorry, but there is a slight negative bias. There is no way to estimate bias with the given information. I'm sorry, but there appears to be a slight positive bias. You are correct.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-27 In examining the data below,...

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17) For Platinum Nugget Hotel in Las Vegas, Saturday is the best day of the week for business.

The gambling take for the hotel on Saturdays over the past four weeks was: Week 1 2 3 4

$Take $ 250,000 $ 190,000 $ 300,000 $ 280,000

Platinum Nugget uses a three-period weighted moving average to forecast demand, with a t = 0.6, at−1 = 0.3, and at−2 = 0.1. What is the forecast for week 5? A) $277,000 B) $232,000 C) $237,000 D) $295,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-07 For Platinum Nugget Hotel in Las Vegas,...

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18) How does product design affect forecasting accuracy? A) None of the statements are true. B) Postponable product designs remove the need to forecast demand for final product

configurations. C) A popular product design improves the demand volume and forecast. D) Forecast accuracy is not related to product design. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-06 Explain how certain improvements to both product design and operations acr Topic : Improving the Constraints on Demand Planning Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-35 How does product design affect...

19) Using the data shown below, the forecast for week 5 using a three-period moving average

model is: Week Sales A) B) C) D)

1 165

2 140

3 115

4 200

155 158 200 152

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-42 Using the data shown below,

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20) Given the data below, what is the bias of these forecasts? Period Actual Forecast Error Demand Demand 1

800

2 3

1,100 1,000

1,400

Absolute Value of Error 300

200 −100

A) Positive. B) Negative. C) There is no bias. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-13 Given the data below, what...

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21) Given a demand of 19 for the most recent period, use = 0.2 and β = 0.4 to create a trend-

enhanced smoothing-based forecast. Assume that FIT1 = 22 and T1 = 7.83. The correct answer is closest to: A) 21.4 B) 29.0 C) 23.2 D) 31.3 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-45 Given a demand of 19...

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22) Use the data below. Quarter Demand

1 50

2 60

3 90

4 80

1 60

2 70

3 100

4 90

A company has forecasted next year's demand to be 400. What is the seasonally adjusted forecast for Quarter 1? Note: Choose the closest answer. A) 73 B) 75 C) 71 D) 125 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-24 Use the data below.

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23) Using the data shown below, the forecast for week 5 using an exponential smoothing model

is: Week Sales Forecast A) B) C) D)

1 165 170

2 140 168

3 115

4 200 140.1

200.1 146.1 Not enough information is given to produce a forecast 164.1

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-43 Using the data shown below, the...

24) Strategic demand planning would best be utilized: A) To determine plans for employee overtime. B) To direct day-to-day operations in a manufacturing plant. C) To decide whether or not to close a manufacturing plant. D) All answers are correct. E) To determine plans for hiring or laying off employees. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-01 Explain the role of demand planning in operations management, in the firm, Topic : Demand Planning: An Overview Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-02 Strategic demand planning would best...

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25) The table below shows quarterly sales data over four years. A regression of sales on quarters

yields this equation: Sales = 18.25 + 1.55 × Quarter number. Using the regression estimate as the base, what is the seasonal index for the fourth quarter? Note: Pick the answer that is closest to the correct number. Year Quarter 1 2 3 4 A) B) C) D)

1 15 17 15 25

2 26 29 24 30

3 17 20 13 23

4 24 24 22 30

1.04 0.81 1.23 1.10

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-49 The table below shows quarterly...

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26) The primary difference between demand management and demand forecasting is: A) One approach deals with uncertainty, while the other deals with known demand. B) A firm cannot execute both approaches simultaneously. C) Forecasting is only possible when quantitative data are available. D) Demand management is proactive, while forecasting attempts to predict. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-02 Differentiate between demand planning, demand forecasting, and demand mana Topic : Demand Planning: An Overview Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-01 The primary difference between demand...

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27) Using the data below, determine the MAPE. Period Actual Forecast Demand

A) B) C) D)

345

320

335

320

Error

Absolute Value of Error

Absolute Percentage Error

25 10

350

340

−30

350

5.41 percent 5.0 percent 5.99 percent 7.25 percent

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-26 Using the data below, determine...

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28) Apply regression to the data shown below. The slope of the line estimated using the

regression model is: Sales January February March April May June July August September October November December A) B) C) D)

100 200 150 400 300 200 250 350 400 350 400 500

45.3 15.4 50.0 27.3

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-39 Apply regression to the data...

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29) Assume that the forecast for the last period is FITt = 200 units, and recent experience

suggests a likely sales increase of 10 units each period. Actual sales for the last period reached 230 units. Assuming a smoothing coefficient of α = 0.20 and a trend smoothing coefficient of β = 0.10, what is the BASE forecast for the next period? A) 210 B) 236 C) 206 D) 226 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-16 Assume that the forecast for...

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30) Jones Corporation has noticed that sales of its product seem to be related to a variable it calls

Gamma. It has developed the data shown below. Sales

220

100

612

324

364

196

420

196

288

144

1,904

960

Total Average

13.6

Gamma × Sales

Gamma2

Gamma

27.2

Develop a simple linear regression from the data and tell Jones what the sales forecast will be if Jones expects Gamma to be 16. Note: Round your forecast to the nearest number of whole units. A) 31 B) 33 C) 34 D) 28 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-21 Jones Corporation has noticed that...

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31) The table below shows quarterly sales data over four years. Using the average demand as the

base, what is the seasonal index for the third quarter. Note: Pick the answer that is closest to the correct number. Year Quarter 1 2 3 4 A) B) C) D)

1 15 17 15 25

2 26 29 24 30

3 17 20 13 23

4 24 24 22 30

0.99 0.84 0.92 1.20

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-50 The table below shows quarterly...

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32) For Platinum Nugget Hotel in Las Vegas, Saturday is the best day of the week for business.

The gambling take for the hotel on Saturdays over the past four weeks was: Week 1 2 3 4

$Take $ 250,000 $ 190,000 $ 300,000 $ 280,000

Using a moving average with n = 3 terms, what would be the forecast for week 5? A) $255,000 B) $246,667 C) $256,667 D) $232,124 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-06 For Platinum Nugget Hotel in...

33) Which of the following factors should be considered when one designs a forecasting process? A) Time horizon for planning. B) Level of detail for planning. C) Availability of data. D) All the answers are correct. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-33 Which of the following factors...

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34) A forecasting system that changes the value of the alpha parameter in response to the level of

forecast error is known as: A) A trend-enhanced exponential smoothing model. B) A tracking signal. C) A causal regression. D) A time series model. E) An adaptive model. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-30 A forecasting system that changes...

35) A company uses actual demand data to develop its seasonal indices. It has the data shown

below for each quarter of the previous two years. Quarter Demand

1 50

2 60

3 90

4 80

1 60

2 70

3 100

4 90

What is the seasonal index for Quarter 1? A) 0.750 B) 0.714 C) 1.25 D) 0.732 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-23 A company uses actual demand...

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36) Assume that the forecast for the last period is FITt = 200 units, and recent experience

suggests a likely sales increase of 10 units each period. Actual sales for the last period reached 230 units. Assume a smoothing coefficient of α = 0.20 and a trend smoothing coefficient of β = 0.10. What is the ADJUSTED forecast for the next period? A) 216.6 B) 210.6 C) 216.0 D) 210.0 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-17 Assume that the forecast for...

37) A forecasting technique that seeks inputs from people who are in close contact with

customers is known as: A) Focused forecasting. B) Historical analogy. C) Marketing research. D) Grassroots forecasting. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-34 A forecasting technique that seeks...

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38) Using an exponential smoothing model, the forecast for next January’s sales is: Sales January February March April May June July August September October November December A) B) C) D)

100 200 150 400 300 200 250 350 400 350 400 500

450.0 Not enough information is given to make a forecast 150.0 477.3

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-41 Using an exponential smoothing model,...

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39) An office manager forecasts demand for office stationery by exponential smoothing, with

alpha = 0.4. Actual demand two weeks ago (i.e., the week before last) was 12 boxes, but the forecast for that period was only 10. Actual demand last week was seven. What was the forecast for last week? A) 8.8 B) 10.8 C) 8.2 D) 11.0 E) 11.2 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-05 An office manager forecasts demand...

40) The tracking signal will suggest to a manager that: A) There is seasonality in demand. B) All the answers are correct. C) Demand for an item is changing. D) A forecast mode's parameters may need adjustment. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-29 The tracking signal will suggest...

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41) The city of Dallas would like to control the amount of traffic on a major tollway. One way to

manage the demand is by: A) Signaling alternatives. B) Rapid forecasting. C) Dynamic pricing. D) Opening and closing lanes. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-02 Differentiate between demand planning, demand forecasting, and demand mana Topic : Demand Management Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-51 The city of Dallas would like...

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42) Apply regression to the data shown below. The forecast for next January's sales is: Sales January February March April May June July August September October November December A) B) C) D)

100 200 150 400 300 200 250 350 400 350 400 500

150.0 Not enough information is given to make a forecast 450.0 477.3

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-40 Apply regression to the data...

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43) A company has the information shown in the chart below regarding its forecast performance

in the past three periods. Period

Actual Demand

Forecast Demand

800

1,100

2 3

1,000 1,400

Error

Absolute Value of Error 300

200 −100

What is the mean absolute deviation (MAD)? A) −66.67 B) 200 C) 1,200 D) 225 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-12 A company has the information...

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44) Suppose your firm is about to launch a radically new product. The type of demand

forecasting system you would most likely use is: A) Executive judgment. B) Moving average. C) Regression. D) Exponential smoothing. E) Time series. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-04 Suppose your firm is about...

45) Long-term or strategic demand planning is typically done using what units? A) Sales at a given location B) Total business unit sales C) Total product item sales D) Total product family sales Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-01 Explain the role of demand planning in operations management, in the firm, Topic : Demand Planning: An Overview Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-31 Long-term or strategic demand planning is...

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46) The data below show the forecasted probability of rain on Election Day and the actual

number of people who voted in the election for each of the past eight years in a given city. If tomorrow is Election Day and the weather forecast shows a 50 percent chance of rain, how many voters do you expect to turn out? Years in the past probability of rain (%) Number of voters (100s) A) B) C) D)

8 10 20

7 15 25

6 0 40

5 80 15

4 15 20

3 25 10

2 0 35

1 90 10

17.4 28.3 75.2 20.0

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-46 The data below show the forecasted...

47) Demand planning for the intermediate term (tactical plans) would be done using dollar or

unit sales for: A) A business unit B) An entire sales network C) A particular item at a given location D) A product family in a region Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-01 Explain the role of demand planning in operations management, in the firm, Topic : Demand Planning: An Overview Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-47 Demand planning for the intermediate...

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48) In recent years some companies have begun to work closely with their customers and/or

suppliers by sharing information to develop demand plans and execute those plans. The procedure they are following is known as: A) Joint planning of demand forecasts. B) Coordinated foreplanning of requirements. C) Conjoint analysis and forecasting. D) Collaborative planning, forecasting, and replenishment. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-06 Explain how certain improvements to both product design and operations acr Topic : Improving the Constraints on Demand Planning Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-15 In recent years some companies...

49) Zanda Corporation has been testing the performance of two different forecasting models to

see which it should adopt for use. It wants to choose the model that has the smaller standard deviation of the forecast errors. Zanda should compare which of the following to make its choice? A) MAD of the two models B) RMSE of the two models C) MAPE of the two models D) MFE of the two models Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 12-05 Evaluate and select forecasting models using various measures of accuracy Topic : Assessing the Performance of the Forecasting Process Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-28 Zanda Corporation has been testing...

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50) Alpha Company sold 2,000 widgets yesterday. It had forecasted sales of 1,900 units. Using

exponential smoothing with a smoothing constant of 0.6, what is the forecast for today's sales of widgets? A) 2,060 B) 2,040 C) 1,960 D) 1,940 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 12-04 Develop forecasts using moving average, exponential smoothing, and linear Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-08 Alpha Company sold 2,000 widgets...

51) Which of the following is not typically considered a component driver of demand? A) Autocorrelation B) Trend C) Perturbation D) Seasonality Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 12-03 Describe various qualitative and quantitative demand forecasting procedure Topic : Demand Forecasting Type : Static Source : Chapter 12 Test Bank - Static > TB MC Qu. 12-48 Which of the following is...

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Answer Key Test name: Chapter 12: Demand Planning: Forecasting and Demand Management 1) A

Postponable products obtain final form after customer demand is actually known. Some forecasts are still necessary (for components), and the timing of demand is not changed. 2) B

Demand management plans such as pricing and promotion are inputs needed to forecast demand. 3) B

A larger value of alpha places more weight on the most recent demand. It transfers more of the forecast error to the adjustment of the prior forecast. 4) B

(240 + 260 + 280) ÷ 3 = 260 5) D

Usually short term forecasts are more accurate than long-term forecasts. Similarly forecasts of aggregate demand are more accurate than forecasts of demand at detailed levels. 6) A

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Period

Actual Demand

Forecast

Error

345

320

Absolute Value of Error 25

320

310

335

350

−15

310

340

−30

370

350

MFE = 10 ÷ 5 = 2

MAD = 100 ÷ 5 = 20

Absolute Percentage Error 25 ÷ 345 = 7.25% 10 ÷ 320 = 3.13% 15 ÷ 335 = 4.48% 30 ÷ 310 = 9.68% 20 ÷ 370 = 5.41% MAPE = 29.95% ÷ 5 = 5.99%

7) A

F t+2 = FITt+1 + α ( dt+1 − FITt+1) = 216.6 + 0.20 (220 − 216.6) = 217.28 T t+2 = Tt+1 + β( F t+2 − FITt+1) = 10.6 + 0.10 (217.28 − 216.6) = 10.6 + 0.068 = 10.668 FIT t+2 = F t+2 + T t+2 = 216.6 + 10.668 = 227.268 8) D

$120,000 + 0.2($100,000 − $120,000) = $116,000 9) B

b = [328 − (4)(2.5)(30)] ÷ [30 − (4)(2.5)2squared] = 5.6 per period a = (30) − (5.6)(2.5) = 16 10) A

b = [328 − (4)(2.5)(30)] ÷ [30 − (4)(2.5)2squared] = 5.6 per period a = (30) − (5.6)(2.5) = 16 F5 = 16 + 5(5.6) = 44 units 11) B

Artificial intelligence (also called machine learning) is the use of algorithms and big data to develop (learn) effective forecasting models. 12) D

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Moving average models are purely based on history. They include no trend adjustment (prediction) so they will always lag behind changes in demand, though using fewer periods in the moving average calculation will decrease the amount of the lag. 13) B

Developing a good forecasting process usually involves more than just statistical analysis of data. Combinations of inputs help avoid bias in a forecasting process. 14) D

You must determine the value of a and b in a simple linear regression. b = [1904 − (5)(13.6)(27.2)] ÷ [960 − (5)(13.6)2] = 54.4 ÷ 35.2 = 1.55 a = (27.2) − (1.55)(13.6) = 27.2 − 21.08 = 6.12 Sales = 6.12 + 1.55(16) = 30.92. Sales = 6.12 + 1.55(21) = 6.12 + 32.55 = 38.67 15) D

Seasonality and cycles are regular patterns of repeating highs and lows, as described in this example. 16) C Period

Actual Demand

Forecast

Error

345

320

Absolute Value of Error 25

320

310

335

350

−15

310

340

−30

370

350

MFE = 10 ÷ 5 = 2

MAD = 100 ÷ 5 = 20

Absolute Percentage Error 25 ÷ 345 = 7.25% 10 ÷ 320 = 3.13% 15 ÷ 335 = 4.48% 30 ÷ 310 = 9.68% 20 ÷ 370 = 5.41% MAPE = 29.95% ÷ 5 = 5.99%

The MFE of +2 indicates a slight positive bias in the forecasts. 17) A

(0.6($280,000) + 0.3($300,000) + 0.1($190,000)) ÷ 3 = $277,000

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18) B

Postponable product designs allow forecasting at the component level, which is more accurate. 19) D

F5 = (140 + 115 + 200) ÷ 3 = 151.67 20) B

The error for period 1 is −300, therefore the MFE is −66.7. This is a negative bias. 21) B

F2 = FIT1 + 0.2(d1 − FIT1) = 22 + 0.20 (19 − 22) = 21.4 T2 = T1 + 0.4(F2 − FIT1) = 7.83 + 0.4 (21.4 − 22) = 7.6 FIT2 = F2 + T2 = 21.4 + 7.6 = 29 22) A

Year 1 average demand = (50 + 60 + 90 + 80) ÷ 4 = 70. Year 2 average demand = (60 + 70 + 100 + 90) ÷ 4 = 80. Quarter 1 SI for year 1 = 50 ÷ 70 = 0.714. Q1 SI for year 2 = 60 ÷ 80 = 0.75. Q1 average SI = 0.732. Average per quarter = 100, seasonal adjustment for Q1 = 100(0.732) = 73.2. 23) D

Ft+1 = α dt + (1 − α ) Ft or Ft+1 = Ft + α (dt − Ft); α = (168 − 170)÷(165 − 170) = 0.4 F5 = 140.1 + 0.4 (200 − 140.1) = 164.1 24) C

Strategic demand planning is necessary for long-term decisions such as building or closing a plant. The others described are shorter-term decisions. 25) D

Predicted sales for fourth quarter = 18.25 + 1.55 (4) = 24.45 Average fourth-quarter sales = (25 + 30 + 23 + 30) ÷ 4 = 27 Seasonal index = 27 ÷ 24.45 = 1.10 26) D

Demand management proactively attempts to influence demand, while forecasting simply tries to predict demand. 27) C

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Period

Actual Demand

Forecast

Error

345

320

Absolute Value of Error 25

320

310

335

350

−15

310

340

−30

370

350

MFE = 10 ÷ 5 = 2

MAD = 100 ÷ 5 = 20

Absolute Percentage Error 25 ÷ 345 = 7.25% 10 ÷ 320 = 3.13% 15 ÷ 335 = 4.48% 30 ÷ 310 = 9.68% 20 ÷ 370 = 5.41% MAPE = 29.95% ÷ 5 = 5.99%

28) D

y = 27.273x + 122.73 29) C

F t+1 = FITt + α ( dt − FITt) = 200 + 0.20 (230 − 200) = 206 30) A

You must determine the value of a and b in a simple linear regression. b = [1,904 − (5)(13.6)(27.2)] ÷ [960 − (5)(13.6)2squared] = 54.4 ÷ 35.2 = 1.55 a = (27.2) − (1.55)(13.6) = 27.2 − 21.08 = 6.12 Sales = 6.12 + 1.55(16) = 30.92. 31) B

Average for all demands = 22.125. Average for third-quarter demands = 18.5. Seasonal index = 18.5 ÷ 22.125 = 0.8362. 32) C

($190,000 + $300,000 + $280,000) ÷ 3 = $256,667 33) D

Time horizon, Level of detail and Data availability are all important considerations when designing a forecasting system. 34) E

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Adaptive forecasting automatically adjusts smoothing coefficients in an exponential smoothing model in response to a tracking signal. 35) D

T t+1 = Tt + β( F t+1 − FITt) = 10 + 0.10 (206 − 200) = 10 + 0.6 = 10.6. FIT t+1 = F t+1 + T t+1 = 206 + 10.6 = 216.6. 37) D

“Grassroots” refers to forecasts based on data collected at lower levels of the organization, including workers who are on the front lines of the business. 38) B

You need the smoothing coefficient (alpha) and a past forecast in order to develop a forecast using exponential smoothing. 39) B

Forecast = 10 + 0.4(12 − 10) = 10.8 40) D

The tracking signal suggests to a manager that model parameters may need adjustment. 41) C

Dynamic pricing uses sensors to monitor the current demand for a product or service. If the demand is too low or high then the price can be lowered or raised to manage the demand. Opening or closing lanes manages the supply, not the demand. 42) D

y = 27.273x + 122.73; January forecast = 27.273(13) + 122.73 = 477.3 43) B

Summing the absolute values of the errors and determining the average results is (300 + 200 + 100) ÷ 3 = 200. 44) A

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Radically new products do not have any data to support quantitative forecasting. Only executive judgment is a qualitative technique. 45) B

Strategic demand planning supports total business-level decisions. 46) A

Regression equation from formulas: Voters = 28.3 − 0.22 (probability of rain); 28.3 − 0.22(50) = 17.4 47) D

Intermediate planning (6−18 months) is done for a product family and seeks to forecast and manage aggregate demand. 48) D

Collaborative planning, forecasting, and replenishment is a process for sharing information and plans with supply chain partners. 49) B

RMSE provides a good approximation of the standard deviations of a model's forecast errors. 50) C

1,900 + 0.6(2,000 − 1,900) = 1,960 51) C

The components of demand are stable pattern, seasonality and cycles, trend, shift or step change, autocorrelation, and forecast error.

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Student name:__________ 1) Jones Corporation is preparing an aggregate production plan for washing machines for the

next four quarters. The company's expected quarterly demand is given in the following chart. The company will have 1,000 washers in inventory at the beginning of the year and wishes to maintain at least that number at the end of each quarter. Following is other critical data: Production cost per unit = $250 Inventory carrying cost per quarter per unit = $10 (based on quarter-ending inventory) Hiring cost per worker = $1,000 Firing cost per worker = $2,000 Beginning number of workers = 10 Each worker can produce 100 units per quarter. Any worker on the staff at the end of the year will not be fired at that time. Beginning Inventory: 1,000 Beginning Workers: 10 Quarter Demand Regular Overtime Ending Workers Hire Fire Production Inventory Required 1 4,000 2

6,000

3,000

7,000

Total

20,000

If Jones prefers a level plan, what will be the regular production rate per quarter? A) 5,000 units B) Regular production will vary each month. C) 4,000 units D) 6,000 units Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-13 Jones Corporation is preparing an...

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2) Dave's Stove-Top Popcorn currently has three full-time employees who are each paid $1,500

per month. An employee can only work a maximum of 100 hours per month because production normally takes place at night. They do receive $1,500 even if they do not work 100 hours, however. Part-time employees can be hired at a cost of $25 per hour. Dave's Stove-Top Popcorn has forecasted that demand for the next six months will be as follows: Month Hours Needed

1 380

2 280

3 450

4 420

5 520

6 390

What is the total labor cost if Dave hires one more full-time employee to meet additional demand? A) $36,000 B) $40,750 C) $30,750 D) $52,500 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-28 Dave&#39;s Stove-Top Popcorn currently has ...

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3) Zanda Corporation and Jones Corporation are identical in every way (products produced,

costs, demand, etc.) except for one. Zanda uses a level production plan while Jones prefers a chase production plan. Which of the following is most likely to be true? A) Zanda will have higher hiring and firing costs. B) Zanda will have higher inventory carrying costs. C) Zanda will have higher overtime costs. D) Zanda will have higher investment in plant and equipment. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-04 Contrast different types of aggregate production strategies. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-10 Zanda Corporation and Jones Corporation are identical ...

4) The process of replanning each period for a given number of periods into the future is

referred to as which of the following terms? A) Rolling planning horizon B) Aggregate planning C) Material requirements planning D) Master production schedule Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-32 The process of replanning each...

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5) If a company strongly prefers that its aggregate output plan be closer to a level plan than a

chase plan, this implies that it is concerned about minimizing: A) Lost sales costs. B) Cost of quality defects. C) Inventory carrying costs. D) Hiring and layoff costs. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-04 Contrast different types of aggregate production strategies. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-08 If a company strongly prefers ...

6) Which of the following is true concerning sales and operations planning? A) By keeping the schedule stable, production can be optimized. B) Once the plan is finalized, it should not be changed during the planning period. C) A benefit of the process is that the firm should achieve high service levels with lower

inventory. D) There is a specific set of steps all firms should follow in the sales and operations planning process. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-03 Which of the following is ...

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7) Zanda Corporation and Jones Corporation are identical in every way (products produced,

costs, demand, etc.) except for one. Zanda uses a level production plan while Jones prefers a chase production plan. Which of the following is most likely to be true? A) Jones will have lower inventory carrying costs. B) All of the selections are true. C) Jones will have higher investment in plant and equipment. D) Jones will have higher hiring and firing costs. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-04 Contrast different types of aggregate production strategies. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-11 Zanda Corporation and Jones Corporation are identical ...

8) You are sitting next to a person in business class on a flight from Los Angeles to Sydney,

Australia. You mention to that person that you got your ticket two months ago for only $12,500. The person responds that she bought her ticket two days ago for $7,800. This sometimes happens because airlines often use an approach called: A) Workforce leveling. B) Load management. C) Yield management. D) Capacity management. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain the differences in aggregate planning in services versus manufactu Topic : Aggregate Planning for Service Industries Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-29 You are sitting next to ...

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9) Dave's Stove-Top Popcorn currently has three full-time employees who are each paid $1,500

1 380

2 280

3 450

4 420

5 520

6 390

What is the total labor cost if Dave relies on part-time employees to meet additional demand? A) $53,500 B) $77,500 C) $43,500 D) $70,500 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-27 Dave&#39;s Stove-Top Popcorn currently has ...

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10) John Jones, senior VP for Zanda Corporation, is looking at three alternative aggregate

production plans for the next six-month period. At his company, demand varies by month with substantial month-to-month differences. The three alternatives are a "pure level plan," which keeps an absolutely constant workforce, a "pure chase plan" relying on hiring and layoffs, and a hybrid plan. He is most likely to find that the pure level plan: A) Has higher hiring/layoff cost than the hybrid plan. B) Has lower inventory carrying cost than the hybrid plan. C) Has higher hiring/layoff cost than the chase plan. D) Has higher inventory carrying cost than the chase plan. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-25 John Jones, senior VP for ...

11) The focus of an aggregate production plan, in general, is on all of the following EXCEPT: A) Facilities and capital equipment. B) Product lines. C) Inventory levels. D) The intermediate-term future. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-02 Define the contents of an aggregate plan. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-05 The focus of an aggregate ...

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12) Sales and Operational Planning: A) Provides an opportunity for customers to interact with the cross-functional team that

develops operational and marketing strategies. B) Ensures that decisions in sales, marketing and operations can be taken without reference to financial concerns. C) Provides a regular opportunity for cross-functional teams to review data from the field and to decide how the company should best respond. D) Is a forum where detailed production plans are developed and ratified. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-35 Sales and Operational...

13) S&OP has both “hard” and “soft” benefits. Which of the following is not considered a “soft”

benefit of S&OP? A) Higher sales and enhanced quality B) Enhanced teamwork at both the executive and operating levels C) Greater accountability for results D) Better decisions with less effort Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-36 S&amp;OP has both...

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14) Which of the following is NOT one of the costs considered in aggregate production

planning? A) Capital equipment cost. B) Firing (layoff) cost. C) Inventory cost. D) Subcontracting cost. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-03 Explain the relevant costs in developing an aggregate plan. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-06 Which of the following is ...

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15) Jones Corporation is preparing an aggregate production plan for washing machines for the

6,000

3,000

7,000

Total

20,000

Given this data, what is the inventory carrying cost of a LEVEL plan? A) $70,000 B) $7,000 C) $700,000 D) $100,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-14 Jones Corporation is preparing an...

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16) How does aggregate planning for services differ from aggregate production planning for

products? A) There is no difference. B) Demand for products typically is stated as the number of hours of labor required, whereas demand for services is generally stated as the number of units of service desired. C) Most service plans are based primarily on labor requirements. D) Service plans make extensive use of inventory to meet demand. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain the differences in aggregate planning in services versus manufactu Topic : Aggregate Planning for Service Industries Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-30 How does aggregate planning for...

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17) Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four

months. The company's expected monthly demand is given in the following chart. The company will have 50 widgets in inventory at the beginning of the first month and wishes to maintain at least that number at the end of each month. Following is other critical data: Production cost per unit = $50 Inventory carrying cost per month per unit = $10 (based on ending month inventory) Hiring cost per worker = $300 Firing cost per worker = $200 Beginning number of workers = 16 Each worker can produce 50 units per month. Beginning Inventory: 50 Beginning Workers: 16 Month Demand Regular Overtime Ending Workers Hire Fire Production Inventory Required 1 1,000 2

1,200

1,500

1,300

Total

What is the total inventory carrying cost for the level plan? A) $6,000 B) 0 C) $6,500 D) $8,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-19 Wiedmer Corporation is preparing an...

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18) Jones Corporation is preparing an aggregate production plan for washing machines for the

6,000

3,000

7,000

Total

20,000

Given this data, what is the total cost of a LEVEL plan? A) $5,000,000 B) $5,110,000 C) $5,740,000 D) $5,140,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-15 Jones Corporation is preparing an...

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19) Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four

1,200

1,500

1,300

Total

What is the inventory carrying cost of a chase plan accomplished through hiring and firing? A) 0 B) $1,000 C) $200 D) $2,000 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-21 Wiedmer Corporation is preparing an...

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20) Which of the following is NOT a dimension of maturity in the S&OP maturity model given

in the chapter? A) Structure of meetings. B) Scope of issues addressed in process. C) Technology integration. D) Level of top management commitment. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-40 Which of the following is...

21) What is the major aggregate planning difference between service and manufacturing firms? A) Customer satisfaction with service products can be precisely measured, whereas

satisfaction with manufactured goods is often a matter of interpretation. B) Aggregate planning is not as critical in service firms as it is in manufacturing companies. C) Demand for services is often stated in terms of service products delivered rather than units of manufactured goods. D) Service firms cannot hold inventory of their product. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain the differences in aggregate planning in services versus manufactu Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-39 What is the major...

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22) Which of the following is an advantage of a chase production strategy (as compared to a

level plan)? A) Lower inventory investment. B) Less investment in employee training. C) High inventory carrying cost. D) Low investment in equipment. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-04 Contrast different types of aggregate production strategies. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-26 Which of the following is ...

23) Generally speaking, the sales function and operations function differ in objectives. Which of

the following is NOT one of those differences? A) Sales emphasizes revenue; operations emphasizes cost minimization. B) Sales prefers rapid response; operations prefers stable production schedules. C) Sales prefers detailed forecasts for setting bonuses; operations prefers aggregate forecasts. D) Sales prefers many product variations; operations prefers few variations. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Type : Static Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-01 Generally speaking, the sales function ...

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24) Zanda Corporation is preparing an aggregate production plan for its product for the next four

months. The company's expected monthly demand is given in the following chart. The company will have 100 units in inventory at the beginning of the month and wishes to maintain at least 100 units at the end of each month. Following is other critical data: Production cost per unit = $125 Inventory carrying cost per month per unit = $10 (based on ending month inventory) Hiring cost per worker = $50 Firing cost per worker = $100 Beginning number of workers = 25 Each worker can produce 25 units per month. Beginning Inventory: 100 Beginning Workers: 25 Month Demand Regular Overtime Ending Workers Hire Fire Production Inventory Required 1 600 2

800

700

900

Total

3,000

The total inventory carrying cost of a chase plan is: A) $6,000 B) $4,000 C) $5,000 D) $4,500 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-16 Zanda Corporation is preparing an...

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25) Which of the following are not considered a relevant aggregate planning cost? A) Inventory holding cost B) Lost sales cost C) Management and supervisory training cost D) Subcontracting cost Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-03 Explain the relevant costs in developing an aggregate plan. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-37 Which of the following...

26) Which of the following is NOT an input into the S&OP? A) Lot Sizing Logic. B) Safety Stocks C) Promotion D) Spare Parts Demand Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-33 Which of the following is...

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27) Zanda Corporation is preparing an aggregate production plan for its product for the next four

800

700

900

Total

3,000

What is the total cost of a CHASE plan (using hiring/firing)? A) $381,100 B) $380,300 C) $379,000 D) $379,800 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-17 Zanda Corporation is preparing an...

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28) Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four

1,200

1,500

1,300

Total

What is the total cost of a chase plan which uses only hiring/firing? A) $257,900 B) $257,000 C) $257,400 D) $257,600 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-23 Wiedmer Corporation is preparing an...

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29) If a make-to-stock manufacturing firm with highly seasonal demand follows a chase demand

strategy, which of the following is likely to be true? A) Inventory will fluctuate significantly during the year. B) It will be easy to keep the workforce size stable. C) The production rate must be set equal to the demand in the heaviest demand period, and it must stay at that level all year. D) The firm likely will have higher capital investment than if it followed a level plan. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-04 Contrast different types of aggregate production strategies. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-07 If a make-to-stock manufacturing firm ...

30) Each month the sales and operations team at Johnson Company meets to develop plans for

each of the next six months. This process is known as: A) Rolling planning horizons. B) Unconstrained planning. C) Continuous planning. D) Collaborative planning and forecasting. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-04 Each month the sales and ...

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31) Every year around mid-May, the Grand Hotel on Mackinac Island runs a special to coincide

with the Lilac Festival. This special offers visitors a three day stay (3 days/2 nights) combined with all meals and a guided tour of the various Lilac displays. Which of the following terms best captures this program? A) Marketing Strategy B) Aggregate Planning. C) Sales and Operations Planning D) Yield Management Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-06 Explain the differences in aggregate planning in services versus manufactu Topic : Aggregate Planning for Service Industries Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-34 Every year around...

32) If a make-to-stock manufacturing firm with highly seasonal demand follows a level

production strategy, which of the following is likely to be true? A) The firm must make sure that its maximum capacity is at least as high as the heaviest demand period. B) It will be difficult to keep the workforce size stable. C) The production rate must be set equal to the demand in the heaviest demand period, and stay at that level all year. D) Inventory will fluctuate significantly during the year. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-03 Explain the relevant costs in developing an aggregate plan. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-09 If a make-to-stock manufacturing firm ...

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33) John Jones, senior VP for Zanda Corporation, is looking at three alternative aggregate

production plans for the next six-month period. At his company, demand varies by month with substantial month-to-month differences. The three alternatives are a "pure level plan," which keeps an absolutely constant workforce, a "pure chase plan" relying on hiring and layoffs, and a hybrid plan. He is most likely to find that the hybrid plan: A) Has higher hiring/layoff cost than the chase plan and higher inventory carrying cost than the level plan. B) Has lower inventory carrying cost than the chase plan and higher hiring/layoff cost than the level plan. C) Has lower inventory carrying cost than the level plan and lower hiring/layoff cost than the chase plan. D) None of these selections. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-24 John Jones, senior VP for ...

34) Firms in which of these industries experience no difficulty in balancing supply and demand? A) The fast food industry. B) All companies must make difficult decisions in balancing supply and demand. C) The airline industry. D) The commercial real estate industry. Question Details AACSB : Analytical Thinking AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-38 Firms in which of these...

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35) Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four

1,200

1,500

1,300

Total

What is the regular monthly actual production for a level plan? A) 1,250 B) 1,500 C) 1,000 D) 800 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-18 Wiedmer Corporation is preparing an...

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36) Which type of aggregate production plan is likely to have the LEAST negative impact on the

local community and the workforce? A) Chase plan with overtime B) Chase plan with hiring and firing C) Level plan D) The plans do not differ in their impact on the local community and the workforce. Question Details AACSB : Ethics AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-04 Contrast different types of aggregate production strategies. Topic : Aggregate Production Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-12 Which type of aggregate production ...

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37) Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four

1,200

1,500

1,300

Total

What is the total cost of hiring and firing the workers in a chase plan which uses only hiring and firing? A) 0 B) $5,000 C) $6,400 D) $800 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-22 Wiedmer Corporation is preparing an...

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38) Within the hierarchy of planning, the Sales & Operations Planning system occurs at which of

the following levels? A) Operational level. B) Short range C) Intermediate range D) Long range Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-31 Within the hierarchy of...

39) Sales and Operations Planning focuses on what time frame? A) Long term Plans B) Very short, immediate plans C) Intermediate range planning D) All of the above Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 13-01 Describe the role and the process of sales and operations planning. Topic : Sales and Operations Planning Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-02 Sales and Operations Planning ...

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40) Wiedmer Corporation is preparing an aggregate production plan for widgets for the next four

1,200

1,500

1,300

Total

What is the total cost of the level plan? A) $250,000 B) $258,000 C) $252,700 D) $260,700 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 2 Medium Gradable : automatic Learning Objective : 13-05 Develop alternative aggregate production plans. Topic : Creating an Aggregate Production Plan Source : Chapter 13 Test Bank - Static > TB MC Qu. 13-20 Wiedmer Corporation is preparing an...

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Answer Key Test name: Chapter 13: Sales and Operations Planning 1) A

20,000 units annually divided by 4 quarters is 5,000 units per quarter. 2) B

Full-time employee cost = 4 × $1,500 × 6 = $36,000 Needed hours = 0 + 0 + 50 + 20 + 120 + 0 = 190 hours needed × $25.00 = $4,750 Total labor cost = $36,000 + $4,750 = $40,750. 3) B

A firm with a level production plan will have higher average inventory levels than a firm pursuing a chase production plan. 4) A

A firm using rolling planning horizons plans each period for a given number of periods into the future. 5) D

A level production plan minimizes hiring and layoff costs due to changes in output volume. 6) C

A benefit of S&OP is that the firm can achieve improved customer service with lower finished good inventory. 7) B

A chase production plan will require a higher investment in equipment and will endure fluctuating work force levels but will have lower inventory costs. 8) C

Yield management attempts to adjust demand by changing prices for a service as demand occurs. 9) C

Full-time employee cost = 3 × $1,500 × 6 = $27,000 Needed hours = 80 + 0 + 150 + 120 + 220 + 90 = 660 hours needed × $25.00 = $16,500 Total labor cost = $27,000 + $16,500 = $43,500. 10) D

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The hybrid plan will have lower hiring/layoff and overtime expenses than the chase plan but will have higher inventory carrying costs. The hybrid plan will have higher hiring/layoff and overtime costs than the level plan but will have lower inventory carrying costs. 11) A

Facilities and capital equipment decisions are long-term decisions with strategic implications; aggregate plans focus on intermediate-term non-strategic decisions. 12) C

Sales and operational planning give companies a regular opportunity to review data from the field and to decide how the company should best respond. 13) A

Higher sales and enhanced quality are not considered “soft” benefits of S&OP. 14) A

Facilities and capital equipment decisions are long-term decisions with strategic implications; aggregate plans focus on intermediate-term non-strategic decisions. 15) A

A level production plan is [20,000 units ÷ 4 quarters = 5,000 units per quarter. With the 1,000 units of beginning inventory, this results in ending inventory of 2,000 units at the end of quarter 1 and 3,000 units of inventory at the end of quarter 3. The ending inventory at the end of quarter 2 and 4 is 1,000 in accordance with the company policy of holding at least 1,000 units at the end of each quarter. The total quarterly ending inventory is, therefore, 2,000 + 1,000 + 3,000 + 1,000 units = 7,000 units. At $10 per unit carrying cost per quarter, that is $70,000. 16) C

Because services cannot be inventoried, when supply and demand do not match, the impact is felt most strongly by human resources. 17) D

A Level plan produces 1,250 per month. Including the 50 units minimum inventory policy, ending inventory in month one will be 300 units, month two 350 units, month three 100 units, and month four 50 units. The total monthly ending inventory is 300 + 350 + 100 + 50 = 800 units at $10 per unit per month, 800 × $10 = $8,000. 18) B

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A level production plan is 20,000 units ÷ 4 quarters = 5,000 units per quarter. 40 workers need to be hired at $1,000 per worker = $40,000. 20,000 washers will be produced at $250 each = $5,000,000. With the 1,000 units of beginning inventory, this results in ending inventory of 2,000 units at the end of quarter 1 and 3,000 units of inventory at the end of quarter 3. The ending inventory at the end of quarter 2 and 4 is 1,000 in accordance with the company policy of holding at least 1,000 units at the end of each quarter. The total quarterly ending inventory is, therefore 2,000 + 1,000 + 3,000 + 1,000 units = 7,000 units. At $10 per unit carrying cost per quarter, that is $70,000.Total production cost = $40,000 + $5,000,000 + $70,000 = $5,110,000. 19) D

With a chase plan the amount produced will be equal to demand. The ending inventory for each month will be the company’s policy of holding 50 units at the end of each month, a total of 200 unit-months of inventory at $10 each = $2,000. 20) D

Top management commitment is a prerequisite for any S&OP process, not a measure of maturity. 21) D

A service cannot build finished product in advance of demand. 22) A

The chase plan will have lower inventory investment than the level plan but will have higher hiring/layoff, overtime and training costs and will require higher equipment investment than the level plan. 23) C

Sales prefers aggregate forecasts while operations prefers detailed forecasts. 24) B

In a chase production plan, production is equal to demand. Hence, the only inventory carrying cost will arise from the company’s policy of always maintaining 100 units on hand at the close of every month. The inventory carrying cost for these four months is therefore 100 units × $10 ÷ unit × 4 months = $4,000. 25) C

Relevant costs for aggregate planning are: inventory holding cost, regular production cost, overtime, hiring/firing/layoff costs, backorder/lost sales cost, and subcontracting cost. 26) A

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S&OP considers all forecasted demands including safety stocks, spare parts, and promotional demands. Lot sizing is not part of S&OP. 27) B

With a chase plan, production will be 3,000 units at $125 per unit = $375,000. Using a chase strategy you will lay off one worker in month 1 and four workers in month 3. 5 layoffs at $100 each = $500 You will hire 8 workers in month 2 and month 4. 16 workers hired at $50 each = $800 Inventory carry cost will be 100 units per month at $10 per month for 4 months = $4,000 $375,000 + $500 + 800 + 4,000 = $380,300. 28) B

5,000 units will be produced at $50 each, a total production cost of $250,000. A chase plan will require a total of 14 hires and 4 layoffs, 14 × $300 + 4 × $200 = $5,000 Inventory carrying cost will apply to the 50 units minimum inventory company policy. $10 ÷ unit month × 50 units × 4 months = $2,000. Total cost = $250,000 + $5,000 + $2,000 = $257,000. 29) D

A level production plan builds inventory in low-demand periods and depletes inventory during high-demand periods. A chase strategy requires sufficient capital equipment to produce at peak levels while that equipment is less utilized during lower-demand periods. Hence, the chase strategy requires a larger investment in capital equipment than if they used a level production plan. 30) A

Replanning each time period for a given number of periods into the future is known as rolling planning horizons. 31) D

Yield management is a strategy that shapes demand in a way that generates greater revenues and profits. 32) D

The firm is meeting fluctuating demand by drawing from inventory in peak demand periods and replenishing that inventory during lower demand periods. 33) C

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All firms experience difficulty in balancing supply and demand. 35) A

(1,000 + 1,200 + 1,500 + 1,300 = 5,000) ÷ 4 = 1,250 widgets 36) C

The level production plan will provide more stability and security for the workforce while a chase plan impacts both the workforce and the community with frequent layoffs. 37) B

A chase plan will require four additional workers in month 1, four more in month 2, six more in month 3, and layoff 4 in month 4. At $300 hiring expense and $200 firing expense, that is 14 hires and 4 layoffs; 14 × 300 + 4 × 200 = $5,000. 38) C

S&OP is intermediate-range planning. 39) C

S&OP is intermediate-range planning. 40) D

A Level plan produces 1,250 per month. This will require 25 workers, which means that 9 workers will be hired at $300, an expenditure of $2,700. Including the 50 units minimum inventory policy, ending inventory in month one will be 300 units, month two 350 units, month three 100 units, and month four 50 units. The total monthly ending inventory is 300 + 350 + 100 + 50 = 800 units at $10 per unit per month. 800 × $10 = $8,000. Production of 5,000 units at $50 each = $250,000. Total: $2,700 + $8,000 + $250,000 = $260,700.

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Student name:__________ 1) Distribution requirements planning: A) Uses logic that starts at the manufacturing plant and works forward toward the

customer. B) Includes only firm orders in its calculations. C) Is normally not included as a module in ERP software. D) Uses logic similar to MRP, beginning at the point closest to the customer. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-03 Explain how distribution requirements planning (DRP) is used. Topic : Distribution Requirements Planning (DRP) Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-47 Distribution requirements...

2) Capacity requirements planning does all of the following EXCEPT: A) Use planned order releases and scheduled receipts to estimate work center loads. B) Recalculate the MRP plan. C) Develop a load profile. D) Determine if a work center has the capacity to implement the MRP plan. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-04 Conduct capacity requirements planning (CRP) using an infinite loading app Topic : Capacity Requirements Planning (CRP). Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-24 Capacity requirements planning does...

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3) A master production schedule shows the following information: MPS Beginning inventory Week 1 Week 2 = 300 Forecast 1,000 1,200 Actual customer orders 800 1,000 Projected on-hand 0 0 inventory Available to promise

Week 3

Week 4

1,300 800 0

1,200 700 0

MPS

Based on the information in the MPS, what is the number of items that is available to promise in week 4? A) 700 B) 500 C) 1,200 D) 1,500 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-10 A master production schedule shows the...

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4) The following table shows capacity requirements data for making tabletops. Processing time per unit Day 1 Day 2 Day 3 Day 4 = 10 minutes Planned order releases 40 46 40 54 (units) Processing load (hours) Available capacity (hours)

Day 5 50

Which of the following is TRUE? A) Overtime is needed in day 1. B) New machines are needed. C) All of the excess demand in days 4 and 5 can be shifted to day 3. D) Capacity exactly meets demand in day 5. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-04 Conduct capacity requirements planning (CRP) using an infinite loading app Topic : Capacity Requirements Planning (CRP). Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-26 The following table shows capacity...

5) Which of the following would benefit the most from MRP? A) Building of a new bridge. B) Gasoline production. C) Production of aluminum soft drink cans. D) Production of vacuum cleaners. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-01 Explain the materials requirements planning (MRP) process and when it shou Topic : Materials Requirements Planning Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-31 Which of the following would benefit...

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6) An end item A is made by assembling four of component B and one of component C.

Component B is made from two of part D and four of part E. Within the bill of materials, component B is considered to be: A) Level 2. B) Level 3. C) Level 0. D) Level 1. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-44 An end item A is made by...

7) Planning for which of the following products would see the LEAST benefit from the use of

an MRP system? A) Shampoo B) Mobile phones C) Microwave ovens D) Power lawn mowers Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-01 Explain the materials requirements planning (MRP) process and when it shou Topic : Materials Requirements Planning Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-03 Planning for which of the following products...

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8) A master production schedule shows the beginning inventory is 50 units, the forecast is 80

units, and actual customer orders are 70 units. Using a lot-for-lot rule, what is the MPS quantity for period 1? A) 70 B) 80 C) 20 D) 30 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-37 A master production schedule shows ...

9) A detailed description of an “end item” along with a list of all of its raw materials, parts, and

subassemblies is shown in a: A) DRP. B) BOM. C) Planning horizon. D) MPS. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-42 A detailed description of an...

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10) A master production schedule shows the beginning inventory is 100 units, the forecast is 250

units, and actual customer orders are 400 units. Using a lot-for-lot rule, what is the MPS quantity for period 1? A) 400 B) 300 C) 250 D) 150 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-38 A master production schedule shows ...

11) Materials requirements planning (MRP) systems are used primarily to: A) Plan amounts of end items to produce. B) Plan orders. C) Plan distribution. D) Plan lead time. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-01 Explain the materials requirements planning (MRP) process and when it shou Topic : Materials Requirements Planning Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-02 Materials requirement planning (MRP) systems...

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12) End item A is made by assembling two parts of B and 4 parts of C. Part C is made from 3

parts of D and 2 parts of E. Gross requirements for end item A are 100 units.

End item A Part B Part C Part D Part E

Units on-hand in inventory 50 30 75 100 75

What is the net requirement for part C? A) 100 units B) 200 units C) 70 units D) 125 units Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Process Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-16 End item A is made by assembling two parts of...

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13) Which of the following is NOT an input to an MRP system? A) Bill of materials. B) Actual orders. C) Order releases. D) Inventory receipts. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-32 Which of the following is NOT an...

14) A master production schedule shows the beginning inventory is 40 units, the forecast is 100

units, and actual customer orders are 80 units. What is the quantity that is available to promise in period 1? A) 80 B) 40 C) 60 D) 100 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-40 A master production schedule shows...

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15) The planned order releases in week 5 are 10 units. Each unit must be processed for five

minutes at the workstation. If the available capacity at the workstation is one hour: A) The workstation is underloaded. B) An order backlog will be created. C) Overtime will be needed. D) Delivery lead times should be increased. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-04 Conduct capacity requirements planning (CRP) using an infinite loading app Topic : Capacity Requirements Planning (CRP). Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-49 The planned order releases...

16) If the cumulative lead time is eight weeks, for a project to be feasible the MPS planning

horizon must be: A) At least 16 weeks. B) Exactly eight weeks. C) Less than eight weeks. D) At least eight weeks. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-06 If the cumulative lead time is eight weeks...

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17) A master production schedule shows the following information: Beginning inventory = 20 Period 1 Forecast 90 Actual orders 100 Projected on-hand inventory

Period 2 200 180

Available to promise MPS

Using a lot-for-lot rule, what is the MPS quantity for period 1? A) 80 B) 40 C) 90 D) 100 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-07 A master production schedule shows the...

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18) The entire time period covered by the MPS is the: A) Cumulative lead time. B) Planning horizon. C) Production schedule. D) Time bucket. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-36 The entire time period...

19) A master production schedule shows the beginning inventory is 50 units, the forecast is 200

units, and actual customer orders are 220 units. What is the quantity that is available to promise in period 1? A) 0 B) 150 C) 170 D) 50 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-41 A master production schedule shows...

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20) Constant changing of the master schedule and the resulting changes in the requirements for

components is referred to as: A) System nervousness. B) Bad planning. C) Master schedule dynamics. D) MRP failure. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Outputs and Use Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-21 Constant changing of the master schedule and...

21) A master production schedule shows the beginning inventory is 200 units, the forecast is 600

units, and the actual customer orders is 500 units. Using a lot-for-lot rule, what is the MPS quantity for period 1? A) 300 B) 600 C) 500 D) 400 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-39 A master production schedule shows ...

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22) MRP is a process that would be most applicable in which situation? A) Planning requirements for repair parts for production equipment in a manufacturing

plant. B) Planning requirements at bottleneck operations. C) Planning requirements for safety stocks of finished goods in a distribution center. D) Planning requirements for bicycle seats in a bicycle production plant. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-01 Explain the materials requirements planning (MRP) process and when it shou Topic : Materials Requirements Planning Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-01 MRP is a process that would be most...

23) Advanced planning and scheduling systems: A) Integrate materials and capacity planning into one system. B) Consolidate all business planning systems and data throughout an organization. C) Use Artificial Intelligence and Machine Learning to improve the quality of the

production plans and schedules. D) Use a similar logic to the logic used in MRP. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-06 Explain how advanced planning systems and scheduling (APS) systems improve Topic : Advances in Planning Systems Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-29 Advanced planning and...

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24) Using the BOM, if two units of A are needed, how many of K will be required? Assume that

there is no on-hand inventory of any items.

A) B) C) D)

16 52 34 104

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-14 Using the BOM, if two units of A are needed...

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25) Which of the following is NOT included in the information about the inventory records file

for an item? A) Net requirements B) Lead time C) Safety stock D) Preferred order quantity Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-15 Which of the following is NOT included in...

26) Which of the following pieces of information is NOT contained in an MRP secondary report? A) Cost. B) Schedule attainment. C) Planned order releases. D) Inventory levels. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Outputs and Use Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-46 Which of the following pieces...

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27) End item A is made by assembling two parts of B and four parts of C. Part C is made from

three parts of D and two parts of E. Gross requirements for end item A are 100 units.

End item A Part B Part C Part D Part E

Units on-hand in inventory 50 30 75 100 75

What is the gross requirement for part E? A) 175 B) 275 C) 375 D) 250 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Process Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-17 End item A is made by assembling 2 parts of...

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28) The longest lead-time path in the BOM is the: A) Time window. B) Cumulative lead time. C) Time bucket. D) Planning horizon. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-05 The longest lead-time path in the...

29) The available capacity of a worker, machine, work center, or facility during a specific period

of time is compared against the capacity needed for a specific work schedule in a: A) Capacity profile. B) DRP. C) Infinite load. D) Load profile. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-04 Conduct capacity requirements planning (CRP) using an infinite loading app Topic : Capacity Requirements Planning (CRP). Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-48 The available capacity of...

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30) If the planning horizon is 12 weeks, the cumulative lead time must be: A) Greater than 12 weeks. B) Less than or equal to 12 weeks. C) Greater than six weeks. D) Exactly equal to 12 weeks. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-35 If the planning...

31) A bill of materials file contains: A) Invoices for materials that must be paid in this period. B) Capacity loadings for the various materials. C) Lists of materials required to produce end item products. D) Accounts payable for materials. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-12 A bill of materials file contains:

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32) End item A is made by assembling two of part B and three of part C. Part C is made from

two of component D and two of component E. Component D is considered to be a: A) Level 3 input. B) Level 1 input. C) Level 2 input. D) Level 0 input. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Evaluate Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-13 End item A is made by assembling two of part...

33) A planner receives a request from a customer for a change in the Master Production

Schedule. This change falls with the cumulative lead time. Which of the following techniques would the planner use to respond to this request? A) Time fencing. B) Product explosions. C) Time phasing. D) What if. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Process Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-52 A planner receives a request from...

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34) An MRP schedule is as follows. What are the net requirements in week 2? MRP Record Part Name: Pump Lead time = 1 Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 weeks on hand = 50 Safety stock = 20 Order quantity: L4L Gross 20 30 40 40 60 40 50 20 Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts A) B) C) D)

20 units. 30 units. 50 units. 0 units.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-45 An MRP schedule is...

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35) The following table shows capacity requirements data for making Blodgetts. Processing time per Period 1 Period 2 Period 3 Period 4 Period 5 unit = 2 hours Planned order 300 400 340 375 325 releases Processing load Available capacity

700

A load profile would show: A) Load above capacity in periods 3 and 5. B) Load below capacity in periods 1 and 3. C) None of these. D) Load is exactly equal to capacity in period 5. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-04 Conduct capacity requirements planning (CRP) using an infinite loading app Topic : Capacity Requirements Planning (CRP). Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-25 The following table shows capacity...

36) The quantities of end items to be completed in each time period into the future is shown in

a(n): A) B) C) D)

MPS. BOM. ERP. MRP.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-04 The quantities of end items to be completed...

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37) Benefits of ERP systems include all of the following EXCEPT: A) Improved customer service. B) More informed business decisions. C) Fewer data entry errors. D) Easy implementation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-05 Describe how materials requirements and resource planning functions work t Topic : Advances in Planning Systems Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-28 Benefits of ERP systems include all of the...

38) The primary purpose of an MRP system is to: A) Schedule personnel. B) Match supply and demand. C) Plan transportation and deliveries. D) Develop forecasts. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-01 Explain the materials requirements planning (MRP) process and when it shou Learning Objective : 14-06 Explain how advanced planning systems and scheduling (APS) systems improve Topic : Materials Requirements Planning Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-30 The primary purpose of an...

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39) A master production schedule shows the following information: MPS Beginning inventory = Week 1 Week 2 100 Forecast 500 550 Actual customer orders 550 600 Projected on-hand inventory Available to promise

Week 3

Week 4

400 500

500 450

MPS

Using a lot-for-lot rule, what is the MPS quantity for week 4? A) 400 B) 50 C) 450 D) 500 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-09 A master production schedule shows the...

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40) MRP deals with which two elements of feasibility: 1. Material 2. Capacity 3. Lead time 4. Financial A) 1 and 3 B) 2 and 3 C) 3 and 4 D) 1 and 2 Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-05 Describe how materials requirements and resource planning functions work t Topic : Advances in Planning Systems Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-51 MRP deals with which two elements...

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41) An MRP record for a motor is shown in the following table. MRP Part Name: Motor Record Lead Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 time = 2 weeks On-hand inventor y = 500 Safety stock = 100 Order quantity : LFL Gross 6,0 8,0 10,0 10,0 10,0 8,0 6,0 8,0 Requirem 00 00 00 00 00 00 00 00 ents Schedule 5,6 8,0 d 00 00 Receipts Availabl e Inventor y Net Requirem ents Planned Order Receipts Planned Order Release

What is the planned order release for week 4? A) 10,000 B) 0 C) 6,000 D) 8,000

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Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Process Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-19 An MRP record for a motor is shown in the...

42) Significant changes in an MPS quantity several weeks into the planning horizon can: A) Make the MRP more accurate. B) Reduce stockouts. C) Cause inconsistencies in the MRP. D) Increase safety stock. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Outputs and Use Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-20 Significant changes in an MPS quantity several...

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43) Software that consolidates all of the business planning systems and data throughout an

organization is: A) ERP. B) DRP. C) MRP. D) MPS. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-05 Describe how materials requirements and resource planning functions work t Topic : Advances in Planning Systems Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-27 Software that consolidates all of the...

44) Which of the following is NOT an input into the MRP? A) Master production schedule B) Planned order release C) Inventory records file D) Bill of materials Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-11 Which of the following is NOT an input into...

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45) All of the following are outputs from an MRP system EXCEPT: A) Exception reports. B) Forecasts. C) Change orders. D) Order releases. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-33 All of the following are outputs...

46) An MPS shows: A) The scheduled releases for all parts and components. B) The number of each type of part that is needed to make the final product. C) The change orders that are required. D) The quantities of end items to be completed in each time period. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-34 An MPS shows:

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47) The positioning and replenishment of finished goods inventories at the retail level can be

most appropriately determined using: A) MRP II. B) CRP. C) DRP. D) MRP. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-03 Explain how distribution requirements planning (DRP) is used. Topic : Distribution Requirements Planning (DRP) Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-22 The positioning and replenishment of...

48) Zanda Company is looking for a requirements planning system to help plan replenishment of

its finished goods throughout its network of distribution centers. The type of system Zanda should consider is known as: A) CRP. B) DRP. C) ERP. D) MRP. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-03 Explain how distribution requirements planning (DRP) is used. Topic : Distribution Requirements Planning (DRP) Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-23 Zanda Company is looking for a requirements...

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49) Demand-driven MRP: A) Is also called advanced planning and scheduling. B) Focuses on distribution planning. C) Compares materials and capacity requirements within a single firm. D) Extends planning across the supply chain. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 14-05 Describe how materials requirements and resource planning functions work t Topic : Advances in Planning Systems Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-50 Demand-driven MRP:

50) Jones Company uses widgets as component parts. In a particular week it has gross

requirements for 250 units of widgets, beginning inventory of 50 widgets, and scheduled receipts of 350 widgets. Available inventory for the next period is: A) 250. B) 50. C) 650. D) 150. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Process Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-18 Jones Company uses widgets as...

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51) A company has decided to outsource the production of key components for its main product

to suppliers. What effect will this have on the product’s bill of materials? A) The bill of materials will not change. B) The bill of materials will be flatter. C) The bill of materials will be wider. D) The bill of materials will be deeper. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-43 A company has decided to outsource...

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52) A master production schedule shows the following information: Beginning inventory = 20 Period 1 Forecast 90 Actual orders 100 Projected on-hand inventory

Period 2 200 180

Available to promise MPS

What is the number of items available to promise for period 2? A) 20. B) −20. C) 100. D) 0. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 14-02 Conduct MRP planning for items at multiple levels in the bill of materials Topic : MRP Inputs Source : Chapter 14 Test Bank - Static > TB MC Qu. 14-08 A master production schedule shows the...

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Answer Key Test name: Chapter 14: Materials and Resource Requirements Planning 1) D

DRP uses logic similar to MRP to create gross requirements, beginning at retailers or the point closest to consumers. 2) B

Capacity Requirements can identify where capacity is overloaded or underloaded but does not revise the MRP plan. 3) B

The number of items available to promise in week 4 is the forecast minus the actual customer orders, which is 1,200 − 700 = 500. 4) C

With the current capacity, exactly 48 units can be made each day. The excess of order releases (demand) over capacity in day 4 is six and in day 5 is two. These units can be shifted to day 3, and capacity would exactly meet demand in days 3 through 5. 5) D

Vacuum cleaners are moderately complex, discrete products that are produced in batches, good candidates for the use of MRP for planning. 6) D

Item B is considered to be a level 1 item. 7) A

The greatest benefit from MRP is attained when planning complex, discrete products that are assembled, such as microwave ovens, mobile phones, and power lawn mowers. 8) D

The largest of the forecast or customer orders is evaluated. Since the forecast is greater than the customer orders, 80 − 50 = 30 is the number of units that is in the MPS. 9) B

A detailed description of an “end item” along with a list of all of its raw materials, parts, and subassemblies is shown in a bill of materials (BOM). 10) B

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The largest of the forecast or customer orders is evaluated. Since the customer orders are greater than the forecast, 400 − 100 = 300 is the number of units that is in the MPS. 11) B

MRP is a system for planning the ordering of materials. 12) D

The gross requirements for A is 100, but there are 50 units of A in inventory, so only 50 units of A need to be produced. There are four Cs for each A, so the gross requirement for C is 4 × 50 = 200, but there are 75 units of C in inventory, so only 125 Cs must be produced. 13) C

Order releases are outputs from an MRP system. 14) C

The largest of the forecast or customer orders is evaluated. Since the forecast is greater than the customer orders, 100 − 40 = 60 is the number of units that is available to promise. 15) A

The required capacity is 10 units × 5 minutes = 50 minutes. The workstation has 60 minutes of capacity, so it is underloaded. 16) D

The MPS planning horizon must be equal to or greater than the cumulative lead time to ensure that there is enough time to plan, order, receive material, and make the end items. 17) A

The MPS quantity in period 1 is the greater of the forecast or actual orders minus the beginning inventory. The actual orders are the greatest, so the MPS is 100 − 20 = 80. 18) B

The entire time period covered by the MPS is the planning horizon. 19) A

The largest of the forecast or customer orders is evaluated. Since the customer orders are greater than the forecast, 220 − 50 = 170 is the number of units that is in the MPS. Since the MPS plus the on-hand inventory equal the actual customer orders the available to promise is zero. 20) A

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Changes in the MPS during the planning horizon can cause nervousness, which is inconsistencies in the MRP plan. 21) D

The largest of the forecast or customer orders is evaluated. Since the forecast is greater than the customer orders, 600 − 200 = 400 is the number of units that is in the MPS. 22) D

MRP is used for dependent demand items. Only planning requirements for bicycle seats in a bicycle production plant is a dependent demand item. 23) D

APS does not consolidate all planning (ERP does that). APS does use logic similar to MRP and integrates materials and capacity planning. 24) D

Ks are used in B and C. In B, four Ks are needed (4 × 1). For C, the number of Ks is 4 × 4 = 16. To make one A requires one B and three Cs, so the number of Ks is (4 × 1) + (3 × 16) = 52. Two As require 52 × 2 = 104 Ks. 25) A

Net requirements are an output of MRP and are not in an inventory records file. 26) C

Planned order releases are contained in primary reports, not secondary reports. 27) D Gross requirements End item A Part B (2) Part C (4) Part D (3) Part E (2)

100 100 (50 × 2) 200 (50 × 4) 375 (125 × 3) 250 (125 × 2)

Units on-hand in inventory 50 30 75 100 75

Net requirements 50 70 125 275 175

28) B

The cumulative lead time is the longest lead-time path in the BOM. 29) D

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A load profile compares weekly capacity needs against the actual capacity that is available. 30) B

The cumulative lead time must be less than or equal to 12 weeks. 31) C

The BOM lists all the materials required to produce an item. 32) C

Component D is needed to make part C, which is a level 1 input to the end item. Thus, component D is a level 2 input. 33) D

As noted in the discussion of the MRP process, this request is best addressed using the What If capability. 34) A

At the end of week 1, the available inventory is 50 units − 20 units = 30 units. The gross requirements in week 2 are 30, so the on-hand inventory − 30 = 0. However, 20 units of safety stock are required so the net requirements are 20 units. 35) B

To equal capacity, planned releases would have to be 350 in a period to result in 700 hours of processing load. 36) A

An MPS shows the quantities of end items that are to be completed during each time period over the planning horizon. 37) D

ERP systems are complex and can be difficult to implement. 38) B

The primary purpose of an MRP system is to match supply and demand. 39) D

The MPS in week 4 is 500, which is the greater of the forecast or actual orders. 40) A

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The answer can be found by looking at Figure 14-7 and it can be seen that MRP does not consider either capacity or financial issues. 41) D Week 1 Gross 6,00 Requireme 0 nts Scheduled 5,60 Receipts 0 Available 100 Inventory at end Net 0 Requireme nts Planned 0 Order Receipts Planned 10,0 Order 00 Release

2 8,00 0

3 10,0 00

4 10,0 00

5 10,0 00

6 8,0 00

7 6,0 00

8 8,0 00

8,00 0 100

100

10,0 00

8,0 00

6,0 00

8,0 00

10,0 00

8,0 00

6,0 00

8,0 00

10,0 00

8,00 0

6,00 0

8,0 00

The net requirement in week 6 is 8,000 units. Working backward by the two-week lead time, an order must be released for 8,000 units in week 4. 42) C

Changes in the MPS during the planning horizon can cause nervousness, which is inconsistencies in the MRP plan. 43) A

An ERP system consolidates all of the business planning systems and data throughout an organization. 44) B

The BOM, inventory records file, and the MPS are the inputs. 45) B

Forecasts are inputs to an MRP system. 46) D

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The quantities of end items to be completed in each time period are shown in an MPS. 47) C

DRP (distribution requirements planning) is the system used to help in positioning and replenishing finished goods inventory in a system. 48) B

DRP (distribution requirements planning) is the system used to help in positioning and replenishing finished goods inventory in a system. 49) D

Demand-driven MRP goes beyond a single organization to extend planning across the entire supply chain. 50) D

Beginning inventory (50) + scheduled receipts (350) − gross requirements (250) = 150. 51) B 52) A

The number of items available to promise in period 2 is the forecast minus the actual customer orders, which is 200 − 180 = 20.

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Student name:__________ 1) Zanda Corporation has decided that it needs a project team to implement a new ERP system.

It wants the system implemented as soon as possible. Given this criterion, Zanda should choose a: A) Line and staff organization structure. B) Functional project structure. C) Pure project structure. D) Matrix organizational structure. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Apply Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-03 Choose the best type of project organizational structure for a given set o Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-06 Zanda Corporation has decided that...

2) The network diagram below shows six tasks required to complete a project and the associated

times for those tasks. {MISSING IMAGE} Which task has the greatest amount of slack? A) A B) D C) C D) B E) E Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-12 The network diagram below shows...

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3) Spending more money to speed up a project is known as: A) Splurging. B) Speeding. C) Pinching. D) Crashing. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-32 Spending more money to speed...

4) Which of the following best describes the overall goal of project portfolio management? A) Select projects that can easily be terminated if not successful. B) Ensure that all projects are selected using the same criteria. C) Maximize innovation at an affordable cost. D) Maximize support of business strategy while minimizing risk. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 15-05 Fashion criteria to guide project selection and management of a portfolio Topic : Managing a Portfolio of Projects Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-30 Which of the following best describes the...

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5) Why does project management often involve the management of conflict? A) All items are correct. B) Projects are often staffed with the personnel who have the least expertise. C) Project managers are under greater pressures than other managers in a firm. D) Projects often compete with routine operations and other projects for resources and

personnel. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-01 Explain the difference between projects and other more routine operational Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-16 Why does project management often...

6) Where in a project schedule is a good place to plan a buffer? A) Where scarce resources are needed. B) At the end of the project. C) Immediately after a highly uncertain task. D) All of these are good places to plan buffers. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-34 Where in a project schedule...

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7) The network diagram below shows six tasks required to complete a project and the associated

times for those tasks.

Which of the following identifies the critical path tasks? A) A, B, D, F B) A, B, E, F C) A, B, C, D, E, F D) A, C, E, F Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-09 The network diagram below shows...

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8) Which of the following statements is true of projects? A) Projects usually involve greater unknowns and uncertainty than repeated routine

operations do. B) Technological factors are almost always more important than social factors in affecting project success. C) Projects are usually more important than repeated routine operations. D) Once a project plan is made, it is impossible to simultaneously improve the speed, quality, and cost of a project. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-01 Explain the difference between projects and other more routine operational Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-17 Which of the following statements...

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9) Given the project plan shown below, what is the expected completion time for the critical

path? Task ID

Immediate Predecessors

A B C D E F G

A,B,C D D E,F

A) B) C) D)

Expected Duration (days) 4 5 6 5 7 4 3

18 days 16 days 34 days 21 days

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-28 Given the project plan shown...

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10) A primary advantage of a functional project organizational structure is: A) A single project manager has full control over the entire project. B) A functional manager controls both the budget and the schedule. C) The needs of the project client are prioritized over the needs of the function. D) All project team members report to one boss. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-03 Choose the best type of project organizational structure for a given set o Topic : Project Design Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-20 A primary advantage of a...

11) Task X is expected to take three days to complete. The maximum (latest) earliest finish date

for any predecessors to task X is 10. Therefore, the earliest finish for task X is: A) 10 B) Cannot determine from the information given C) 7 D) 13 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-22 Task X is expected to...

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12) The project organizational structure that provides the greatest balance between speed and

efficiency is: A) Matrix organizational structure. B) Pure project structure. C) Functional project structure. D) Line and staff organization structure. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-03 Choose the best type of project organizational structure for a given set o Topic : Project Definition Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-19 The project organizational structure that...

13) Why do businesses often NOT pursue the best mix of projects in their project portfolio? A) Too much emphasis is placed on feasibility. B) Selection committees neglect to use a portfolio value matrix. C) Projects are selected based on criteria that are not always consistent with the business

strategy. D) Businesses do not use enough financial metrics in selecting projects. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-05 Fashion criteria to guide project selection and management of a portfolio Topic : Managing a Portfolio of Projects Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-25 Why do businesses often NOT...

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14) The forward pass in a critical path algorithm involves: A) Calculating the late finish and the earliest possible start times for each task. B) Calculating the earliest possible start and late start for each task. C) Calculating the late finish and late start for each task. D) Calculating the earliest possible start and finish times for each task. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-13 The forward pass in a...

15) Which of the following is a project? A) Balancing your checkbook at the end of each month. B) The operation of a tollbooth on a highway. C) Inspecting the quality of units being produced. D) The construction of a ship. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-01 Explain the difference between projects and other more routine operational Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-26 Which of the following is...

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16) The figure below shows the tasks required to complete a project and the expected duration

for each task.

How long should we expect it to take to complete this project? A) None of these are correct B) 20 weeks C) 38 weeks D) 21 weeks Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-23 The figure below shows the...

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17) Nearly all projects seem to go through the same phases in the following sequence: A) Definition, planning, delivering, and closing B) Planning, definition, execution, and completion C) Definition, planning, execution, and completion D) Selection, planning, delivering, and completion Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-02 Manage the social and technical factors that are critical for project succ Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-03 Nearly all projects seem to...

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18) Colson Corporation has planned a simple project with four tasks. The task information for

the project is shown below: Task A B C D

Estimated Duration 10 7 4 8

days days days days

Immediate Predecessors None A A B,C

Does any task have slack? If so, how much? A) None of the tasks have slack. B) Task D has two days of slack. C) Task C has four days of slack. D) Task B has three days of slack. E) Task C has three days of slack. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-08 Colson Corporation. has planned a...

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19) A project manager usually has the greatest ability to affect social and technical success

factors of a project in what stage of the project? A) Execution B) Completion C) A project manager has equal ability to affect success factors across all stages. D) Planning Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-02 Manage the social and technical factors that are critical for project succ Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-18 A project manager usually has...

20) "Crashing" in a project refers to: A) Deciding to terminate a project. B) Attempting to reduce the project scope. C) Extending the deadline for completion of the project. D) Speeding up an activity. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-14 "Crashing" in a project refers...

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21) Colson Corporation has planned a simple project with four tasks. The task information for

the project is shown below: Task A B C D

Estimated Duration 10 7 4 8

days days days days

Immediate Predecessors None A A B,C

What is the estimated completion time for the project? A) 29 days B) 22 days C) 25 days D) 19 days Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-07 Colson Corporation has planned a...

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22) Project manager Bill Jones has determined that task R has a high variation between "best

case" and "worst case" estimated durations. Task R is probably a good candidate for: A) Buffering. B) Close monitoring and frequent status reporting. C) Contingency planning. D) All of these. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-24 Project manager Bill Jones has...

23) Which of the following is NOT a good reason to terminate (kill) a project? A) Changing organizational priorities. B) Consistent budget and schedule overruns. C) Uncertainty regarding the project’s outcomes. D) Wrong resources assigned to the project. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-31 Which of the following is...

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24) Which of the following factors is NOT typically considered a best practice for creating a

high-performing project team? A) Team members are volunteers. B) Team members serve on the project from beginning to end. C) Team members are collocated. D) Team members are from the same functional area. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-02 Manage the social and technical factors that are critical for project succ Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-27 Which of the following factors...

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25) Given the project plan shown below, what is the latest start for Task B? Task ID Immediate Expected Predecessors Duration (days) A 4 B 5 C 6 D A,B,C 5 E D 7 F D 4 G E,F 3 A) B) C) D)

Three days Zero days (must start immediately) Two days One day

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-29 Given the project plan shown...

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26) The network diagram below shows six tasks required to complete a project and the associated

times for those tasks. {MISSING IMAGE} What is the latest start date for task C? A) Five weeks B) Seven weeks C) Six weeks D) Two weeks Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-11 The network diagram below shows...

27) Which of the following are factors affecting the success of a project? A) Organizational structure and reward systems. B) Equipment, facilities, and communications systems. C) Experience and authority of team members. D) All items are correct. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-02 Manage the social and technical factors that are critical for project succ Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-02 Which of the following are factors...

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28) A method for estimating the impacts of uncertainty on project tasks is: A) Risk-weighted estimates. B) Rule of thumb estimates. C) Best case estimates. D) Probabilistic task duration estimates. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-33 A method for estimating the...

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29) The network diagram below shows six tasks required to complete a project and the associated

times for those tasks.

What is the earliest completion of the project diagrammed? A) 28 weeks B) 23 weeks C) 24 weeks D) 37 weeks Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Difficulty : 3 Hard Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-10 The network diagram below shows...

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30) When developing risk mitigation plans, one should: A) Be sure to plan for every possible thing that could go wrong. B) Select mitigation plans that give the highest level of prevention or protection at the

lowest investment. C) Always use buffers as the primary risk mitigation technique. D) Have a single person develop all risk scenarios. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Planning Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-35 When developing risk mitigation plans,...

31) Which of the following items should be included in a business case for a project? A) Feasibility. B) All of these items should be included in a business case. C) Financial returns or other benefits. D) Fit with the organization’s strategy and other projects. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-05 Fashion criteria to guide project selection and management of a portfolio Topic : Managing a Portfolio of Projects Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-36 Which of the following items should...

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32) Joe Jones is a project manager on a major installation. He has been asked to provide weekly

status reports on the project schedule. Joe should consider using which of the following? A) Gantt chart B) WBS report C) Crashing reports D) Network diagram Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Execution Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-15 Joe Jones is a project...

33) Typically the resources required during a project's life are greatest in which stage of its life? A) Execution B) Definition C) Completion D) Planning Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-02 Manage the social and technical factors that are critical for project succ Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-04 Typically the resources required during...

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34) Which of the following is NOT a good reason to kill a project? A) Inadequate resources to complete the project successfully. B) Personnel problems on the project. C) The project objectives are no longer of value to the firm. D) Consistent budget and schedule overruns. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-04 Develop a comprehensive project plan, evaluating trade-offs, uncertainties Topic : Project Execution Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-21 Which of the following is...

35) What is a key factor that must be considered when an organization evaluates the potential of

a project? A) The availability of resources to execute the project. B) The project's fit with overall organizational strategy. C) The business justification for investing in the project. D) All items are correct. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-05 Fashion criteria to guide project selection and management of a portfolio Topic : Managing a Portfolio of Projects Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-05 What is a key factor...

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36) Which of the following statements about projects and project management is NOT true? A) Projects are typically staffed with people from several different functional areas who

may have more loyalty to their function than to the project. B) None of the statements are true. C) A project is typically a one-time event. D) Completing a project within budget is the most critical criterion for project success. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 15-01 Explain the difference between projects and other more routine operational Topic : Projects and Project Management Type : Static Source : Chapter 15 Test Bank - Static > TB MC Qu. 15-01 Which of the following statements...

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Answer Key Test name: Chapter 15 Project Management 1) C

Pure project structure is most appropriate when speed is critical. 2) B

Task D has the greatest amount of slack. Slack for D = longest path (A, B, E, F) − longest path Task D is on (A, B, D, F) = 24 − 19 = 5. {MISSING IMAGE} Task A B C D E F Task F

Immediate Predecessors None A A B B,C D,E Immediate Successors None

Earliest Start 0 2 2 12 12 23 Latest Completion 24

Earliest Completion 2 10 7 18 23 24 Latest Start 23

C B A

E D,E B,C

12 12 2

5 2 0

Slack(LS − ES) 23 − 23 = 0 12 − 12 = 0 17 − 12 = 5 5 − 2 = 3 2 − 2 = 0 0 − 0 = 0

3) D

Adding resources to reduce duration is called "crashing." 4) D

Businesses seek to maximize the “expected” collective impacts of projects; this means choosing high-potential projects that are feasible. 5) D

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Projects are often set within organizational structures that are designed to execute routine operations. 6) D

Buffers provide protection (slack) against uncontrollable delays in tasks. 7) B

The critical path is the path with the longest duration. Path A, B, E, F takes 24 weeks, the longest of any of the paths. 8) A

Because projects are one-time events, managers have less experience upon which to draw regarding the specifics of any given project. 9) D

The critical path is C, D, E, G. Length is 6 + 5 + 7 + 3 = 21 days. 10) B

A functional structure allows the functional head to control both the budget and the way that activities are done. 11) D

The earliest start of a task is determined by the latest early finish of any of its predecessors. EF = ES + Task duration. EF for task X = 10 + 3. 12) A

Matrix structure shares resources for efficiency but has a single project manager to maintain priority and speed. 13) C

Strategic fit is important, but it is often difficult to assess. Managers are often too focused on financial returns. 14) D

The forward pass calculates the earliest start and finish dates. 15) D

Ship construction has a clear beginning and end, whereas the other items are repeated operations. 16) D

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The critical path defines the project length. It is the path with the longest duration. Path A, B, D, F takes 21 weeks, the longest of any of the paths. 17) C

There are four phases in a project's life: definition, planning, execution, and completion. 18) E

Task C must finish at the end of 17 days. It could finish at the end of 14 days. Thus slack for B = 3 days. 19) D

In the planning stage, the project manager can shape the schedules, budgets, and resources to influence the project. These choices form constraints within which the project must be executed in subsequent stages. 20) D

"Crashing" refers to speeding up an activity by adding resources. 21) C

The critical path is A, B, D. Completion time = 10 + 7 + 8 = 25 days. 22) D

All of the methods shown are ways to manage uncertainty and risk. 23) C

All projects have some degree of uncertainty. 24) D

Diverse teams made up of representatives from different functions tend to perform better. 25) D

Task B is one day shorter than Task C, which is a critical task. Therefore its start can be postponed by one day. 26) A

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The latest start date for task C is Five weeks = 24 − 21 + 0 + 2. Task C has three weeks of slack. {MISSING IMAGE} Task A B C D E F Task F

Immediate Predecessors None A A B B,C D,E Immediate Successors None

Earliest Start 0 2 2 12 12 23 Latest Completion 24

Earliest Completion 2 10 7 18 23 24 Latest Start 23

C B A

E D,E B,C

12 12 2

5 2 0

Slack(LS − ES) 23 − 23 = 0 12 − 12 = 0 17 − 12 = 5 5 − 2 = 3 2 − 2 = 0 0 − 0 = 0

27) D

Personnel factors affect success. Technology factors affecting project success include hard and soft technologies. Equipment, facilities, and communication systems are hard technologies. Organizational structure and reward systems are examples of soft technologies. 28) D

Probabilistic task duration estimation uses probability distributions to represent various duration outcomes. 29) C

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The earliest completion is 24 weeks = length of critical (longest) path. Task A B C D E F Task F

Immediate Predecessors None A A B B,C D,E Immediate Successors None

Earliest Start 0 2 2 12 12 23 Latest Completion 24

Earliest Completion 2 10 7 18 23 24 Latest Start

Slack(LS − ES)

C B A

E D,E B,C

12 12 2

5 2 0

23 − 23 = 0 12 − 12 = 0 17 − 12 = 5 5 − 2 = 3 2 − 2 = 0 0 − 0 = 0

30) B

Mitigation plans should be developed by teams and be based on the unique types of risks faced by each project. 31) B

Managers should evaluate potential new projects by considering three categories of factors: 2. The project’s fit with the organization’s overall strategy and existing portfolio of projects; 3. Financial returns or other benefits associated with the project; 4. The feasibility of the project, including availability of required resources. Project selection should be based on a business case. 32) A

A Gantt chart is a visual tool used in project management to provide schedule status. 33) A

The resource load is typically highest in the execution stage of a project's life. 34) B

Personnel problems might be remedied if the project is still of value to the firm.

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35) D

Strategic fit, financial returns (or other business justification), and feasibility (including resource availability) are all key in the evaluation of projects. 36) D

There are three critical criteria for success: that it is completed within budget and on time, and that it meets the deliverables of the project.

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Student name:__________ 1) Which of the following statements best describes "crash cost"? A) Estimated cost to reduce a project duration by one time unit. B) Actual cost to reduce a project duration by one time unit. C) Actual cost to change a project schedule. D) Estimated cost to reduce a project task duration by one time unit. E) Estimated cost to reduce the project schedule by one time unit. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 1 Easy Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-16 Which of the following statements best...

2) Task X has a most likely duration of 10 days, a best-case duration of 8 days, and a worst-case

duration of 15 days. What is the probability that it will be completed in 10 days or less? A) 83.4 percent B) 50.0 percent C) 33.4 percent D) 0 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-30 Task X has a most likely duration of 10...

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3) An estimate of the duration of a task that is based on a weighted average of a range of

possible task durations is known as: A) Expected duration. B) Most likely duration. C) Probabilistic duration. D) Worst-case duration. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 1 Easy Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-20 An estimate of the duration of a task...

4) If a project path has an expected duration of 10 days and a standard deviation of three days,

what is the probability that the path will be completed in 10 days or less? A) 50 percent B) 33 percent C) 0 percent D) 75 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-24 If a project path has an expected duration...

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5) A project manager has discovered that three tasks are on the critical path for a particular

project. She has developed the time estimates (in days) shown in the table below. Complete the table and determine the probability that the project will be completed in 20 days or less. Task

Best Case

Most Likely

Worst Case

A) B) C) D)

Expected Duration

Standard Deviation

Standard Deviation Squared

Approximately 84 percent Approximately 88 percent Approximately 92 percent Approximately 75 percent

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-11 A project manager has discovered that three...

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6) Given the tasks, estimated durations, and crash costs shown below, what would be the

minimum cost to reduce the project by one day? Task

A B C D E A) B) C) D) E)

Predecessors

A A B, C D

Estimated Crash cost duration (days) per day 1 5 5 2 7

$ 1,000 $ 500 $ 200 $ 900 $ 800

Number of days task can be crashed 2 1 2 1 1

$1,000 $800 $500 $200 $700

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-34 Given the tasks, estimated durations, and...

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7) Task X has a most likely duration of 10 days, a best-case duration of 8 days, and a worst-case

duration of 15 days. What is the probability that it will be completed in 12 days or less? A) 90.1 percent B) 75.3 percent C) 0 percent D) 95.7 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-29 Task X has a most likely duration of...

8) For a project with many task paths of nearly equal lengths, the best way to estimate the

probabilities associated with project completion is: A) Multiply the probabilities of all paths B) Estimate the probability for the critical path C) Calculate the joint probability of project completion D) Use simulation to model the project Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 1 Easy Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-35 For a project with many task paths of near...

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9) Task X has an 82 percent probability that it will be completed in 20 days or less. The

standard deviation of its duration is five days. What is its expected duration? A) 12.3 days B) 15.4 days C) 19.1 days D) 15.9 days Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-31 Task X has an 82 percent probability that it...

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10) A simple sequential project (each task must be completed before the next one can begin) has

the time estimates (in days) shown below: Task

Best Case

Most Likely

Worst Case

1.5

2.5

1.5

Expected Duration

Standard Deviation

Standard Deviation Squared

What is the probability that the project will be completed within 8.5 days? (Choose the closest answer.) A) 75 percent B) 5 percent C) 80 percent D) 15 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-15 A simple sequential project (each task...

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11) Given the project plan shown below, for each task assume that the best-case duration is 80

percent of the most likely duration, and the worst-case duration is 150 percent of the most likely duration. What is the expected completion time for the critical path? Task ID A B C D E F G A) B) C) D)

Immediate Predecessors A,B,C D D E,F

Most Likely duration (days) 4 5 6 5 7 4 3

34 days 35.7 days 22.1 days 21.0 days

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12) A project manager has discovered that three tasks are on the critical path for a particular

project. She has developed the time estimates (in days) shown in the table below. Complete the table and determine the expected completion time for the project. Task

Best Case

Most Likely

Worst Case

A) B) C) D)

Expected Duration

Standard Deviation

Standard Deviation Squared

19 days 21 days 17 days 18 days

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 1 Easy Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-10 A project manager has discovered that...

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13) Annie is planning a large surprise party for her sister Gwendolyn. She has developed the

following plan, including estimates of the time (in hours) and cost necessary to perform each of the tasks required. Task A. Create Guest List B. Send Invitations C. Buy Decorations D. Plan Menu E. Purchase Food F. Prepare Food

Immediate Predecessor -A A A D E

Planned Duration 8 2 8 3 4 5

Minimum Duration 4 1 6 2 2 3

Crash Cost per Hour $ 27.50 $ 25.00 $ 35.00 $ 60.00 $ 37.50 $ 125.00

Annie will save $40 for every hour she can reduce from her plan. If Annie crashes only task A to its minimum duration, how much will she save on the project? A) $160 B) $55 C) $50 D) $185 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-04 Annie is planning a large surprise party...

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14) Annie is planning a large surprise party for her sister Gwendolyn. She has developed the

Immediate Predecessor -A A A D E

Planned Duration 8 2 8 3 4 5

Minimum Duration 4 1 6 2 2 3

Crash Cost per Hour $ 27.50 $ 25.00 $ 35.00 $ 60.00 $ 37.50 $ 125.00

If Annie saves $40 for every hour she can reduce from her plan, what is her total net benefit from crashing this project by six hours? A) $55 B) $185 C) $160 D) $240 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-06 Annie is planning a large surprise party...

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15) A simple sequential project (each task must be completed before the next one can begin) has

the time estimates (in days) shown below: Task

Best Case

Most Likely

Worst Case

1.5

2.5

1.5

Expected Duration

Standard Deviation

Standard Deviation Squared

What is the expected total time for the project? A) 7.33 days B) 12.67 days C) 10 days D) 9.00 days Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-13 A simple sequential project (each task...

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16) Given the tasks, estimated durations, and crash costs shown below, which task would you

crash last in order to minimize the project length? Task

A B C D E A) B) C) D) E)

Predecessors

A A B, C D

Estimated duration (days)

Crash cost per day

1 5 3 2 7

$ 1,000 $ 500 $ 1,200 $ 800 $ 700

Number of days task can be crashed 1 1 2 1 1

Task D Task C Task B Task A Task E

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 1 Easy Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-33 Given the tasks, estimated durations, and...

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17) Annie is planning a large surprise party for her sister Gwendolyn. She has developed the

Immediate Predecessor -A A A D E

Planned Duration 8 2 8 3 4 5

Minimum Duration 4 1 6 2 2 3

Crash Cost per Hour $ 27.50 $ 25.00 $ 35.00 $ 60.00 $ 37.50 $ 125.00

Annie will save $40 for every hour she can reduce from her plan. Annie has decided to crash her project and use the money she saves to purchase a larger gift for Gwendolyn. Which task should she crash first? A) B B) D C) E D) C E) A Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-03 Annie is planning a large surprise party...

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18) Task X has a best-case duration of 4 days, a worst-case duration of 10 days, and a most likely

duration of 6 days. Using this information, we can estimate a 50 percent probability that the task will be completed in no more than how many days? A) 6.3 days B) 6.0 days C) 10.0 days D) 3.3 days Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-21 Task X has a best-case duration of 4 days,...

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19) Given the tasks, estimated durations, and crash costs shown below, which task would you

crash first? Task

Predecessors

A B C D E A) B) C) D) E)

A A B, C D

Estimated duration (days) 1 5 3 2 7

Crash cost per day $ 1,000 $ 500 $ 200 $ 800 $ 700

Task A Task B Task E Task D Task C

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-32 Given the tasks, estimated durations, and...

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20) Given the tasks, estimated durations, and crash costs shown below, what is the total cost of

the steps needed to provide the cheapest way to reduce the project length by three days? Task

A B C D E A) B) C) D)

Predecessors

none A A B,C D

Estimated duration (days)

Crash cost per day

2 3 3 4 3

$ 1000 $ 400 $ 300 $ 800 Cannot be crashed

Number of days task can be crashed 2 1 2 1 0

$2,300 $2,500 $2,800 $1,100

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-17 Given the tasks, estimated durations, and...

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21) If a project path has an expected duration of 10 days and a standard deviation of three days,

what is the probability that the path will be completed in 13 days or less? A) 33 percent B) 50 percent C) 84 percent D) 75 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-25 If a project path has an expected duration...

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22) A simple sequential project (each task must be completed before the next one can begin) has

the time estimates (in days) shown below: Task

Best Case

Most Likely

Worst Case

1.5

2.5

1.5

Expected Duration

Standard Deviation

Standard Deviation Squared

What is the likelihood the project will be completed in 10 days? A) Between 98 and 100 percent B) Between 93 and 97 percent C) Between 88 and 88 percent D) Between 89 and 92 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-14 A simple sequential project (each task...

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23) Which of the following statements is true regarding crash costs? A) Crash costs tend to increase with each additional day of crashing. B) Additional crash costs are rarely justified in practice. C) Crash costs tend to decrease with each additional day of crashing. D) It is usually cheaper to crash tasks that are not on the critical path. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-19 Which of the following statements is true...

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24) Task A B C D E F

Immediate Predecessor -A A B,C B D,E

Planned Duration 10 16 12 17 14 6

Minimum Duration 8 4 9 16 13 2

Crash Cost per Hour $ 250 $ 400 $ 100 $ 300 $ 300 $ 350

Identify the critical path to completion for the project plan. A) A, B, C, D, E, F is not a path. B) A, B, E, F is 46 hours. C) A, C, D, F is 45 hours. D) A, B, D, F is 49 hours Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-07 Identify the critical path...

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25) Given the project data below, what is the expected length of path A, B, C? Task Predecessors Best Case Most Likely Worst Case case A None 2 4 6 B A 1 4 5 C B .5 1 6 A) B) C) D)

9.4 17 9.8 9.0

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-22 Given the project data below, what is the...

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26) Given the project plan shown below, which task has the largest standard deviation

(uncertainty) relative to its expected duration (standard deviation divided by expected duration)? Task ID

Immediate Predecessors

A B C D E F G A) B) C) D)

A,B,C D D E,F

Most likely duration (days) 4 5 6 5 7 4 3

Best-case duration (days) 3 2 6 3 6 2 2

Worst-case duration (days) 7 8 9 8 9 5 4

Task G Task A Task B Task D

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27) The four tasks below must be completed in order (a single path of tasks). Given the task

information, what is the probability that the path of tasks will be completed in 20 days or less? Task number 1 2 3 4 A) B) C) D)

Expected duration (days) 5 3 4 5

Standard deviation of duration (days) 2 1 2 3

76.0 percent 56.4 percent 34 percent 50 percent

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28) Annie is planning a large surprise party for her sister Gwendolyn. She has developed the

Immediate Predecessor -A A A D E

Planned Duration 8 2 8 3 4 5

Minimum Duration 4 1 6 2 2 3

Crash Cost per Hour $ 27.50 $ 25.00 $ 35.00 $ 60.00 $ 37.50 $ 125.00

What is the planned duration of the preparation for the surprise party, assuming the critical path is completed? A) 8 hours B) 16 hours C) 30 hours D) 20 hours Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-02 Annie is planning a large surprise party...

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29) Task A B C D E F

Immediate Predecessor -A A B,C B D,E

Planned Duration 10 16 12 17 14 6

Minimum Duration 8 4 9 16 13 2

Crash Cost per Hour $ 250 $ 400 $ 100 $ 300 $ 300 $ 350

If there is a desire to crash the project, which task should be crashed first? A) F B) B C) D D) A Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-08 If there is a desire to crash the project,...

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30) Task A B C D E F

Immediate Predecessor -A A B,C B D,E

Planned Duration 10 16 12 17 14 6

Minimum Duration 8 4 9 16 13 2

Crash Cost per Hour $ 250 $ 400 $ 100 $ 300 $ 300 $ 350

If the project is crashed so that all work can be completed in 45 hours, what is the total crash cost? A) $1,450 B) $650 C) $1,150 D) $950 Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-09 If the project is crashed so that all work can...

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31) A project manager has discovered that three tasks are on the critical path for a particular

project. She has developed the time estimates (in days) shown in the table below. Task

Best Case

Most Likely

Worst Case

Expected Duration

Standard Deviation

Standard Deviation Squared

The customer has offered a $10,000 bonus if the project is completed within 14 days. What is the probability that the bonus will be earned? A) Approximately 2.3 percent B) Approximately 97.7 percent C) Approximately 85 percent D) Approximately 5 percent Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-02 Schedule projects using probabilistic task time estimates. Topic : Scheduling a Project with Probabilistic Task Duration Estimates Type : Static Level of Difficulty: 3 Hard Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-12 A project manager has discovered that three...

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32) In evaluating time-cost trade-offs, we start by crashing the task on the critical path that: A) Can be reduced the most. B) None of these. C) Is the longest. D) Has the lowest crash cost to reduce by one unit of time. E) Has the lowest total crash cost. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 1 Easy Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-01 In evaluating time-cost trade-offs, we...

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33) Given the tasks, estimated durations, and crash costs shown below, if the benefit to crash the

project by each day is a maximum of $750, how many days would it be worthwhile to crash the project? Task

Predecessors

A B C D E A) B) C) D) E)

none A A B,C D

Estimated duration (days)

Crash cost per day

2 3 3 4 3

$ 1000 $ 400 $ 300 $ 800 Cannot be crashed

Number of days task can be crashed 2 1 2 1 0

3 4 0 1 2

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-18 Given the tasks, estimated durations, and...

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34) Given the project data below, what is the standard deviation of durations for path A, B, C? Task Predecessors Best Case Most Likely Worst Case case A None 2 4 6 B A 1 4 5 C B .5 1 6 A) B) C) D)

2.3 1.7 1.3 None of the choices are correct

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35) Annie is planning a large surprise party for her sister Gwendolyn. She has developed the

Immediate Predecessor -A A A D E

Planned Duration 8 2 8 3 4 5

Minimum Duration 4 1 6 2 2 3

Crash Cost per Hour $ 27.50 $ 25.00 $ 35.00 $ 60.00 $ 37.50 $ 125.00

If Annie has already crashed task A to its minimum duration, what is the next task she should crash? A) A B) F C) C D) E Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Analyze Gradable : automatic Learning Objective : 15S-01 Make time and cost trade-offs in projects. Topic : Project Crashing: Making Time-Cost Trade-Offs Type : Static Level of Difficulty: 2 Medium Source : Chapter 15S Test Bank - Static > TB MC Qu. 15S-05 Annie is planning a large surprise party...

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Answer Key Test name: Chapter 15 Supplement Advanced Methods for Project Scheduling 1) D

Crash cost is the estimated cost to reduce a given task; it may or may not reduce the project length, depending on other factors. 2) C Most likely Best-case Worst-case duration duration duration (days) (days) (days)

Expected S= (12 − 10.5) ÷ (a + 4m + b) ÷ 1.17 = 1.29; from 6 Z table, probability is 90.07% percent standard deviation (b − a) ÷ 6 10.50 1.17

Z = (10 − 10.5) ÷ 1.17 = −0.43; from Z table, probability is 33.4 percent. 3) A

Expected duration is the outcome of the weighted average of best-case, worst-case, and most likely case durations. 4) A

By definition, the expected value for the path duration is the time for which there is a 50 percent probability that the path will be completed in this time or less. 5) A

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Task

Best Case

Most Likely

Worst Case

Expected Duration

Standard Deviation

B C

2 3

4 5

9 7

(5 + 8 × 4 + 14) ÷ 6 = 8.5 4.5 5.0

(14 − 5) ÷ 6 = 1.5 1.167 .667

Standard Deviation Squared 2.25 1.36 .444

tpath= 8.5 + 4.5 + 5.0 = 18 days Standard deviation of the path = Square root of (2.25 + 1.36 + .444) = 2.01 For completion within 20 days: z = (20 − 18) ÷ 2.01 = 0.995. From a standard normal table, F(z) = approximately 0.8413 = approximately 84 percent. 6) E

All tasks are critical. The cheapest way to reduce the project is to crash both Tasks B and C by one day each. 7) A Most likely duration (days) 10

Best-case duration (days) 8

Worst-case duration (days) 15

Expected (a + 4m + b) ÷ 6 10.50

Standard deviation (b − a) ÷ 6 1.17

Z = (12 − 10.5) ÷ 1.17 = 1.29; from Z table, probability is 90.07 percent. 8) D

Project paths are usually not independent (they share tasks). This makes it difficult to estimate probabilities, so simulation is needed. 9) B

From Z table, a probability of 82 percent yields Z = 0.915; 20 − 0.915 × 5 = 15.42. 10) D

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Activity Predecessor Best Most Worst Expected Standard Standard Case Likely Case Duration Deviation Deviation Squared A 2 3 4 3 .33 .1089 B A 1 1.5 2 1.5 .17 .0289 C B .5 1 1.5 1 .17 .0289 D C 1.5 2 2.5 2 .17 .0289 E D .5 1 1.5 1 .17 .0289 F E .4 .5 .6 .5 .03 .0011

Standard deviation of the path = square root of the sum of the tasks' standard deviation squared = square root of (.1089 + .0289 + .0289 + .0289 + .0289 + .0011) = square root of .2256 = .475 z = (8.5 − 9) ÷ .475 = −0.5 ÷ .475 = −1.053. F(z) = approximately 0.85, and 1 − F(z) = approximately 15 percent. 11) C

a = .8m Best case 3.2

m Most likely 4

b = 1.5m (a + 4m + b) ÷ 6 Worst case Expected 6 4.2

7.5

5.25

C D E F

4.8 4 5.6 3.2

6 5 7 4

9 7.5 10.5 6

6.3 5.25 7.35 4.2

6.3 5.25 7.35

2.4

3.15 35.7

3.15 22.05

4.5 Total duration

Critical path

12) D

Expected completion time for the project is 18 days. Task

Best Case

Most Likely

Worst Case

Expected Duration

Standard Deviation

B C

2 3

4 5

9 7

(5 + 8 × 4 + 14) ÷ 6 = 8.5 4.5 5.0

(14 − 5) ÷ 6 = 1.5 1.167 .667

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Standard Deviation Squared 2.25 1.36 .444

13) C

Crash A by four hours at a cost of $110 and a benefit of $160 (4 × $40). Net benefit: $50. 14) A

Savings from crashing: Crash E by two hours at a cost of $75 and a benefit of $80. Net benefit: $5. The total cost of crashing A and E is $185, and the total benefit is $240. The net benefit is $240 − $185 = $55. 15) D

In this problem, the expected durations for each task will all be equal to the most likely durations since the worst case and best case are an equal amount of time from the most likely case. 16) D

Task A is the most expensive critical path task to crash. Task C is not on the critical path so crashing it would not reduce the project length. 17) E

The critical path is A, D, E, F at 20 hours. Path AB is 10 hours. Path AC is 16 hours. Activity A has the lowest crash cost of the activities on the critical path. 18) A

Expected time is the time for which there is a 50 percent chance that the task will be completed at that time or earlier. Expected time = (4 + 4 × 6 + 10) ÷ 6 = 6.3 days. 19) B

Task C is the cheapest to crash, but it is not on the critical path. Task B is the next cheapest and is on the critical path. 20) B

Crash both B and C one day, then D one day, then A one day. 21) C

For completion within 13 days: z = (13 − 10) ÷ 3 = 1.0. From a standard normal table, F(z) = approximately 0.84 = approximately 84 percent. 22) A

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Standard deviation of the path = square root of the sum of the tasks' standard deviation squared = square root of (.1089 + .0289 + .0289 + .0289 + .0289 + .0011) = square root of .2256 = .475. Therefore z = (10 − 9) ÷ .475 = 2.105, and from a standard normal table, the probability is approximately 98.2 percent. 23) A

Crash costs increase for several reasons, one of which is that, as multiple paths become critical, multiple tasks must be crashed in order to reduce the project an additional time unit. 24) D

The path A, B, D, F is 49 hours. A, B, E, F is 46 hours. A, C, D, F is 45 hours. A, B, C, D, E, F is not a path. 25) A

Expected duration for each task is (B + 4ML + W) ÷ 6. Sum up the three expected values to get the expected value for the path. Therefore, 4.00 + 3.67 + 1.75 = 9.42, or about 9.4. 26) C

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Tas Immediate Most Best- Worst- Expected Standard Standard k Predecessor likely case case (a + 4m + deviatio deviation ID s duratio duratio duratio b) ÷ 6 n ÷ n n n (b − a) expected (days) (days) (days) ÷ 6 A 4 3 7 4.3 0.67 0.15 3 4 B 5 2 8 5 1 0.2 C 6 6 9 6.5 0.5 0.07 7 D A,B,C 5 3 8 5.1 0.83 0.16 7 1 E D 7 6 9 7.1 0.5 0.07 7 F D 4 2 5 3.8 0.5 0.13 3 G E,F 3 2 4 3 0.33 0.11 1

Task B has the largest standard deviation relative to its expected (mean) duration. This is an indication of relative uncertainty for the task. 27) A Task number 1 2 3 4 Total

Expected duration (days) 5 3 4 5 17

Standard deviation Variance = standard of duration (days) deviation2standard deviation-squared 2 4 1 1 2 4 3 9 4.24 18

Z = (20 − 17) ÷ 4.24 = 0.708; Z table yields 76.0 percent probability. 28) D

The critical path is A, D, E, F at 20 hours. Path AB is 10 hours. Path AC is 16 hours. 29) D

Of the tasks on the critical path, Task A has the lowest crash cost. 30) C

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A total of four hours of reduction is needed. Task A should be crashed by two hours for a total cost of $500. Then Task D should be crashed by the one hour possible for it at a cost of $300. Finally Task F should be crashed for one hour at a cost of $350. Total cost = $1,150. 31) A Task

Best Case

Most Likely

Worst Case

Expected Duration

Standard Deviation

B C

2 3

4 5

9 7

(5 + 8 × 4 + 14) ÷ 6 = 8.5 4.5 5.0

(14 − 5) ÷ 6 = 1.5 1.167 .667

Standard Deviation Squared 2.25 1.36 .444

tpath= 8.5 + 4.5 + 5.0 = 18 days Standard deviation of the path = Square root of (2.25 + 1.36 + .444) = 2.01 For completion within 14 days: z = (14 − 18) ÷ 2.01 = −1.99. From a standard normal table, 1 − F(z) = approximately 0.023 = approximately 2.3 percent. 32) D

Crashing begins by reducing the task that has the lowest crash cost to reduce by one unit of time in the project. 33) D

The cost to crash the second day is $800, so the benefit would not justify the cost. 34) C

Standard deviation for each task is (Worst case − Best case) ÷ 6. Square each standard deviation, sum them up, and take the square root to get the standard deviation for the path. 35) D

Task E has the next lowest crash cost per hour on the critical path.

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Student name:__________ 1) The Global Reporting Initiative (GRI) produces a sustainability reporting framework to

enable greater organizational transparency. Which of the following is not one of the criteria followed by GRI? A) Equal remuneration for women and men B) Investment and procurement practices C) Product and service labeling D) Executive political affiliations E) Emissions, effluents and waste Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-06 Understand the process by which the triple bottom line is transformed into Topic : Measuring and Reporting Sustainability through the Triple Bottom Line Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-33 The Global Reporting Initiative (GRI)...

2) Which aspect of the business model is most affected by the recent advent of such companies

as Fresh Now, M Tailor, Blue Apron, or Starbuck’s Reserve? A) Capabilities. B) Environment. C) Key customer. D) Value Proposition. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-25 Which aspect of the business model...

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3) When people and profit intersect, from a sustainability perspective, which of the following

areas is most impacted? A) Sustainability B) Viability C) Bearability D) Equitability Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-01 Define sustainability using the triple bottom line and explain what this a Topic : The Triple Bottom Line Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-01 When people and profit intersect, from...

4) The "triple bottom line" suggests that efforts should be devoted to assessing the impact of

activities on: A) Profit, planet, processes. B) Profit, profit, profit. C) People, planet, profit. D) People, profit, processes. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-01 Define sustainability using the triple bottom line and explain what this a Topic : The Triple Bottom Line Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-17 The "triple bottom line" suggests that...

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5) Supply chain issues fall under which element of ESG? A) Governance B) Social C) ESG does not consider supply chain issues. D) Environmental Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-06 Understand the process by which the triple bottom line is transformed into Topic : Reporting and Measuring corporate sustainability efforts Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-39 Supply chain issues fall under...

6) Recently, various companies have been criticized for their failure to protect such groups as

people who are transgendered, in the face of external pressure. Which of the following corporate approaches would be most concerned with this “failure”? A) DEI B) DEI C) DEI D) Legal affairs. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : Diversity, Equity, and Inclusion Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-36 Recently, various companies have been...

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7) Which of the following environmental initiatives/programs deals most specifically with

building design and construction? A) The Kyoto Protocol B) Responsible Care C) ISO 14000 D) LEED certification Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-02 Explain the reasons why operations managers are increasingly focusing on t Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-04 Which of the following environmental...

8) Which of the following environmental initiatives/programs is an example of an industry-

specific program aimed at improving environmental performance? A) The Kyoto Protocol B) LEED certification C) ISO 14000 D) Responsible Care Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-02 Explain the reasons why operations managers are increasingly focusing on t Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-05 Which of the following environmental...

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9) Which of the following statements most accurately represents the challenge of being

environmentally sustainable? A) The choices facing the firm are clear, and the obvious candidates for improvement can be easily identified. B) Demands for environmental responsibility are driven by forces that can mostly be ignored. C) It is not easy to be environmentally responsible since the trade-offs between choices are not always clear. D) Being environmentally responsible is a matter of complying with government regulations. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-10 Which of the following statements most...

10) Which of the following is NOT a stakeholder, as considered from the P-People perspective of

sustainability? A) Investors B) Workers C) Customers D) Government Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : The Second P&#8212;People Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-19 Which of the following is NOT a stakeholder,...

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11) Which of the following factors is not considered by the Sustainability Accounting Standards

Board (SASB)? A) Leadership and governance. B) Financial performance. C) Human Capital D) Environment Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-06 Understand the process by which the triple bottom line is transformed into Topic : Reporting and Measuring corporate sustainability efforts Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-37 Which of the following factors is...

12) Modules that plug into cars and enable insurance companies to monitor their customer’s

driving habits are using which of the following developments? A) Cyber Security. B) Smart Computing. C) Artificial Intelligence. D) Internet of Things. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-28 Modules that plug into cars...

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13) The following environmentally responsible process/material matrix was developed for Zanda

Corporation. Zanda has determined that a score of 40 is its goal at this time, but efforts to lower its score will continue regardless. What is Zanda's current score, and what is your conclusion? Materia Energ Solid Liquid Gaseou l y Residu Residu s Choice Choic e e Residu e e Resource Extraction 3 2 4 2 1 Manufacture 1 1 1 2 2 Product/Packaging/transportati 0 3 1 2 2 on Product Use 2 2 2 1 1 Disposal/Recycle 2 1 3 3 3 A) B) C) D)

47, Zanda is doing worse than its goal. 53, Zanda is doing better than its goal. 47, Zanda, is doing better than its goal. 53, Zanda is doing worse than its goal.

Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-14 The following environmentally responsible...

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14) Which of the following initiatives is most concerned with how the organization deals with

people? A) Fairtrade B) ISO 9001:2015 C) ISO14001 D) DEI Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : Diversity, Equity, and Inclusion Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-35 Which of the following initiatives is...

15) From an operations standpoint, sustainability means that: A) A company should focus its efforts on reducing pollution. B) Firms should pursue profit without damaging the environment or the well-being of

future generations. C) The firm must improve how it manages its people resources since these are important to the long-term survival of the firm. D) Profit is not an important goal. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-11 From an operations standpoint,...

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16) Recycling is a critical consideration during which stage of the product life cycle? A) Extraction B) Disposal C) Packaging/transportation D) Usage Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-09 Recycling is a critical...

17) Zanda Corporation has always operated within one country. It is contemplating opening

production facilities in another country. Zanda should realize: A) The same business model that is used domestically should apply to the foreign country. B) The means of motivating the workforce domestically may not work well in a different country. C) Production processes used domestically should work well in a different country. D) The technology used domestically is often the best to use in a different country. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : The Second P&#8212;People Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-22 Zanda Corporation has always...

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18) Which of the following could cause a firm to initiate changes in a product’s value

proposition? A) A close competitor introduces an enticing new feature in their product B) Declining sales of one of your product families for three consecutive quarters C) A fast-growing consumer demographic responds to lifestyle appeals in preference to product appeals D) All of these E) None of these Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-32 Which of the following...

19) Which of the following sustainability issues has a significant impact on supply chain

relationships? A) Location B) Common usage of lean systems C) Organizational culture D) Government regulations and tariffs Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : The Second P&#8212;People Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-20 Which of the following sustainability...

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20) EPEAT is a method for rating and certifying the environmental performance and

recyclability of which kind of products? A) Kitchen appliances B) Cell phones C) Military aircraft D) Children’s toys Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-02 Explain the reasons why operations managers are increasingly focusing on t Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-30 EPEAT is a method for...

21) Which of the following programs/initiatives strives to improve the lives of suppliers and their

families? A) LEED B) Fair Trade C) ISO 14000 D) Responsible Care Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : The Second P&#8212;People Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-18 Which of the following programs...

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22) Walmart has announced that suppliers must attempt to improve their efforts in environmental

management. In this announcement, Walmart could have included a requirement that suppliers meet the standards of: A) ISO 9002. B) ISO 14000. C) ISO 2011. D) ISO 9000. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-16 Walmart has announced that suppliers must attempt...

23) BMW has introduced a program of covered scheduled maintenance for its cars. That is, when

you bring in your vehicle for maintenance at a BMW dealership, BMW will cover the costs of everything (except for worn-out tires). This practice specifically targets which stage of the product life cycle? A) Packaging/transportation B) Usage C) Extraction D) Disposal Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-08 BMW has introduced a program of covered...

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24) When a company such as Patagonia makes sustainability a critical development and embeds

it visibly in advertising or in its activities, we see an example of sustainability operating at which of the following levels? A) Sustainability as Public Relations. B) Sustainability as a business model. C) Sustainability as cost minimization. D) Sustainability as a company mantra. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-29 When a company such as Patagonia...

25) How does lean systems thinking in operations management relate to sustainability? A) Its focus on reducing waste of all types. B) Its focus on improving product quality. C) Its focus on delivering products to customers faster. D) Its focus on product innovation. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-12 How does lean systems thinking...

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26) Which of the following best describes the effect of an organization’s culture on

sustainability? A) A healthy, positive organizational culture is critical to long-term success in achieving sustainability goals. B) The elements of an organizaton’s culture that impact its’ performance are readily identified. C) Changing an organization’s culture is easy if survival is at stake. D) Organizational culture is less important than it once was due to mergers, downsizing and outsourcing. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : The Second P&#8212;People Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-21 Which of the following best describes...

27) Which of the following approaches provides management with an appropriate tool for

assessing the full impact from creation to disposal of a product? A) Total cost of ownership B) Life cycle assessment C) Trade-off analysis D) Cost of quality analysis Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-06 Which of the following approaches provides...

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28) DEI (Diversity, Equity, and Inclusion) falls under which element of ESG? A) Environmental B) Social C) ESG does not consider DEI issues. D) Governance Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-06 Understand the process by which the triple bottom line is transformed into Topic : Reporting and Measuring corporate sustainability efforts Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-40 DEI (Diversity, Equity, and Inclusion) falls...

29) Which of the following terms best describes the impact of sustainability initiatives on the

business model? A) Sustainability affects primarily the capabilities offered by the supply chain. B) Sustainability affects the entire business model. C) Sustainability helps the firm to change its value proposition. D) Sustainability impacts primarily the customers that we serve. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-24 Which of the following...

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30) Over which stage of the product's life cycle does operations management have the greatest

amount of direct control? A) Packaging/transportation B) Extraction C) Usage D) Disposal Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-07 Over which stage of the product&#39;s life..

31) A specific analysis of the total greenhouse gases caused directly or indirectly by a product is

called: A) B) C) D)

Cap and trade. Life cycle waste assessment matrix. Carbon footprinting. Life cycle analysis.

Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-13 A specific analysis of the total greenhouse...

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32) What is the name of the social movement that seeks to help agricultural producers in

developing countries by improving business conditions and promoting sustainability? A) Fair Labor Association B) Free Farm Advocacy C) Fair Trade D) Ethical Consumer Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : The Second P&#8212;People Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-34 What is the name of...

33) As technology and cultures evolve, the best approach for operations managers is to: A) Retire. B) Adapt their business models. C) Make their processes more efficient. D) Work harder. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-23 As technology and...

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34) Which of the following statements best describes the role of sustainability measurement and

reporting in many of today's firms? A) Sustainability reporting, while important, is plagued by problems involving its development and deployment and with concerns over appropriate standards. B) Sustainability reporting is becoming more important, with its structure being determined by governmental regulations and requirements. C) Sustainability reporting focuses on those issues where the reporting firm has the greatest degree of control. D) Sustainability reporting is becoming more important with more metrics being provided by different organizations. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-06 Understand the process by which the triple bottom line is transformed into Topic : Measuring and Reporting Sustainability through the Triple Bottom Line Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-26 Which of the following...

35) Which of the following environmental initiatives/programs deals most specifically with the

firm's environmental management system? A) Responsible Care B) LEED certification C) ISO 14000 D) The Kyoto Protocol Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-02 Explain the reasons why operations managers are increasingly focusing on t Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-03 Which of the following environmental...

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36) Which of the following phrases BEST defines the concept of sustainability, as set out by the

United Nations Brundtland Commission: A) To reduce, minimize, and ideally eliminate pollution, thus preserving the planet and its resources for the benefit of not only today's generation but also the future. B) To meet the needs of the present without compromising the ability of future generations to meet their needs. C) To ensure that business and the community work together to preserve limited resources while also ensuring that business is appropriately rewarded for its efforts. D) To foster an environment that satisfies the requirements of the triple bottom line— namely people, profit, and the planet—the keys to our future survival. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-02 Explain the reasons why operations managers are increasingly focusing on t Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-02 Which of the following phrases BEST defines...

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37) The following environmentally responsible process/material matrix was developed for Zanda

Corporation Zanda has determined that a score of 50 is its goal at this time, but efforts to lower its score will continue regardless. What is Zanda's current score, and what is your conclusion? Materia Energ Solid Liquid Gaseou l y Residu Residu s Choice Choic e e Residu e e Resource Extraction 3 2 4 2 1 Manufacture 1 1 1 2 2 Product/Packaging/transportati 0 3 1 2 2 on Product Use 2 2 2 1 1 Disposal/Recycle 2 1 3 3 3 A) 53, and Zanda has not met its goals. B) 47, and Zanda has met its goal but should do something about solid residue during

extraction. C) 47, and Zanda has met its goals—no further actions are necessary. D) 15, (from Manufacture & Prod/Pkg/Trans) and Zanda has met its goals—no further actions are necessary. Question Details AACSB : Analytical Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Understand Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-03 Evaluate products using life cycle assessment. Topic : The First P&#8212;Planet Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-15 The following environmentally responsible...

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38) Which of the following is an important guiding principle of the SASB standards? A) The standards can be used anywhere in the world. B) The data must be regularly reported to the respective governments to ensure

appropriate focus on sustainability. C) All data related to sustainability must be captured and reported. D) The data captured must conform with GAAP (generally accepted accounting principles). Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-06 Understand the process by which the triple bottom line is transformed into Topic : Reporting and Measuring corporate sustainability efforts Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-38 Which of the following is...

39) Smart phones communicating with each other and being used to collect, exchange, and

analyze data is an example of which of the following developments? A) Cyber Security. B) Internet of Things. C) Artificial Intelligence. D) Smart Computing. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-05 Understand the challenges operations managers face as they seek to develop Topic : The Third P&#8212;Profit and Long-Term Competitive Advantage Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-27 Smart phones communicating with...

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40) The expectation of integrity in fulfilling obligations is held by which stakeholder group? A) Workers B) Suppliers C) Customers D) Investors Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 1 Easy Gradable : automatic Learning Objective : 16-04 Discuss the approaches used by operations managers to ensure social respon Topic : The Second P&#8212;People Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-31 The expectation of integrity...

41) What do the following companies have in common – Microsoft, Linde, Cadbury UK,

Salt+Umber, Sunday Lawn Care? A) They are all fast to market companies. B) They are all consumer brand companies. C) They are all international/global operations. D) They have used sustainability as a corporate strategy. Question Details AACSB : Reflective Thinking Accessibility : Keyboard Navigation Accessibility : Screen Reader Compatible Bloom's : Remember Difficulty : 2 Medium Gradable : automatic Learning Objective : 16-06 Understand the process by which the triple bottom line is transformed into Learning Objective : 16-07 Discuss how firms are now using sustainability as a strategic objective. Topic : Reporting and Measuring corporate sustainability efforts Source : Chapter 16 Test Bank - Static > TB MC Qu. 16-41 What do the following companies...

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Answer Key Test name: Chapter 16 Sustainable Operations Management—Preparing for the Future 1) D

GRI criteria do not include political affiliations or activity. 2) D

Millennials want to be involved in the design and delivery of the product as an experience. This requires alteration of the traditional value proposition which related solely to the product. Increasingly, the experience of acquiring the product is important. 3) D

In the triple bottom line diagram the overlap between the “people” circle and the “profit” circle is where people’s interests and profitability require trade-offs. That segment of the diagram is called “equitability.” 4) C

The triple bottom line measures the impacts of the firm on the people, the planet, and profit. 5) B

As noted in the discussion of ESG (specifically table 16-4), social deals with supply chain issues. 6) A

The protection of transgender groups falls under the umbrella of DEI. 7) D

LEED Certification is a framework for identifying and implementing green standards in design, construction, and operations of buildings. 8) D

Responsible Care is a global, voluntary initiative adopted by the chemical industry to improve health, safety, and environmental impacts. 9) C

It is not easy to be environmentally responsible since data are not readily available and the tradeoffs between choices are not always clear. 10) D

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Stakeholders in the People perspective include customers, suppliers, workers, and investors. 11) B

As noted in the discussion of SASB, these standards consider five factors, financial performance is NOT one of them. 12) D

The internet of things enables companies and consumers to monitor what is happening in the supply chain. 13) A

The “score” on this matrix is the sum of the digits in the 25 cells, which is 47. The lower the score, the better. Zanda’s goal is 40, so they are not meeting their goal. 14) D

As noted in the section on DEI, DEI describes the corporate policies aimed at promoting and including the promotion of diverse groups of people. 15) B

Profit is critical to a firm’s existence. Simultaneously, the firm must not damage the environment or impair the well-being of future generations. 16) B

Disposal/Recycling wastes occur at the end of the product’s life. 17) B

Motivational processes that work well in one country may not work well in another. 18) D

Firms frequently change or update their value propositions either leading or responding to customer or competitor changes. Any of these three causes could trigger a rethinking and/or revision of a product’s value proposition. 19) C

Organizational culture affects supply chain-related issues like trust and compliance. 20) B

EPEAT (Electronic Product Environmental Assessment Tool) rates the environmental impact of electronic products including cell phones.

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21) B

The fair trade movement focuses on helping producers in developing countries by improving trading conditions and promoting sustainability. 22) B

ISO 14000 is an international standard for environmental management which ensures that a certified firm has a formal environmental management system. 23) B

Usage analysis addresses waste in product use including maintenance, repair, and operation. 24) B

Sustainability has become central to Patagonia’s business model. 25) A

Lean systems reduce waste within an operation. Sustainability includes environmental impacts as waste generated over a product’s life cycle. 26) A

Organizational culture plays a critical role in achieving sustainability goals. 27) B

Life Cycle Assessment considers the full impact of waste from extraction or raw materials to disposal and recycling of a product. 28) B

As noted in the discussion of ESG (specifically table 16-4), social deals with DEI issues. 29) B

Adopting sustainability goals means that a corporations’ entire business model must change if it is to maintain a sustainable competitive advantage. 30) A

Of these four areas, operations can directly influence packaging/transportation; the others are under the control of other areas (e.g., extraction is under the control of suppliers and usage and disposal are under the control of the user). 31) C

The carbon footprint of a product is the total set of greenhouse gas emissions caused directly or indirectly by a product.

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32) C

The Fair Trade movement focuses on helping producers in developing countries by improving trading conditions and promoting sustainability. 33) B

In preparing for the future, operations managers must anticipate and manage changes in the elements of their business models. 34) D

Customers are increasingly sensitive to sustainability with metrics and measures developed by external organizations becoming more important. 35) C

ISO 14000 is a set of environmental management standards intended to help firms minimize the environmental impact of their operations. 36) B

The UN Brundtland Commission defines sustainability as “the ability to meet the needs of the present without compromising the ability of future generations to meet their needs.” 37) B

The “score” on this matrix is the sum of the digits in the 25 cells which is 47. The lower the score, the better. Zanda’s goal is 50, so they are meeting their goal. Zenda should strive to continuously improve environmental performance. One area to improve is solid residue during extraction. 38) A

As noted in the discussion of SASB, there are three guiding principles: 2. financial materiality; 3. approach to standards setting; and 4. global applicability. 39) B

The internet of things enables companies and consumers to monitor what is happening in the supply chain. 40) C

Integrity in fulfilling contracts and obligations is among the expectations held by the customer stakeholder group.

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41) D

These are companies, as discussed in the section on Sustainability as corporate strategy, that have used sustainability as a competitive weapon.

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Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Chapter 1 Introduction to Managing Operations Across the Supply Chain

Suggested Answers to Discussion Questions 1. Review Fortune magazine’s “Most Admired” American companies for 1959, 1979, 1999, and the most current year. (The issue normally appears in August each year.) Which companies have remained on the top throughout this period? Which ones have disappeared? What do you think led to the survival or demise of these companies? The companies that have stayed on top throughout this period are Southwest, Berkshire Hathaway, and Proctor and Gamble. UPS, Coca Cola, and GE were some of the companies that disappeared. The companies that were able to stay at the top of the list were the ones able to deal with major changes in the industry easily. In order to stay afloat in harder times, they were managed by people who understood operations management; they had a winning value proposition that was continually revitalized by the introduction of new products and services. The companies that did not stay at the top unable to make the necessary changes so easily; perhaps their operations management was not at the caliber of the other companies able to stay at the top of the list. 2. Select two products that you have recently purchased; one should be a service and the other a manufactured good. Think about the process that you used to make the decision to purchase each item. What product characteristics were most important to you? What operational activities determine these characteristics?

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Student answers to this question will vary. The following is an example from one student: “Two products I have recently purchased were a sweater and a haircut. The process I used to make the decision to purchase the sweater was trying on the sweater in different colors, contemplating the purchase at home, waiting for sweater to go on sale, and then purchasing it. The process I used to make the decision about where to get my haircut included researching pictures of how I wanted my hair to look, asking advice about where to go from friends, researching online for reviews about stylists, and getting my haircut by that stylist. I wanted to make sure both products were going to satisfy me enough so that I wouldn’t regret either purchase. I had to be comfortable with both my sweater and my new hair style, luckily I was! I also wanted both my sweater and my hair style to last for a while to make them worth the cost. The operational activities that determine these characteristics are the manufacturing, shipping and selling the sweater in stores. If the sweater was poorly made and didn’t fit correctly, I would not have purchased it. If it was not available (on the shelf) I could not have purchased it. The operational activities that determine the characteristics of my hairstyle are the stylist arriving to work on time for my appointment, washing, cutting and blow drying my hair in a way that I was expecting (having sufficient capacity so that I did not have to wait too long). Since my hair was cut and styled the way I requested, I will be returning to that hair stylist. 3. What are the primary operations management decisions in each of the following corporations?

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Again, student answers will vary but may include the following elements. a. Marriott Hotels and Resorts: How to greet and treat customers during their stay, what services to supply to customers, how to check customers in so that they are not waiting for long periods of time to get to their rooms, how to deal with unhappy customers in order to keep them coming back, how to measure customer satisfaction. b. A private golf and tennis club: How to serve customers while playing tennis/golf so they continue to spend their money and play at this private course, what services to offer in order to keep customers happy. How to best manage the facilities and train employees. c. Ben & Jerry’s: What flavors to make, how much of each flavor to make, how to keep up with demand, what suppliers to use, how to measure customer satisfaction. d. ExxonMobil Corporation: How to manage exploration, extraction and refinement operations effectively and efficiently. What services are to be delivered, how to keep retail customers happy, how to deliver goods. 4. Consider the following processes that you frequently encounter as a college student. Describe each process and its input, activities, and outputs. What is being converted or transformed in each process? Who are the customers, suppliers, and stakeholders for each process?

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Enrolling in classes: Classes must be scheduled so that students can enroll in them,

students communicate with advisor about necessary classes, students sign onto website and find suitable classes that fit together into schedule for each semester. The inputs of this process are the student’s and administrators’ time and problem solving effort. The activities are decision making, communicating, and scheduling so that everyone has a chance to take the classes they want each semester. The output is the student’s schedule and enrollment into classes. The student’s schedule is being transformed. The customer is the student, the stakeholders are the professors who get paid to teach the courses and the businesses that would like to hire students once they complete their courses. The supplier is the university. b. Taking a class: The process and activities of taking a class entail making it to class on time every session, studying before class to be able to follow along and participate, arriving with the correct materials in order to take notes and complete activities in class, and completing homework before it is due. The inputs are the knowledge of the professor and information contained in course materials, along with the student’s hard work, studying, participating, and physically going to class. The outputs are friends and education. The student is being transformed. The customer is the student. Or one might consider the business who would like to hire the student to be the customer. The supplier is the university. c. Buying a ticket for a play, concert, or basketball game: The process and activities of buying a ticket entail making a decision to buy the ticket, saving up the money, either ordering the ticket online or physically going to a ticket booth and purchasing the ticket. The inputs are time and money. The outputs are the experience of seeing a great play, concert, or basketball game and memories. The ownership of the ticket is being converted. The customer is the ticket purchaser; the stakeholder is the owner of the basketball team, or the director of the play, or 1-4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

the manager of the band. If no one purchases tickets, those stakeholders may no longer have jobs. The supplier is the team, the actors, or the band. 5. Recall the last time you went to a fast-food restaurant such as McDonald’s. Describe all of the goods and services that make up your total product experience. The goods that made up my experience were the actual food and drink that I purchased. The services were being greeted when I walked up to the counter, ordering my food, receiving my food in a timely manner along with my order being correct. The service of a clean restaurant also added to my total product experience. 6. The following firms have long been seen as having strong competitive advantages. Read about one of these companies. Also draw from your experience as a customer to identify that company’s competitive advantage. Discuss how operations management relates to the company’s competitive advantage. Student answers will vary. An example for Coca-Cola is: Coca-Cola’s success comes from its secret formula for its main product, Coca-Cola. It has been able to keep its formula a secret for so long that major competitors like Pepsi are having a hard to following in its footsteps. In order to stay at the top, Coca-Cola has recently been restructuring its supply chain so that they can keep their products in high demand. This new supply chain system will enable Coca-Cola products to keep shelves at stores like Wal-Mart and Meijer filled so that customers do not have to settle on other brands. Along with restructuring supply chain comes restructuring operations management. If the wrong distributer or bottler is employed or not enough products are produced, Coca-Cola’s profits and demand could suffer.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

7. Why should a firm consider the position of stakeholders when evaluating operational alternatives? Consider the role of government and its impact. (Hint: Consider working conditions and pollution.) A firm should consider the position of stakeholders because they could have a big effect on the company along with the company’s profits. If a highly polluting firm does not make changes to make stakeholders happy (like environmentalists), then those stakeholders may alert the government through the EPA. The EPA could then research and investigate the company and if they found anything against the law, the EPA could bring that firm to court. This would affect its abilities to get stockholders, to keep its customers, run the business, and therefore to make a profit. 8. Most people have worked as “operations managers” at some time. Describe a job or experience that you had that involved the management of a process. Student answers will vary. A good example offered by an undergraduate is: “When I was a manager at a restaurant, it involved the management of a process. Every night I had to make sure that there were tables available for customers that had made reservations, and that no one was waiting too long for their tables, food, drinks, or bills. I had to put bigger tables in certain sections where I knew the more experienced wait staff would make the customers’ experience more enjoyable. I also had to go around to each table to make sure meals were satisfactory and did anything to make the customer’s experience at the restaurant pleasant enough to assure customer patronage.”

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Business Textbook Supply Chain Case – Teaching Notes I like to start my class with this case, because the product is familiar to students. Many of them are in the process of acquiring their books for the semester or term, so the idea of value and cost are fresh in their minds. Also, the technologies and markets involved are not terribly complex, yet there is a lot of change going on that makes the discussion relevant and current. The overall goal of the case is to set the stage for a discussion of all the topics related to supply chain operations management. Synopsis: The case gives students an opportunity to step through a “value chain analysis” for a product and industry with which they have some familiarity. The steps of the analysis include:

1. Identify key players (critical customers) 2. Chart physical and information flows 3. Describe value proposition offered by each player 4. Describe primary value add for each player (who is responsible for key value elements?) 5. Identify market and technology dynamics 6. Ideas?? Considering the relationships and dynamics in the chain, how might we improve the value propositions?

By analyzing these issues from the perspective of a book publisher, students can gain an appreciation for the different types of value created in supply chain operations, as well as the role that partnerships play in developing and delivering products. In addition, this particular 1-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

industry situation provides a great example of the dynamics that govern supply chain operations management. Changing technologies and markets make it important for operations managers to continuously evaluate the value propositions that their companies offer, and how changing conditions may render them obsolete. Case Questions: The case questions guide the student through the value chain analysis identified above.

1. Draw a diagram that illustrates the textbook supply chain from the publishers' point of view. 2. Who are the various customers for textbooks? What do these customers want in terms of goods and services related to textbooks? From the publisher's point of view, who is the critical customer? 3. Who are the major players in the supply chain? What operational roles do they play in terms of creating value for the critical customers? 4. Given the anticipated changes in the market and in product and process technologies, how do you envision each supply chain player's role changing in the future? 5. What advice would you give to Dave Eisenhart regarding long-term operational changes the firm should consider? Case Analysis: 1. Draw a diagram that illustrates the textbook supply chain from the publishers' point of view.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

The diagram below identifies most of the major players in the traditional textbook supply chain. Students will quickly identify other channels of distribution as well, such as on-line retailers. I encourage them to concentrate first in thinking about the traditional channel that has hard bound books stored in inventory at several stages throughout the chain. You can ask the question of why inventory exists? Why do publishers revise books every 3 years? Or other questions just to get them thinking.

Textbook supply chain from publisher’s perspective

Sales Rep

Professor

Authors Paper Supplier

order

Student Ink Supplier Other Supplier

Printer / Binder

Publisher

Dist

Retail Carrier

Designers Editors Material flows Information, currency flows (orders, payments)

2. Who are the various customers for textbooks? What do these customers want in terms of goods and services related to textbooks? From the publisher's point of view, who is the critical customer? I usually draw a table such as the one below. Ask the students to identify which value characteristics are most important and which are nice but not necessary. Using the idea of “order winners and qualifiers” is also useful here. Compare and contrast what the different 1-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

customers want and identify conflicts. Ask how a publisher might make tradeoffs among these book characteristics in designing a new book. Customer Student Professor (critical customer because he/she makes the purchase decision) Retail bookstore owner

What he/she cares about Price!!!, weight of the book, durability, ease of use (e.g., easy to read), Content fits course design, ease of use (course prep materials), currency of content, Price??, Durability!! (wants to re-sell the book as many times as possible), size (smaller is better to take less shelf space),

3. Who are the major players in the supply chain? What operational roles do they play in terms of creating value for the critical customers? Talk through the various roles, including: Retailer – storage and transfer of ownership Distributor/carrier – storage, transportation, availability Publisher/Authors – design, development Printer/suppliers – material transformations 4. Given the anticipated changes in the market and in product and process technologies, how do you envision each supply chain player's role changing in the future? Market changes:

Constantly evolving business content More short courses, on-line courses, and other courses that do not need an entire textbook More case teaching Desire to combine content from multiple sources

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Technology changes: Print on demand technologies (make smaller print batches economical, even lot sizes of 1), in future each book will be printed on demand at the retail site “Custom published books” – combine materials from various sources e-books Self-publishing – will authors need publishers in the future?

te xt

text und o b d nts Har uireme ser req u m a e Mainstr t tex d an em d on int Pr

El ec tro ni c

Readability (visual quality)

Example: Educational Texts

Today

Time

If e-books ever become mainstream, then the value provided by the printer, distributor, and retailer will be minimized. 5. What advice would you give to Dave Eisenhart regarding long-term operational changes the firm should consider? Some issues the publisher might consider:

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

forward integrate into retail and distribution of e-books? Think about value that the publisher creates for the author and how to protect against the threat of self-publishing (key value provide might be marketing and sales functions, integration of authors’ ideas with other key knowledge sources, etc.)

Purchase or partner with competitors to gain access to wider scope of content – for example, McGraw Hill/Irwin has a deal with Harvard to include cases in their book/coursepacks

I wrap up the discussion by pointing out the strategic and dynamic nature of managing operations spread across a supply chain. A sharp operations manager must stay abreast of: -

changing market conditions and customer desires

competitor moves

changes in technology and capabilities of key partners and suppliers

Overall, he/she must have a keen understanding of how his/her firm creates value today, and how that might be different tomorrow.

Cemex Digital Transformation Case – Teaching Notes This case provides an example of digitization in an industry that most students might consider to be “low tech.” The main point of the case is to illustrate the capabilities that digital technologies offer for enhancing and improving operational processes. An illustration of the systems, called “Cemex Go,” can be found on YouTube at: https://www.youtube.com/watch?v=z9tAhmw8l04

Case Questions: 1. What do you think are the most important factors driving customer satisfaction with Cemex’s product and service? How will the new mobile apps improve customers’ experience and satisfaction? 2. Is IBM a product supplier or resource/technology supplier for Cemex? Essentially, what is IBM supplying? 1-12 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

3. What changes will implementation of the apps require in Cemex’s back-office operations such as sales, support, accounts payable, and accounts receivable? How will these operations become more efficient? 4. How will implementation of the apps improve planning at manufacturing plants and logistical hubs?

Case Analysis: 1. What do you think are the most important factors driving customer satisfaction with Cemex’s product and service? How will the new mobile apps improve customers’ experience and satisfaction? Ask the students to put themselves in the position of a manager of a large construction project. A construction site is a very dynamic environment, requiring coordination of many different tasks and personnel that may operate in parallel, yet are inter-dependent. Timing of the tasks is a critical element. A project manager needs to be able to manage the schedule and availability of resources in a dynamic fashion in order to minimize delays and inefficiencies (“waste” in lean terms). The new mobile apps provided by Cemex give project managers abilities to schedule, track, and change orders in real time, eliminating layers of communications and transactions. Similarly, automated ordering and payment transactions minimize customers’ transaction costs. 2. Is IBM a product supplier or resource/technology supplier for Cemex? Essentially, what is IBM supplying? IBM is clearly a resource/technology supplier. They are providing order processing and service fulfillment consulting, and expertise in software programming, system design, and process improvement. 3. What changes will implementation of the apps require in Cemex’s back-office operations such as sales, support, accounts payable, and accounts receivable? How will these operations become more efficient? By automating much of the back-office operations, Cemex was able to reduce back-office staff by 25%. This created tremendous cost savings, which the company re-invested in systems development and training. Many existing back-office staff had to be trained to do a wider set of activities, and new staff had to be hired to manage the systems. In the field, Cemex should expect to have less wasted product (remember the short shelf life of mixed concrete) and better utilization of assets, since trucks and equipment will spend less time waiting at project sites. 4. How will implementation of the apps improve planning at manufacturing plants and logistical hubs? 1-13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Because customer orders and fulfillment operations are now transparent and visible in real time, planning is more efficient and accurate. The instructor might want to use this story as an illustration of the value of current, accurate information in improving the accuracy of planning (e.g., forecasting). While planning will be improved, in order to capitalize on the new capabilities offered by the apps, manufacturing and logistical operations will need to become more flexible and responsive to accommodate faster lead times and responsiveness.

Chapter 02 - Operations and Supply Chain Strategy

Chapter 2 Operations and Supply Chain Strategy

Suggested Answers to Discussion Questions 1. Why should the firm never outsource its core capabilities? What happens if the firm is approached by a supplier who is willing to supply goods and services based on these core capabilities at a significantly lower price? What should the firm do? Its core capabilities are the source of the ability of the firm to compete. If you outsource them, then you run the risk of “teaching” someone (i.e., your supplier) about what you do and what makes you successful. If they can learn from you, then they can become a strong competitor of yours. If you are approached by a firm that is willing to supply goods and services based on your core capabilities, then you really have two options before you. The first is to see if they are really able to do a better job of executing these core capabilities than you are. If that is the case, then you have two options before you: (1) learn from them or (2) get out of the market – they are better than you. The second, assuming that they are not able to do a better job of competing on your core capabilities, is to turn down their offer. They are obviously willing to take a short term loss in exchange for a long term win (gained when they learn about your core capabilities). 2. Apply the corporate/SBU/functional planning hierarchy introduced in this chapter to your university/college or business. What would be the equivalent to corporate planning? SBU planning? Functional Planning?

Chapter 02 - Operations and Supply Chain Strategy

In a university, you would find the following relationship Strategic Planning Hierarchy Corporate SBU Functional

University Equivalent University College Department

3. How would you define capabilities within a school or business? Again, the capabilities are those specific skills or processes that an organization develops to solve or address specific types of problems. Consequently, using this approach, the capabilities of an organization such a school or business can be found in its faculty (their strengths, and research focus), the pedagogy by which material is taught, and the focus of the school (finance, supply chain, operations management). 4. When can a consumer be a critical consumer? In other words, when does it make sense to focus on consumers such as retail stores, distributors, or buyers, rather than on the end consumer? A consumer such as a retail store, distributor or buyer becomes a critical customer when the consumer busy based on factors such as ability. For example, consider snack foods. Few consumers really have strong brand preferences; they tend to buy what is available. Consequently, the firm has to target the person or function that has the greatest impact on availability. In this case, it would tend to be the retail store, distributor or buyer. By the way, this is the strategy that Frito-Lay has pursued and it has been highly successful. 5. A critical concept introduced in this chapter was that of the value proposition. Explore two competing products (e.g., RIM’s Blackberry and Apple’s iPhone). Identify the underlying value propositions present in these products and how this proposition is evident in the resulting products. 2-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

To understand the differences between the Blackberry and the iPhone, consider the following table: Trait Value Proposition

How is Value Proposition implemented

Blackberry To offer a product that is an extensive of MS Outlook and Entourage so that the user can work on business wherever they are Presence of a real keyboard Security in the applications Very good business applications Extreme durable so that the user never has to worry about its inability to fulfill its value proposition

IPhone To offer a product that essentially becomes an information and communication system for the user. Extensive collection of applications Ability to host iTunes and to play music recorded or stored using iTunes Large number of applications that are communication oriented (e.g., YouTube, safari, photos).

6. Core competencies are critical issues in operations management. Are there any instances in which a firm’s core capabilities can be a liability rather than an asset? This situation occurs when the market has changed and it no longer values the core capabilities offered by the firm. In this case, the problem is that since core capabilities are so central to the firm and so embedded in the firm’s character (i.e., culture), the challenge facing the manager who wants to change the core capabilities to something that the market values is that the organization and its culture will “fight” that person. People know that the existing approaches worked in the past; there is uncertainty regarding the new capabilities; why change.

Chapter 02 - Operations and Supply Chain Strategy

7. Fit is critical to the development and maintenance of a successful operations strategy. Suppose that we are faced with a firm in which there is a lack of fit between the outcomes desired by the critical customer, the value proposition, and the firm’s capabilities. What options are available to the firm in the short term when dealing with this lack of fit? What is the impact of the lack of fit? What are the implications of the firm trying to improve the fit? Lets begin with the second question – the impact of lack of fit. When there is a lack of fit, we can expect the following outcomes to occur: •

Customer dissatisfaction to grow.

•

Internal dissatisfaction grows (because our people feel that they are trying to do a good job but the customers don’t seem to appreciate).

•

Profits fall (as cost increase because we are making the system do something that it is designed to do).

•

We create opportunities for our competitors. We have a gap between what the customer wants and what the system can do – such gaps are attractive for competitors (either existing or new).

When faced by a lack of fit, the firm can do the following: •

Change the critical customer being pursued (to one more consistent with the capabilities that we offer)

•

Change the capabilities offered

•

Change the value proposition

•

Live with the mismatch (not a long-term solution),

Chapter 02 - Operations and Supply Chain Strategy

Irrespective of the option, the firm must be prepared to invest time and resources in implementing the options. 8. Suppose that you are the owner of pizzeria that is located near to a university or college. How could you use the concepts of Order Winners, Order Qualifiers, and Order Losers to help develop and implement an attractive business model? These concepts could be used to identify what the competitors are doing in terms of pizza and to identify the opportunities for a new pizzeria. For example, we know that Lil’ Caesar’s competes by focusing on availability and cost; Domino’s focuses on delivery and price (and now on quality, if we are to believe the recent advertising campaign). We could choose to compete by focusing on variety (different special pizzas every week), or quality at a reasonable prize. 9. Why should metrics be regarded as primarily methods of communication? Think about the relationship between a metric, the strategy, and the task being carried out by an operations person. What a metric does is to restate the strategy into terms that make sense to the person. For example, what a metrics does is to essentially say to a user, “for our firm to compete on customer service, you must ensure that when managing inventories, you maintain a certain minimum level of inventory accuracy (e.g., 98%), that all orders are filled with 20 minutes, and that we strive to fill the orders as completely as possible (we strive for a 99% line fill rate – i.e., on average, the customer should expect that we will fill at least 99% of the orders by line). 10. A metric consists of three elements: the measure, the standard (what is expected), and the reward. Why are all three elements critical? What happens to the effectiveness of a metric when one of these three elements is missing? 2-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

To answer this question, consider what happens if you remove any one of the three elements: •

Without a measure, the person has no way of assessing themselves or their performance.

•

Without a standard, they do not know what is an acceptable level of performance.

•

Without a reward (punishment), then their ability to do well or poorly does not matter since they are not rewarded for good performance nor are they punished for inadequate performance.

11. What is the impact of sustainability on the business model? How does it affect issues such as the Order Winners, Order Losers, and Order Qualifiers? How does it affect the identification of the critical customer? When addressing this question, look up such products as Chrome or Timbuk2 for bags or Teva or Mio or Timberlane for shoes. Sustainability means that we focus not only on the long-term survivability of the firm but also on the ability of the firm to reduce its level of pollution (this concept is discussed in greater detail in Chapter 17). With a greater emphasis on sustainability, we can expect to see sustainability move to being an Order Qualifier (for many), an Order Loser (if you fail to provide the appropriate levels of sustainability, we will not buy from you again), or even an Order Winner (we emphasize sustainability in our decision). This issue may cause us to target new critical customers – customers for whom sustainability is a critical consideration and for which they are willing to pay a premium. The reason for the companies is that they are firms that have chosen to compete on the basis of sustainability. 12. As North American firms increasingly turn to product innovation, the management and protection of intellectual property becomes an important issue.

Chapter 02 - Operations and Supply Chain Strategy

Discuss how intellectual property considerations can affect the following areas in supply chain strategy: •

Supplier relationships.

Here, we must recognize that innovation cannot only occur internally; it can also take place either in the supplier or through the interaction of the supplier with the firm. For innovation to take place within the supply chain, there must be a level of trust and respect. Such conditions are required for the suppliers to become willing either to participate in the innovation process or for them to share their innovations with the buying organization. •

Supplier contracts

This is an important but subtle point for several reasons. First, no contract can ever be sufficiently comprehensive as to include all possibilities, including accounting for all forms of innovation. Second, if innovation does take place, especially innovation that is the result of cooperation between the buying organization and the supplier, then there should be recognition of how the innovation is to be “owned.” Note: the authors have seen several instances in which the contract specifies that irrespective of who creates the innovation, the innovation is “owned” by the buying organization. Such contracts tend to discourage innovation between the buying organization and the supplier. •

Supplier location:

It is important to note that innovation is greatly enhanced by having the buyer and supplier be located close to each other. In some companies, this has taken the form of “co-location” – that is, having the buyer and supplier being in the same location. This approach is attractive for several reasons. The supplier can better understand the needs of the buyer since they (the suppliers) can see what the buyers are doing and what they need. When an innovation is 2-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

proposed, the buyer and supplier can come together quickly to review the innovation and to identify possible changes or improvements. Finally, having the buyer and the supplier colocate can result in what has been termed “accidental innovation.” That is, by working with each other, the parties can identify new opportunities for innovation. This one reason that Pixar Studios was designed with all the rest facilities and dining areas located in one area – the designers wanted to encourage this form of innovation. 13. In this chapter, you were introduced to Huffy Bicycles. You were also told that the key customers were store managers and purchasing managers. Now, assume that Huffy decided to target first parents and then children as its critical customers (using the information provided below). What impact would this shift in critical customer have on you—that is, how would you design the resulting operations management system (including the supplier base)?

Before beginning this problem, it might be useful for the instructor to hand out the following article: 2-8 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

Fisher, M.L. 1997. “What is the Right Supply Chain for Your Product?” Harvard Business Review. (March-April), pp. 105-116. Reprint 97205. For the parent, this would mean that the operations management process would emphasize issues such as: •

Acquisition price – the system would have focus on reducing waste and on focusing on cost when evaluating processes and operations. We would look for suppliers who provide the needed components at the lowest cost without compromising delivery (which affects availability and quality (of which safety is a critical component)).

•

Quality – One of the major attributes of quality is durability, or how the product performs under adverse conditions. Here, we would begin by focusing on product design. Since our goal is durability, we would have to design bicycles that are more resistant to damage and that can resist. We would then have to buy components from our suppliers that meet these requirements for product durability. Finally, we would have to design in strong linkages with our downstream (customer) base to ensure that we are identifying any problems with the usage of the products.

•

Ease of Maintenance – again, design is critical. We must be able to design the bicycle so that (1) the parts do not break; and, (2) if they do break, they can easily be repaired. For the supply chain, this means that we must identify suppliers who can provide components that are of sufficiently high quality (not too high but high enough so that they do not break with any degree of frequency) and can be easily replaced. This may mean that we do 2-9

Chapter 02 - Operations and Supply Chain Strategy

not go for the “latest and greatest” in terms of technology but rather go for proven technology that has been found to work. We also have to build links with our customers (e.g., the dealers) so that we can identify early on design features or parts with which quality/durability is a major concern. However, a very different supply chain and operations management system is required if we focus on the child as the key customer. What is critical here is the responsiveness of the operations management/supply chain systems. Why? Because when we deal with styles, we find that styles change rapidly. What was popular in one time period may not be popular in another. Consequently, we have design and release new products on a regular basis. We may also have to work with certain television shows to ensure that our new designs are highlighted on the shows (with the goal of encouraging the key customer – the child – to want the product). To achieve these objectives, as previously noted, we need a responsive supply chain – one that can build more of the products that are wanted, one that can quickly kill the products that are not wanted, and one that can get feedback from the field quickly. Consequently, the following changes are needed: •

Greater emphasis on product design and redesign.

•

Greater emphasis on suppliers that can respond quickly to changes in design and in volume. We want suppliers that can ramp up quickly to produce the components needed to support the winners and that can quickly drop components for products that have not met demand.

•

Here, we see a greater role for strong linkages between ourselves and the stores. We need to know what is selling and what is not selling; we need to 2-10

Chapter 02 - Operations and Supply Chain Strategy

know as soon as possible. This requires close cooperation. BTW, when we get here, the instructor can show that these linkages are becoming critical today as they form the basis of the development now referred to as demand sensing.

Chapter 02 - Operations and Supply Chain Strategy

14. Using a SWOT analysis, can the operations management system be a strength? Can the operations management system be a weakness? Provide examples. To address this question, we really are looking at the business model. Operations management can be a weakness when the capabilities that it embodies: (1) are not in synch with the demands of the critical customer; and, (2) do not support the value proposition. Can the operations management system be a weakness? Yes. The best example offered is that of the Ford manufacturing system in the late 1920s. At this time, the Ford manufacturing system had been designed and managed to reduce production lead time, maintain standard quality, and most importantly reduce cost. This, it was really well able to do. This was the period when the motto at Ford was “you can have any color as long it is black.” Yet, there were significant changes in the customer base. The key customer initially had been interested in wanting to buy a car and they were interested in price. This, Ford was able to do. Yet, once this demand was satisfied, the customer demand changed. What they wanted was a reason to buy a new car more often. Under the Ford model, the only time that you bought a car was when you needed to replace the existing car. Yet, customers wanted something different. They wanted a reason to buy a car before it broke down. General Motors responded to this latent demand by offering model years, introducing changes in product design, and offering 2-12 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

options (such as color). The customers embraced these new traits. The problem was that Ford was unable to respond. The customer wanted flexibility, variety and responsiveness. Ford’s manufacturing system gave them standardization, lack of variety, and low costs. There was a major mismatch between the demands of the customer and the capabilities of the manufacturing system. Ford’s manufacturing system, once a critical strategic asset, had now become a strategic liability and a weakness. On the other, the operations management system can become a strength when it supports the customer needs and strategic objectives. The best example of this situation is Zara. Zara is a mid-range fashion manufacturer. Its critical customers are women in the 18-35 age range. These people visit a Zara store once every three weeks; they expect something new when they come; they are not willing to accept stockouts. Given that Zara deals with products that are fashion driven, it must introduce new fashions on a regular basis. The company does not know which ones are going to succeed; which ones will fail. As a result, Zara’s system is designed for responsiveness. It introduces new products in small batches to its stores. At the stores, as products are sold, this information is sent back immediately to Zara headquarters in Spain. In addition, Zara encourages its store people to send back any information and suggestions about changes to existing products or new products that might be attractive to its key customers. 2-13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

How does Zara forecast? It is really quite simple. If the new design sells, Zara produces more; if the new design does not sell, it produces less or it even stops production. For this model to work, the operations management system has to be fast. This is something that Zara does well. From the time that the store reports that it needs more product until the store receives a replenishment shipment is often less than 5 business days. Zara does this by having a system that is built to be responsible. It has centralized replenishment in its manufacturing facilities located in Spain. It has also taken the following actions: •

All of Zara’s fabric is bought in the form of “grey” fabric – fabric that must be dyed to order.

•

Once the order is received, the fabric is dyed and then cut at Zara’s facilities.

•

The cut material is then sent out to be assembled by its suppliers. These suppliers can adjust capacity quickly because their capacity consists of sewing machines (relatively low cost) and people.

•

Once the items are assembled, they are sent back to Zara’s warehouses, which essentially act as cross-docks.

•

The items are then picked to the individual store orders and these orders are then sent out for shipment to the stores – something easily done because the warehouses are located next to the airport. 2-14

Chapter 02 - Operations and Supply Chain Strategy

As we can see, Zara’s manufacturing system acts essentially as a strategic asset – it is critical to Zara’s success. 15. In this chapter, we made references to Five Guys Burgers and Fries. Carry out a SWOT for this restaurant chain and also carry out a similar SWOT for one of its competitors (e.g., MacDonald's, Wendy's, Burger King). What does the resulting comparison tell you about opportunities and weaknesses for the two restaurant chains? One way of doing this is to develop the following matrix: Company 5 Guys Burgers & Fries

MacDonald’s

Strengths Reputation – a top pick for burgers. Provides value for money. Full time hours – 11am to 10pm – enabling it to target late-night snackers. Popularity due to quality, fresh, madeto-order food. Very valuable brand – 9th most valuable brand in the world. Tasty food.

Weaknesses Limited Menu (what if people get tired of the same menu). Menu has not changed much over time. Low advertising spend on mainstream media. No global presence. Low market share relative to the competition.

Opportunities Ability to expand menu in terms of menu and service offerings. Focus on healthy meal options – salads, light burgers. Geographic expansion to emerging economies to counter saturation in developed company.

Threats Franchise model could lead to dilution of quality and consistency in service. Increasing competitor from other firms offering similar types of products

Franchise model – no control over day-to-day operation of franchisees. Supply chain interruptions.

Value meals – unique and highly attractive. Innovative products – MIX by Sprite Tropic Berry.

Technology initiatives may not be accepted by customers. Increased competition from

Chapter 02 - Operations and Supply Chain Strategy

Company

Strengths Asset strength due to ownership of real estate on which restaurants sit. Technology initiatives (e.g., digital kiosks). Technology acquisitions (e.g., Dynamic Yield). Largest restaurant chain. Typically, franchises are very well funded.

Weaknesses Lack of employee satisfaction. Breakfast menu no longer attractive. Drive-through model not as effective as competition.

Opportunities Global expansion. Mobile orders and deliveries. Can offer healthier options. Can leverage its financial resources.

Threats companies such as ChickFil-A. New age Fast Food Trends. Rise in healthconsciousness. Tighter regulations. Environmental concerns.

As these two firms move into the future, they must strive to compete in different ways. MacDonald’s must drive on its size and resources to keep offering products that appeal to different customers located in different parts of the world (where there are strong cultural differences – e.g., offering halal food in Muslim countries, non-meat options in Hindu countries. In contrast, Five Guys has opportunities to compete by expanding globally or by trying to niche the big competitors by offering new types of food offerings that emphasize value and differences from restaurants like MacDonald’s.

Chapter 02 - Operations and Supply Chain Strategy

16. How would you convince a manager of the value of improved cybersecurity? As you develop your arguments, do a google search for examples of how cyber breaches have affected companies and their performance. One way of addressing this question is to look at the increasing importance of security as part of the firm’s value proposition. That is, for some customers, security is important – especially for those firms that value security (e.g., firms involved in innovation, global trade, financial institutions). One thing that should be recognized is that from a cost perspective, it is very difficult to develop a compelling cost/benefit analysis. 17. Why is cybersecurity a supply chain rather than corporate concern? Again, consider doing a google search for data about this question. Companies can protect themselves by investing in systems such as Zero Trust Networks. But, this is not enough. We live in an interconnected world. This is important since we are dealing with suppliers, often small to medium-sized enterprises (suppliers with 500 or fewer employees). These suppliers often offer firms access to unique and important capabilities. Yet, the problem is that such firms also lack the resources and cyber expertise. Consequently, these firms become targets for hackers. Hackers target such firms because these firms became entry points to the larger firms (which contain the resources that the hackers want access to). Consequently, if you ignore the supply chain, you create an enormous risk for the firm. 18. Why are attackers turning increasingly to ransomware attacks when attacking companies? What factors are encouraging this shift? There are three major reasons for this increase. The first is that ransomware is becoming increasingly available – it has become available as a service. That is, you can go onto the 2-17 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

Dark Web and buy a ready to deploy ransomware attack. The second is the presence of cryptocurrency. The major advantage of cryptocurrency is that once it is deployed – it cannot be traced. This is different from paying with hard currency (e.g., US dollars). Hard currency can be traced (via serial numbers); cryptocurrency cannot. Consider the following. When Colonial Pipeline was hacked with a ransomware attack, management paid over $4 million dollars in ransomware. Even though the FBI was able to recover part of this payment, the rest could not be retrieved. Third, most ransomware attackers are located in friendly save havens such as Russia (where the American government cannot get at them). 19. "Servitization" is a growing new strategy for manufacturers. Where companies previously sold customers a product, they now sell complete product and service bundles. For example, Alstom UK used to sell its customers railway equipment. Now, it sells customers availability of operational equipment on a daily basis (for which it is paid a recurring fixed service fee). See a description of this strategy at https://www.dhl.com/content/dam/dhl/local/global/core/documents/pdf/g0-core-alston-casestudy.pdf. A. What is the impact of this trend on the business model? Primarily, this development changes what we “sell” our customers. We no longer sell goods (parts); we now sell availability. You are not buying a subway car; you are buying the availability of this car for so many miles of trouble free service. So the first obvious impact is that value proposition has changed. But, the changes are not simply limited to the value proposition. They have a significant impact on the desired capabilities. The firm must now be prepared to not only manufacture the cars; it must also be able to service 2-18 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

and maintain these cars. This service must be done close to the customers (i.e., where the cars are used). In addition, the firm must now be able to work closely with those who use the cars to determine what factors influence the usage and breakdown of the cars. B. Why would this approach be attractive to customers? With this approach, what you have done is to simplify the management of resources and you have introduced certainty into the budgeting process. The customer is no longer buying and managing spare parts; they are no longer worrying about maintenance. This means that there is a reduction in the overhead needed to support such activities along with a reduction in inventory managed, the staffing requirements, and the data management (tracking which cars have to be maintained when). What are they are doing is to determine how many miles they will need and paying for that. You have also simplified measurement since the major issue is that of whether the cars were available to deliver the miles agreed to. C. How would this shift the capabilities? The answer to this question is part of the answer presented in part A. 20. ESG and Responsible Investing are becoming more important factors in today's business world. To better understand ESG, identify one or two investment groups that emphasis ESG/RI and look them up on-line. Look at the criteria that they have identified and at the companies in which they decided to invest. A. What are the advantages offered by an ESG approach? We can regard this question as a preview of the material discussed in Chapter 16. There are two advantages. First, the criteria for evaluating and assessing firm performance is identified and set out in advance. Second, the performance can be 2-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

measured and evaluated using quantitative objective data. This means that analysts, investors, and others can objectively determine if corporate claims are valid or false. B. As a company, why would it make sense for you to do well on the various criteria used by ESG? There are several reasons. First, it is the right thing to do. Second, by doing well on these criteria, you can better appeal to those consumers who value sustainability (thus being able to sell more). Third, you can attract those potential employees who value the traits encapsulated within the ESG criteria. Fourth, it reduces the firm’s exposure to risk due to problems with pollution, labor management, poor buyer-supplier relationships, and concerns over top management responsibilities and the extent to which the board of directors is appropriately discharging its duties. Finally, being compliant with these requirements has been shown to reduce costs. These and other factors form some compelling reasons for doing well on the various criteria. C. What are the implications for ESG for operations management and for supply chain management? ESG requires investment in improving operations with the goals of improving safety, working conditions, wages/benefits, promotion requirements, and the manner in which the processes are managed and measured (we are now interested in reducing waste within the system – activities that would definitely affect how the processes are managed and developed). It would also affect the location of the facilities and the manner in which they are designed. For the supply chain, it would mean in investing in improved buyersupplier relationships. It also mean investing in improved supply chain visibility. You want to know what is happening in the lower tiers of the supply chain (i.e., at the 2nd, 3rd, 2-20 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

or 4th), since the actions taken there would impact the operations management system and its ESG rating.

Problem Solutions Categories

Values

Sales

$32,000,000

Cost of Goods Sold

$20,000,000

Variable Expenses

$4,000,000

Fixed Expenses

$6,000,000

Inventory

$8,000,000

Accounts Receivable

$4,000,000

Other current assets

$3,000,000

Fixed Assets

$6,000,000

1. Given the preceding information: a. What is the Net profit margin for this firm?

To solve this problem, we must use the Strategic Profit Model, as presented in Figure 2-3. If we plug the numbers in, we find that the net profit margin is 6.25% (2,000,000 net profit divided by 32,000,000 sales). b.

What is the Asset Turnover?

Again, using the SPM, it is 32,000,000 sales divided by 21,000,000 (total assets) or 1.52. c. What is the Return on Assets?

Again, using the SPM, it is 6.25 (Net Profit Margin) multiplied by 1.524 (Asset Turnover) or 9.524% d.

What is the size of the total assets used by the firm?

It is 15,000,000 in current assets (Inventory + Accounts Receivable + Other Current Assets) + 6,000,000 in Fixed Assets or $21,000,000

Chapter 02 - Operations and Supply Chain Strategy

2. For the prior question, management wants to double the return on assets, without affecting sales, cost of goods sold, variable expenses, fixed expenses or fixed assets. Rather it wants to focus on either inventory or accounts receivable. a)

Can management focus on either inventory reductions or accounts receivable reductions alone?

The key here is to change the asset turnover from 1.524 to 3.05 (we get this number by taking the ROA of 9.524 × 2 (remember – we want to double the ROA) and then dividing by the Net Profit Margin of 6.25). This means that we have to reduce the total assets from $21,000,000 to $9,140,000. Since fixed assets are $6,000,000, this means that we must reduce the current assets from $15,000,000 to $3,140,000. Given that current assets are $15,000,000 now, we are talking about a major reduction. It can be done but it will be very hard. b) How can it achieve this objective?

A more realistic approach is to focus on increasing the net profit margin while also simultaneously reducing increasing the asset turnover. To achieve this, we can do the following: • • •

Reduce the cost of goods sold from 20,000,000 to 18,000,000 (a 10% reduction) Reduce the inventory from $8,000,000 to $7,000,000 (a 12% reduction) Reduce the Accounts Receivable from $4,000,000 to $3,500,000 (a 12% reduction)

We can realize a Return of Assets of 20.513% - in excess of the 19.048 requested by top management. c)

Do you see any downsides in pursuing this objective through a focus on inventory/accounts receivable reductions?

By focusing on inventory and/or accounts receivable alone, several problems can be envisioned: • •

Customer service goes down significantly resulting in increased stockouts due to reduced inventory. We become more difficult to deal with because we are not willing to offer our customers credit.

These outcomes can ultimately result in not only lower total assets but also lower total sales.

Chapter 02 - Operations and Supply Chain Strategy 3. You are the operations manager for a small kayak and canoe manufacturer (Valley Kayaks) located on the Pacific Northwest (Oregon). Lately your company has experienced product quality problems. Simply put, the kayaks that you produce occasionally have defects and require rework. Consequently, you have decided to assess the impact of introducing a total quality management (TQM) program. After discussing the potential effects with representatives from marketing, finance, accounting, and quality, you arrive at a set of estimates (contained in the following table). Top management has told you that they will accept any proposal that you come up with PROVIDED that it improves the return on assets measure by at least 15 percent. Would you go forward with this proposal to improve quality?

Again, let’s interpret the data, with the changes: Categories Sales Cost of goods sold Variance expenses Fixed Costs Inventory AR Other Current Assets Fixed Assets

New values 2,100,000 1,500,000 275,250 100,000 225,000 100,000 500,000 400,000

Plug this into the SPM model, and we get the following results: With changes, ROA is 18.35% Without changes, ROA is 7.69% The change represents a ((18.35 – 7.69) / 7.69) * 100 = 138.6% improvement Management should approve the proposal.

Chapter 02 - Operations and Supply Chain Strategy 4. As the operations manager for Valley Kayaks (as described in the previous question), you find yourself faced with an interesting situation. Marketing has informed you that they have lost a number of sales because of a lack of inventory. Kayaks, being seasonal in nature, have to be in stock at your dealers if they are to be sold (customers are not willing to wait). The director of marketing proposes that you increase inventories by 25 percent (a major investment to you). She has also given the information in the following table. How would you assess this proposal from marketing? Would the projected change in ROA justify the inventory investment?

First, we have to understand the impact of the changes: • • • •

Sales can be expected to go up because we have inventory present to meet demand Variable expenses can go down because we have less expediting and the such Inventory goes up – to be expected Fixed costs go up because of the space needed to store the inventory

We have the following results (using the SPM excel template available): Category Sales Cost of Goods Sold Variable Expenses Fixed Expenses Inventory Accounts Receivable Other Current Assets Fixed Assets ROA

Current Value 2,000,000 1,500,000 300,000 100,000 300,000 100,000 500,000 400,000 7.69%

New Values 2,500,000 1,500,000 270,000 115,000 375,000 100,000 500,000 400,000 44.73%

We can see that by using a little bit more inventory, we can really improve the overall ROA performance – from 7.69% to 44.73%, or by ((44.73 – 7.69) / 7.69) * 100 = 481.7%. 5. Noble Bicycles of Glen Arbor, Michigan, is a small batch manufacturer of high-end bicycles. That is, it typically builds bicycles in batches of one to three units. Quality is high, only to be expected when the typical bicycle frame costs $2,500 and up. Yet, profits have not kept pace with top 2-24 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy management’s expectations. Management has set a goal of generating a minimum of 25 percent return on assets. As a result of a corporate SWOT analysis, management has identified one critical threat: the costs at Noble are simply too high—and one important opportunity: because of the flexibility of operations and the experience of the design team, many of whom are either professional or serious amateur bicyclists, Noble is well positioned to become an innovation leader. A top management team consisting of the marketing director, finance director, the corporate vice president, the purchasing director, and the director of operations management has developed two alternative strategies: (1) focus on reducing costs through the application of lean systems and procedures (Chapter 8), and (2) focus on product innovation (Chapter 4). To assess the two approaches, the team generated the following table.

What is Noble Bicycles’ current ROA?

Lets make things simple and just calculate the ROAs for the options using the supplied SPM excel template: Category ROA

Current Approach 12.30%

Lean proposal 72.12%

Innovation Proposal 71.01%

b. How does the lean proposal affect operations at Noble Bicycles? Improves ROA primarily through cost savings c.

How does the innovation proposal affect Noble Bicycles (why)? Improves ROA primarily through revenue generation

d. Which proposal would you recommend to top management? Why? Strictly based on the numbers (ROA), we would recommend the Lean because it is slightly better. Yet, these two are essentially equivalent. The decision has to come down to strategy and the business model – how does the firm want to compete and what types of customers is it going after. 2-25 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy e. How much of a change in sales would be required in order to make the returns of the two proposals equivalent? Just slightly more than 150,000 increase in sales for the innovation option

f. What are the strategic risks of these proposals? Lean proposal • • • • •

Nothing new for the customer to look at in terms of product. Assumes that the customers are price sensitive. Can reduce the responsiveness of the system through the reduction of inventories and slack (translates into lost sales). Tends to make the people more risk averse. Once you have achieved reduced costs, what else is going to attract the customer? In other words, we need to develop a strategy to follow up on the cost reduction strategy embodied in lean.

Innovation proposal • • • • •

You have to develop the products first and see if the market wants to buy them. There is always the risk that the market will reject our designs. Greater inventory levels. How to protect any intellectual property resulting from the new designs. We have to be prepared to increase output very quickly should we design a real “home run”- successful design (otherwise, the competition might copy us and produce essentially the same product at a lower cost). Forces Noble to continuously be innovative.

Chapter 02 - Operations and Supply Chain Strategy

Otis Trains Explores the Supply Chain Case – Teaching Note To make the recommendations, it is first necessary to understand the product that Otis Trains is selling. It is selling high quality, detailed, small batch train sets that are targeted towards affluent males in the 30-50 age bracket. For this market, we can assess the Order Winners, Order Qualifiers, and Order Losers: • • • • •

Quality Price Lead time (to delivery) Availability Variety

OW OQ OW/OL (if too long) OQ OW

From this analysis, it is evident that Price, while important, is not critical. In going to China, we are focusing on a solution that emphasizes cost. While important, it is not consistent with the requirements of the customer. More importantly, we must consider that the supplier, being located in China, exposes Otis to a number of critical potential problems: •

Long lead times (due to shipping)

Chapter 02 - Operations and Supply Chain Strategy

•

Problems with the supplier not understanding what makes for an acceptable product to the target customer (remember – the products that are being released have a great deal of significance to someone in the United States – the meaning of these same products might not be as apparent to someone not familiar with American history)

•

Increased costs due to transportation and increased inventory.

Consequently, the decision does not make a lot of sense. Rather, it makes more sense to source the products from a company/supplier located in North America – here, you would have a supplier that could work closely with you and that would offer you, hopefully, short delivery lead times and high quality. Assuming that Otis decided to accept this proposal, identify and discuss the most appropriate relationships and potential risks. Here, because of the need for high quality products that are frequently updated to reflect new types of trains, the most appropriate relationship is a close collaborative relationship. Such a relationship is important because you want to work closely with the supplier to ensure that new products are designed and introduced quickly and with the appropriate levels of quality. By outsourcing to China, we are faced with a number of potential risks: •

Quality problems – the products may not satisfy the desired levels of quality.

•

Delivery delay problems – because of potential delays caused by lack of shipping capacity, weather, problems at customs, or any production problems.

•

Financial risk – the supplier experiences financial problems.

Chapter 02 - Operations and Supply Chain Strategy

•

Intellectual capital/creating a potential competitor – we wind up teaching JLPTC about how to build acceptable and desirable trains for the North American market; they decide to sell directly to the market at a lower price.

Otis could do several things to protect themselves: •

They could position some of their own people at JLPTC to ensure that the quality is acceptable.

•

Inventories could be built up in North America or Otis could decide to ship the products by air.

•

Otis could monitor or thoroughly assess the financial well-being of their suppliers.

•

The last one – intellectual capital/creating a potential competitor – is the most difficult one to protect against. Otis could try to protect themselves by having JLPTC build an almost-completed product and then finishing themselves (to ensure that JLPTC does not have this final bit of knowledge); alternatively, Otis could buy out JLPTC.

Steinway and Sons Piano Case – Teaching Note This case illustrates the potential problems that a firm can encounter when it tries to focus on manufacturing process improvement without constantly remembering the critical customer(s) and their requirements. The discussion of this case can be carried out by first asking the class to evaluate the product and the customer. When talking about the product, we are dealing with World Class pianos. These are pianos that are played by concert pianists. They are also found in leading music schools, recording studios, concert halls, and in the homes of people who love excellent pianos. These are our critical customers. These people for whom the following trait assessment can be carried: 2-29 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

Order Qualifiers: Price (these people are willing to pay a premium for a top grade product); lead time (they are willing to wait for the product) Order Winners: Quality, variety (This issue is not immediately apparent to most students. The user of this product does not consistency. That is, they do not want each piano to sound the same. Rather, they want variations. These variations, which are the result of human expertise and knowledge on the part of the builders, are important because the different types of piano music have different traits and they require different sounds from a piano. The tone that you want from a piano used to play jazz are often very different from the tones that you look for a piano used to play Beethoven or Scott Joplin (ragtime). In addition, different pianists look for different sounds that reflect how they view the music. Some are looking for a bright sound while others are looking for a deep rich tone. These are some of the reasons that pianists spend so much time testing and trying out the various pianos. This issue that consistency may become a liability is important because for many students, consistency is good. We want to have products are identical from unit to unit. Yet, for Steinway pianos, we want products that are consistent in quality of construction but have some variability in terms of tone quality. Orders Losers: Poor quality, poor tone quality. See preceding discussion.

Chapter 02 - Operations and Supply Chain Strategy

The impact of the Process Improvements. In the case, we see two major changes taking place in the Steinway manufacturing process. The first is that the manufacturing process is becoming more automated. In fact, Steinway was considering the use of CAD/CAM (Computer Aided Design/Computer Aided Manufacturing) to improve the performance of its manufacturing process. This investment was driven by two factors – the need to reduce cost and the changing the nature of its workforce. This latter aspect is important because it is the second change process. In the past, Steinway was dependent on the skill of its workforce. Yet, it is now becoming harder to find the skilled workforce – fewer people are being attracted to it (getting such skilled people requires people who both understand music and who have undergone extensive apprenticeship training). In fact, many American companies faced by this same challenge have turned to recruiting such people abroad (e.g., from Europe). Any people who can do the type of work required by Steinway will also be expense to recruit and to employ (they will ask for a higher salary/wage). The introduction of automated manufacturing can be viewed in part as a response to these problems with the labor force. However, it is also important to understand the impact of automation on the existing labor force. This can be viewed as a challenge and threat to the current skilled workforce. Some may feel that they may be losing control over the process and the quality of the product. Consequently, some of the skilled workforce, so critical to the long-term success of Steinway, may decide that it is no longer worthwhile to work at Steinway and they can quit.

Chapter 02 - Operations and Supply Chain Strategy

This is exactly what is happening. The resulting changes are changing the nature of the manufacturing capabilities. These capabilities are better suited for building a consistent but lower quality instrument and an instrument where there is less meaningful difference in the music tone. These capabilities are drifting way from the requirements made by our critical customers. Once this emerging gap has been identified, the next stage and the one that the students should now focus on that of how to close the gap. In addressing this gap, it is important that the students begin by realizing that Steinway cannot really change the critical customers and their expectations and demands. These should be viewed as given. What this means is that we must now focus our attention on how to best change the capabilities. While many recommendations can be generated, the students should recognize the following: •

Technology is appropriate for consistency. Consistency is important in the components. Consistency is not critical when it comes to the tone. We should use technology to free up our critical resource, the skilled craftspeople, to focus on developing the “right” tone and to ensure that the piano is quality in construction.

•

We cannot eliminate the knowledge and expertise of the skilled craftsperson. This is what ultimately makes a Steinway a Steinway.

•

We must make better and more appropriate usage of the skilled craftsperson.

Chapter 02 - Operations and Supply Chain Strategy

•

Quality comes from the craftsperson. What this means is that we must ensure that a Steinway piano is allowed to go to the customer ONLY after a craftsperson says that it is ready. This ensures that the craftsperson sees themselves as being in control of the process and the product. This will encourage the craftsperson to stay and it will make the resulting manufacturing process more attractive as a place to work.

By making changes to the manufacturing process based on these considerations, the gap between the customer and the Operations Management capabilities should be closed. Trail Frames Chassis – Teaching Note Like the Steinway case, Trail Frames Chassis (TFC) represents a case where the issue is fit between the market and the Operations Management capabilities. With TFC, the challenge to the fit comes not from the manufacturing process (Steinway). Rather, it comes from the demands being placed on it by the introduction of a new, potentially attractive market segment. The bottom line with this case is simple – the new market segment that TFC is now pursuing is one that demands skills, equipment, and processes that TFC currently does not possess. Before beginning the analysis, it is important to recognize why TFC is pursuing this new market. The answer is a simple one and one that is not really adequate discussed in the case. TFC is faced by the need to grow sales so that it can grow profits. The management at TFC now feels that they have reached the limit of the growth offered by their current market and marketing strategy. Something new is needed and this something new is that of mass-produced RV chassis.

Chapter 02 - Operations and Supply Chain Strategy

Customer Assessment The first thing to do is to address the first question. The following are some insights that should come out of the customer analysis: Current Market Order Winners: Flexibility; Variety; Responsiveness Order Qualifiers: Price; Quality (top quality product expected); lead time Order Losers: Lack of responsiveness; lack of flexibility; poor quality Proposed Market Order Winners: Cost (costs are the major drivers); lead time (fast is important because of the proposed volumes involved). Order Qualifiers: Quality (expected); variety (important to note here that flexibility and responsiveness have very limited attraction to this new market segment). Order Losers: High cost; long lead times; poor quality. By comparing these markets, it becomes evident that the two markets have very little in common. Consistency between the New Market and the OM Capabilities What TFC is good at involves customization and flexibility in a low volume environment. Yet, what the new market wants and demands is that of cost reduction/control, standardization, and high volume production. Ramping up for TFC is more than simply than adding more equipment, people, and raw materials. Mass production of a standard product requires an

Chapter 02 - Operations and Supply Chain Strategy

entirely different infrastructure; it requires different scheduling tools; it also requires a different approach to product design. This was something that the management at TFC did not seem to appreciate. It cannot take an existing design and cheapening by using lower cost components. It tried to do so and it lost. Why? Because the cheapened chassis just would not work. The resulting quality was not acceptable and TFC paid for it. This analysis works for questions 2 and 3 in the module. Recommendations to John Stickley There are two potentially equally valid approaches available to the student. The first is to recommend against this new option. That is, get out it as quickly as possible. Sell it to GM or Toyota and reinvest the sales proceeds into improving the current process or in identifying markets that might appreciate the capabilities offered by TFC. The second is to establish a separate organization focused around the new market. This organization would be separate and would be built from ground up with its own design staff, scheduling system, inventory control system, performance measures, and budget/accounting system. It would share very little with the existing organization. If you decide to invest in the existing system, then you have to focus on two issues. The first is that of improving how well we can operate the current system (continuous improvement). The second is looking for new markets compatible with the existing capabilities.

Chapter 02 - Operations and Supply Chain Strategy

Lil’ Me – Dealing with the Millions of Toys (MOT) Proposal Teaching Note This is an interesting case that is grounded in reality – it is largely based on the My Twinn story. In this case, we see a company that is struggling in the short-term being approached by a proposal that appears both timely and highly attractive. It is attractive on several dimensions: •

Increase in volume

•

Assurance of source of demand (size of Millions of Toys and its market presence)

•

Interest shown in Lil’ Me by Millions of Toys

By forcing the participants to lay out the current business model and then understanding the changes in the business model introduced by the Millions of Toys proposal, the participants should see that there is a fundamentally mismatch. More importantly, the process that works well for our current customers would NOT work well for the Millions of Toys customer. Ultimately, Lil’ Me would have to make significant investments in its capabilities to meet the requirements of Millions of Toys. Unfortunately, in its current position, it has neither the time nor the financial capacity to do so. 1. What is your evaluation of the business model currently in place at Lil’ Me? As pointed out in this chapter, the business model consists of three major components: key customers, value proposition, and capabilities. Let’s look at each. •

Key customers – parents and grandparents – looking for gifts (very seasonal in nature, with quality and price being order qualifiers, on-time delivery and flexibility being both order winners and order losers). There is also a new set of customers now emerging – collectors of these dolls. These people are looking for innovation (changes in product line due to the introduction of new products on a regular basis). They are also looking for post-sales support in the form of an extensive doll repair network. This latter issue should not be much of a problem for Lil’ Me since this can be satisfied essentially by 2-36

Chapter 02 - Operations and Supply Chain Strategy

outsourcing (which is what Lil’ Me is currently doing). As a group, these customers are fairly consistent. •

Value proposition focuses on issues such as innovation (design of new heads and dolls), responsiveness, and flexibility. In this setting, cost is a secondary, not primary driver.

•

Capabilities – since we need flexibility and responsiveness, we need to think in terms of having systems have excess capacity, involving artists (to design the new heads), and that tend to be more manual than automated. In addition, we would expect to see close relationships between the designers and the manufacturing (since the new designs have to be rushed into production quickly). We also need a broad supply chain that embodies both production and post-sales support. These traits are currently present.

In short, if we look at the current business model, then we see a good fit. 2. What would the business model look like if we were to accept the MOT proposal? The short answer – very different. Let’s look at the components: •

Key customers – is now looking for very designs, more standard, and a greater emphasis on cost and cost management. What has happened is that cost has now become an order winner, not the order qualifier that it was previously.

•

Value proposition – one that emphasizes cost and delivery. Issues such as post sales support are no longer important.

•

Capabilities – must emphasize volume, cost reduction and speed. Ultimately, this means that Lil’ Me has to think about investing in automation. This is an option that takes time, resources and new management skills.

As previously noted, a very different business model. 3. To what extent could the current business model service the needs of MOT? 2-37 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 02 - Operations and Supply Chain Strategy

By the time that you have laid out the two business models next to each other, it should be very clear to the participants that the business models are very different and that the current one does not meet the needs of the MOT desired business model. 4. If there is a gap identified in question 3, what investments would have to be made to bring about alignment? This question was essentially answered in question 2 – Lil’ Me must invest in capabilities that emphasize volume, cost reduction and speed. Ultimately, this means that Lil’ Me has to think about investing in automation. This is an option that takes time, resources and new management skills. 5. Does Lil’ Me have the time to make the changes required by the MOT proposal? In a word – no. It takes time to get the money, build the new facilities, hire and train the new staff, and debug the process to make that it works properly. In short, while attractive, Lil Me should avoid the MOT proposal.

Chapter 03 - Managing Processes and Capabilities

Chapter 3 Managing Processes and Capabilities Suggested Answers to Discussion Questions 1. Describe the various operations within an amusement park that need to have balanced capacity. Which operations are most likely to become a bottleneck? How might an amusement park utilize yield management to influence demand to better-fit available capacity? A bottleneck is any activity that reduces throughput or increases the overall lead time. Consequently, to address this question, we have to look at areas that satisfy these two conditions. In a theme park, we have several areas that would be candidates: The ticket booths The queues/lines for the popular attractions The restaurants The restrooms There are several ways that the park can influence demand to better match the demand to the capacity: Information – telling people where demand is greater and where it is. Pricing – Encourage demand during low demand periods (e.g., after 2 pm or 5 pm – times when most people leave the parks) by offering discounted pricing. Pre-booking or scheduling customers – that is, allow people to pick their times and allow them to get first access to the various rides. For these people, allow them to use expedited or fast track queues or waiting lines. 2. What are the primary resources that determine the capacity of each of the following? 3-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

Grocery store: Here we have a situation where there are many different forms of resources required: labor (to stock the shelves, operate the check-out registers), the experience of the staff, the type of equipment used to move the items from the back to the shelves, the size of the freezers and coolers, and, the size of the grocery store (which determines the range of products offered),

Hospital Emergency Room: Here the capacity is again determined by several factors such as the staff (the number of nurses, orderlies, doctors), the experience of the staff, the size of the facility, the type of equipment, and the size of the waiting room. In addition, we have to consider the type of technology used in the examination rooms. All of these factors are primary resources.

A company that assembles appliances. Again multiple resources are present: assembly line employees (number, skill level, experience), amount of inventory available for storing finished and incoming inventory, the length of the assembly line, the complexity of the products being assembled, and level of maintenance (determines the availability of the equipment, otherwise referred to as uptime).

3. How can a university attain economies of scale? What impact might this have on quality and flexibility? Economies of scale refer to the notion that as size increases, the institution can realize certain advantages. Ultimately, this means that expansion translates into greater efficiency and this, in turn, translates into lower costs. To achieve such benefits, universities might consider the following actions: •

Specialization of faculty – for example, we could have certain faculty teach undergraduate while others teach graduate courses only. Within each area, we could 3-2

Chapter 03 - Managing Processes and Capabilities

encourage greater specialization (e.g., in the business school, we might have quantitative faculty – that is, faculty who teach only quantitative courses). •

Standardization of courses and material where possible. This would ensure that we could substitute faculty where and when needed. It would also reduce the amount of time needed for preparation.

•

Avoid giving faculty administrative responsibilities. Administrative responsibilities increase load on faculty without often generating offsetting revenue streams.

•

Differentiate between faculty who primarily teach faculty who are primarily researchers. This is another form of rationalization and specialization.

•

Consider using technology in the form of Internet/web based education and prerecorded lectures of standard, heavily content based material. This means that one faculty person who teach a larger number and that person could focus on the classes where their direct expertise is needed.

•

Consider teaching through teams of faculty who would be responsible for specific courses. Such a structure would protect the students against situations where one faculty person is either sick or at a conference.

With these and other similar practices, costs would drop. However, there are certain real costs. Flexibility and responsiveness of the institutions is reduced. It would be difficult to quickly introduce new and different material into the curriculum. Also, by using non-research based faculty for teaching, there is the real risk that these faculty might not be up to date on the latest developments in the field. Also, it would be difficult to move faculty from one area where there is too little demand to other areas where there is too much demand.

Chapter 03 - Managing Processes and Capabilities

What is interesting is that many of these developments are currently being experimented with by universities as they search to reduce costs. 4. How would you define the maximum capacity for the front desk of a hotel? What is meant by the effective capacity? Define the difference in these two terms relative to the number of customers that can be checked into the hotel in a given period. The maximum capacity of a front desk of a hotel is based on several factors (one of which will ultimately become the limiting factor): •

The number of people who staff the desk

•

The experience of the people who staff the desk

•

The technology that supports the operation of the front desk

These factors would determine the maximum number of guests that can be registered. However, the problem with maximum capacity is that it may require that potential guests wait a long time. Consequently, we have to think in terms of effective capacity. That is, what percentage of time do we want the staff to be busy? That is, the higher the effective capacity, the busier the front desk; the longer we expect the customers to wait before they are checked in. The setting of the effective capacity is very much of a strategic decision. 5. Which would require a larger amount of excess capacity – a hospital emergency room or a doctor’s office? Why? The answer to this question focuses on the issue of which setting experiences the most unplanned or unmanaged variance. Using this framework, the answer is the hospital emergency room since it must deal with accidents when they occur. In contrast, the doctor has the luxury of controlling demand (load) on capacity by scheduling the patients to arrive at certain times.

Chapter 03 - Managing Processes and Capabilities

6. Discuss the challenges that an operations manager can expect to encounter when applying the principles of process performance to the upstream (supply-based) section of a supply chain? The challenge in applying the principles of process performance lies in two areas: (1) our inability to control the processes of our customers; and, (2) the lack of visibility (we do not often know ultimately who is buying our product) – consequently, we are unable to determine where and when to apply the principles. 7. Which of the five activity categories is represented by each of the following actions? a. A person taking an order from you at a restaurant (operation – a change is taking place) b. A conveyor belt carrying your order to you at a store (transport – moving items) c. Work waiting at a workstation (delay – items at rest) d. Parts in a bin that an operator is working on (operation – by definition these parts are considered part of the operation) e. The safe at your bank (inventory – parts under control – we hope) f. A person setting up a workstation to process parts (setups are considered operations) g. The advisor at your college checking your transcripts over to make sure that you have enough credits to graduate (inspection – notice the emphasis on checking) 8. Under what conditions would inspections, storages and transports be considered value-adding? These activities are critical when variety is desired and value (then an inspection becomes attractive) or when availability is paramount (here storages become attractive) or when you 3-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

want a product made elsewhere made available you quickly (then transportations are attractive). As an example of where inspections are value-adding occurs in musical instruments. With clarinets and pianos, you want variety since you want to pick the sound that best suits the music you are playing. In this case, inspections help you identify the instrument that sounds best for what you are trying to achieve. As an example of the second, consider the value of having spare parts (inventory) available should your car break down and you find that you need it today. 9. How would you define the capacity of your school? In what way does capacity influence the value of your college experience? It is important to recognize that the capacity of a business school is defined by multiple factors: •

The teaching capacity (number of instructors and their specific skill sets);

•

The number of classes and their size;

•

The technological capacity (what type of technology and the capacity of each form of technology to support the demands of the students and the instructors); and,

•

The mode instruction used (teaching in lectures or using the case methods).

The amount and type of capacity determines how you are taught, the size of the classes in which you are taught, and the extent to which you learn to deal with simple quantitative analysis or more detailed and demanding problem solving. 10. Why is it important to begin with the metrics rather than to start by looking at the process? This is important because by establishing the metrics first, you establish the desired outcome for the system (i.e., what the process should do). If you establish the metric after studying the 3-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

process, the study of the process shapes the metric. In other words, you measure what the process is good at doing rather than measuring what the process should achieve. 11. Interpret Juran’s Law from a process-thinking perspective. How would this change your approach to problem solving? This means that when a problem occurs, we should turn our attention to the processes involved and determine if there are problems in these processes first. It would also mean that you would begin to look at problems (outputs) as not the causes but rather symptoms of problems with the underlying process(es). 12. If your goal is to reduce variance within a supply chain (especially if the variance is most evident in your supply), under what conditions does it make sense to focus first on the customer side of the supply chain? It makes a great deal of sense to focus on downstream when the variance comes not from problems in supplier performance or variances in their processes but from variance in customer orders (as measured in terms of when orders are placed, the product mix, and the timing). 13. When load (demand) persistently exceeds capacity, lead times increase. What options are available to the operations manager to deal with this situation? [HINT: in your answer, consider what you can do to capacity, load, and to processes to address this imbalance.] When faced by this situation, you have two “handles” that you can use to address the problem – these can be used separately or they can be used together. The two handles are: (1) capacity (which determines the rate at which workload is lowered); and, (2) load (which adds to the workload). For each handle, the following options are available: 3-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

Capacity: •

Increase capacity through overtime (a short-term action).

•

Increase capacity through outsourcing, where you draw on the capacity of your suppliers.

•

Increase capacity by physically investing in capacity in the operations management systems.

Load: •

Change load through promotions aimed at influencing the timing and/or quantity of demand (e.g., getting people to place their orders early by offering them a discount).

•

Using information to change demand (quote lead times based on when the orders are placed and let the customers make decisions about what they want to do.

•

Refuse to accept any new orders. When you have reached a certain limit, you stop accepting orders.

•

Prune products. With this approach, you examine your product offerings and identify any products for which demand has decreased significantly. By dropping or eliminating these products, we can take the capacity used to make these products and allocate them to the other, more deserving products.

•

Improve process efficiencies. When we study a process used to make a product and we eliminate non-value adding steps, then the product requires less capacity. The result is that load is now reduced.

Chapter 03 - Managing Processes and Capabilities

Problems – Solutions 1. Identifying maximum and effective capacity? Operation No Design Planned Equipment Capacity Utilization 1 2

1 4

3 4

1 2

400 units/hr 100. 80, 150, 125 350 190, 235

80% 77

Overall Design Capacity 400 455

Overall Effective Cap. 320 350.35

95 72.50

350 425

332.50 308.13

From this table, we can see that for maximum capacity, the level of output is 350 (operation 3, which produces the least amount); for effective capacity, it is 308.13 – the capacity of operation 4. 2. You are the given the following information? Which of the following statements can we support? Maximum capacity is 480 hours per week Effective capacity ratio is 85% Actual time worked is 380 hours per week over the last two weeks On-time delivery is 75% From this data, we can calculate the following: • •

Effective capacity: 408 Actual utilization: 79.17 %

With this information, we can eliminate A since we have more than enough capacity. Variability is difficult to assess so it can dropped. We cannot support C with the data provided. This leaves us with D as the option that is most appropriate. 3. Electronics Assembly Inc. is a contract manufacturer that assembles consumer electronics for a number of companies. Currently, the operations manager is assessing the capacity requirements as input into a bid for a job to assemble cell phones for a major global company. The company would assemble three models of cell phones in the same assembly cell. Setup time between the phones is negligible. Electronics Assembly Inc. operates two 8-hour shifts for 275 days per year. Use the information in accompanying table to determine the capacity requirements. Cell Phone Mars Saturn Neptune

Demand Forecast (phones/yr) 15,000 8,000 12,000

Processing Time (minutes/phone) 15 18 16

Chapter 03 - Managing Processes and Capabilities

Solution First calculate total capacity required by line Cell Phone Mars Saturn Neptune Total Capacity Req’d

Demand Forecast (phones/yr) 15,000 8,000 12,000

Processing Time (minutes/phone) 15 18 16

Total Processing Time Requirement 225,000 144,000 192,000 561,000

Determine the total operating time available Total operating time (minutes/year) = 275 days/year  2 shifts/day  8 hours/shift  60 minutes/hr = 264, 000 minutes / year

Determine the number of assembly cells required? Number of cells = INT( total capacity required/total operating time available ) + 1 = INT(561, 000 / 264, 000) + 1 = INT(2.12) + 1 = 3 (what we have done here is to round up since we cannot have part of a line)

4. Penny’s Pies is a small specialty supplier to a national coffee-house chain. Penny’s makes three types of pies (apple, cherry, and pecan). Penny’s operates 250 days per year with a single eight-hour shift. Capacity is controlled by the number of production lines within the bakery (a line consists of mixing equipment, rolling and cutting equipment, an oven, and packaging equipment). Based on the information provided in the table, determine the number of production lines Penny’s should have.

Pie

Demand Forecast (pies/year)

Processing Time (minutes/pie)

Apple

60,000

Processing Time Req’d (minutes/pie) 120,000

Chapter 03 - Managing Processes and Capabilities

Cherry Pecan Total Capacity

30,000 20,000

4 3

120,000 60,000 300,000

Calculate total setup time Pie

Demand Fct {pies/year)

Lot Size (# pies)

Number of Setups/Yr

Setup Time (minutes/setup)

Apple Cherry Pecan Total setup time

60,000 30,000 20,000

600 200 200

100 150 100

10 15 30

Setup time/pie (minutes/yr) 1,000 2,250 3,000 6,250

Determine the total operating time available Total operating time (minutes/year) = 250 days/year * 1 shift/day * 8 hours/shift * 60 min/hour = 120,000 minutes/year To determine the number of product lines, add the setup time to the total processing time and divide this value by the total operating time. Number of production lines = INT (total process time required + total setup time required) /Total operating time available ) + 1 = INT(300, 000 (minutes/year) + 6, 250 (minutes/years )) / (120, 000 (minutes/year )) + 1 INT(2.55) + 1 = 3 production lines (again the formula forces us to round up)

5. Best’s Bicycles manufactures three different types of bikes: the Tiny Tike, the Adult Aero, and the Mountain Monger. Given the information in the table, calculate the required capacity for this year’s production. Note that the times are given for assembly lines, so capacity calculations should be in terms of the number of lines necessary. Assume that Best Bicycles operates two shifts, each with 2,000 hours per year.

Bike

Demand Forecast (units/year)

Processing Time (minutes/unit)

Processing Time Req’d

Chapter 03 - Managing Processes and Capabilities

Tiny Tike Adult Aero Mountain Monger Total Processing Time (minutes/year)

14,000 16,000 19,000

(minutes/year) 112,000 160,000 228,000 500,000

8 10 12

Determine the Total Setup Time Bike

Tiny Tike Adult Aero Mountain Monger

Demand Forecast (units/year) 14,000 16,000 19,000

Lot Size (# of bikes)

Number of Setups/Year

Setup Time (minutes/setup)

10 10 25

1,400 1,600 750

50 80 40

Setup Time/ Bike (minutes/yr) 70,000 128,000 30,400

Total Setup Time (minutes/year)

228,400

Determine the total operating time available Total operating time (minutes/year) = 2 (shifts/day) * 2,000 (hours/shift/year) * 60 (minutes/hour) = 240,000 minutes/year To determine the number of assembly lines, add the setup time to the total process time and divide this value by the total operating time available to determine the capacity required. Number of assembly lines = INT((Total processing time required + Total setup time required) /Total operating time available)+1 =INT(500,000( minutes/year )+228,400( minutes/year ))/(240,000( minutes / year ))+1 =INT(3.04)+1=4

6. Doog’s Donuts produces five varieties of pastries, which are sold to a national grocery chain: muffins, donuts, cookies, cream puffs, and fritters. Assuming that Doog’s operates a single shift for 1,800 hours per year, calculate the required capacity. The processing time per unit, setup time per lot, the annual demand, and lot size are given in the table. Assume that the times given are for a work cell of four workers each, so required capacity should be in terms of the number of work cells needed.

Chapter 03 - Managing Processes and Capabilities

To solve this problem, lets calculate the total capacity required as done below: Item

Demand

Proc

Setup

0.1 0.1 0.05 0.2

Lot size 400 300 1,000 200

Muffins Donuts Cookies Cream puffs Fritters Total

440,000 600,000 1,000,000 240,000 180,000

0.2

300

20 5 10 20

TPT1 min 44,0003 60,000 50,000 48,000

Batch 1,100 2,000 1,000 1,200

TST2 min 22,000 10,000 10,000 24,000

CapReq Min 66,000 70,000 60,000 72,000

36,000 238,000

600 5,900

9,000 75,000

45,000 313,000

Next, take the total time (313,000) and divide by 60 to convert this into capacity required in hours or: 313, 000 / 60 = 5, 216.66 hours

Since each cell gives us 1800 hours per year, we next convert the number into cells or: 5183.33 / 1800 = 2.88 cells or 3 cells (remember to round up when dealing with capacity since we cannot hire a fraction of a person or a cell).

7. Spartan RediCare a. Given the formula for wait time:

TPT = Total Processing Time TST = Total Setup Time 3 This is calculated by taking the demand and multiplying it by the processing time (PROC). 1 2

Chapter 03 - Managing Processes and Capabilities

(

)

waiting_time = ( 3∧2 + 1∧2 ) / 2 (.7 / 1 - .7)* 6 = 70 minutes *

b. The desired waiting time is 30 minutes; yet, the actual expected waiting time is 70 minutes, which is greater than the desired 30 minutes. To bring the actual and promised waiting times into agreement, we can do the following: •

Reduce the processing time for jobs from 6 to less than 2.6 minutes

•

Reduce either of the coefficients of variation

•

Reduce the utilization from 70 to 50 percent by increasing the staffing levels in the

health center. 8. New Time Videos (NTV) a. Little’s Law: F = I / TH

F = 450000 / 325000 F = 1.385 hours or 11.08 hours (which is greater than the 6-hour standard desired)

b. To achieve the desired goal, we have to increase the throughput from 325,000 to 600,000 videos per shift. If we can do this, then the flow time drops from 1.385 shifts to .75 shift or .75*8 hours = 6 hours. 9. Pizza Time For Pizza Time, ensure that the following additional assumptions are inserted right before: Assume 4 customers per order, 3 customers on average per table. With the kitchen, assume that the sinks and toilets should be used about 50% of the time. A. Cash registers?

Chapter 03 - Managing Processes and Capabilities

 But, if average of 4 customers per order, then Pizza Time only has  

3 cash registers B. Toilets/Sinks Required Average restroom visit = .4 minutes 

500 customers .4min 200min  = hr customer hr

If 50% time is spent on toilet and 50% at sink, then this is 100min / hr toilet 100min / hrsink 100  2.0833 48



1 toilet /sink provides 60min * (1 - .2) = 48 sinks toilets

 3 sinks + 3 toilets

C. Parking Spaces

Chapter 03 - Managing Processes and Capabilities

If customers spend an average of 20 min., each table can handle 3 customers/hr. Assume an average of 3 customers sit together, thus one table handles 3*3=9 customers/hr. Need

500 = 69.44  70 tables 9(1 − .2)

E. Potential Bottleneck If we were to set the resources to the levels indicated in the preceding calculations, when we should not have any bottlenecks. However, in reviewing the numbers, where the potential bottleneck emerges can be identified based on how sensitive the calculations are to violations in the assumptions. With that perspective, we can see if we were to have 3 cash registers, we are assuming that each order will have 4 people on the order. If this assumption is violated (e.g., we have a number of checks where there are less than 4 people per check), then this becomes the bottleneck. 10. Mike’s Hair-Cutting Salon (a)

Assuming that the waiting area always has at least one customer in it. How many customers on average can Mike’s salon process in a day (assuming no problems in utilization, yield, or efficiency)? 96 or (5 hairdressers * 8 hours per hairdresser * 60 minutes in an hour) / 25

(b)

Suppose that you need an “average” haircut, and as you walk into the salon you see 3 people sitting in the waiting area. You notice that another person is just sitting down in one of the stylist’s empty chairs, and the other stylists are all busy with customers. Assuming you choose to wait, how long would you expect it to be before you are ready to leave the salon? 3-16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

47 minutes. 11. Cooper’s Copy Shop Cooper’s Copy Shop is considering two different processes for completing copying jobs brought in by customers. Process A uses one person to setup the job and do the copying. If this approach is used, an experienced person can complete an average of 20 jobs per day. Process B uses two people. One person does the setup and the second person does the actual copying. Setup on one job can be done while copying is being completed on another but copying must be completed on a job before the copying machine can start copying the next. After some practice, this second process can be completed with a standard time of 10 minutes for setup and 15 minutes for actual copying. In either case, assume an 8 hour day, 5 days per week, 250 days per year. (a)

Assuming ideal conditions, what is the design capacity of Process B? 32 jobs per day or ( 8 hours per day * 60) / 15(15 minutes is the limiting cycle time since it is the bottleneck).

(b)

How long would it take to process 200 jobs using Process A (assume only one worker and one machine)? 200 jobs /10 per day = 10 days

(c)

How long would it take to process 200 jobs using Process B (assume only one “production line”)? 200 jobs /32 / day = 6.25 days

(d)

If Cooper is primarily interested in providing low cost to customers, which Process should he put in place? Process A (less labor).

(e)

If Cooper is primarily interested in providing quick service to customers, which Process should he put in place? Process B (15 minutes per job as compared to 20 minutes per job under Process A.

12. Metal Hoses Inc.

Chapter 03 - Managing Processes and Capabilities

Metal Hoses Inc. (MHI) is a major manufacturer of metal braided hoses for industry. These products are used in everything from cars to tanks to motorcycles. MHI’s products can even be found on the Space Shuttle. At first glance, it may seem that MHI’s products are mature and compete on the basis of cost alone. However, recently, the management at MHI have identified that there is a market segment that demands (and is willing to pay for) speed in delivery. That is, these customers are willing to pay if MHI can receive, process, and deliver orders quickly. From talking with its customers, the management at MHI has determined that the customers are most sensitive to order lead times of one week or less (from time of receipt to time of delivery). In studying their processes, management has determined that order entry is the major bottleneck. This process consists of the following steps: (1) the order is received from the customer; (2) it is moved to accounting where it is checked and entered; (3) it next goes to engineering for evaluation and acceptance; (4) purchasing is next for material assessment; and (5) it is scheduled by operations. These five steps are separated physically since the order has to move to the departments where these activities are carried out. Analysis of the situation has indicated that under the current process it takes an order two weeks to complete this process. However, when errors are uncovered, the process can take up to five weeks (since the problem order has to return to the steps where the problem was first created). Management has determined that order entry should take no more four hours. a. Identify appropriate metrics for both the order entry process and the overall order fulfillment process for MHI.

Chapter 03 - Managing Processes and Capabilities

Output or end of process metrics can focus on the average time needed for order entry and overall order fulfillment; the percentage of orders requiring more than 4 hours to enter; the percentage of orders completed correctly the first time. Process related metric can focus on: (1) the number of steps in the process (i.e., as the number of steps increase, we can expect lead time to increase); (2) the distance covered by the order (again, as distance increases, we can expect the time in order entry to increase); (3) the number of people who touch an order (as the number of people who touch the order increase, then we can expect that the lead time to increase); and, (4) the distance in terms of steps between where the possible errors in the orders are first created (when the order is received) and where the errors are uncovered – as this distance increases, we can expect both the lead times and the amount of potential rework to increase. b. Use process thinking to re-engineer the order entry process o With technology With technology, we can use computer systems to electronically move the orders between the activities; we can also use such systems to check the orders for accuracy. o Without technology (management has determined that MHI should not spend its way out of this problem). Without technology, the problem becomes more difficult. Here we can try to reduce lead time by bringing representatives from the various departments together in one room. An order comes in to the first step, then it is moved around a desk to 3-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

other groups (who can do their tasks). When a problem is uncovered, then people use this wonderful piece of technology known as the mouth. 13. “This should be a simple issue. You know that our average weekly sales are $2,000 and the flow time is one day. Surely with this information, you should have no problem maintaining an inventory level of $200 to serve the sales. a.

Using Little’s law, determine anticipated flow time and compare it with the expected flow time?

F = I / TH Let’s begin by assuming that we are dealing with a 5 day work week. If this is the case, then daily throughput is $400 ( $2000 weekly sales / 5 ). We know that F = 1 day, which means that the daily inventory and the daily throughput rates must be equal. That is, if the daily sales are $400, then the inventory must be $400. This inventory is twice as big as that suggested by the director of finance. (By the way, this question answers part b). To answer this question, if we were to have an inventory of $200 and daily sales of $400, then the flow rate of 1 day could not be supported. b.

To keep the flow times constant, we have to increase the inventory.

14. You have been asked to determine the average waiting time for a process… Average process utilization:

80%

Average processing time:

10 minutes

Average job arrival rate:

10 minutes

Process time, standard deviation:

50 minutes 3-20

Chapter 03 - Managing Processes and Capabilities

Arrival rates, standard deviation

100 minutes

a. Use equation 3.2

 ca2 + c 2p   u  waiting time =  * *t  2   1 − u  p  

ca = coefficient of variation of job arrival times = 100 /10 = 10 c p = coefficient of variation of job processing times = 50 /10 = 5

Waiting time = (125 / 2)  (.8 / .2)10 = 2500 minutes or 41.67 hours If management wants to keep the waiting time to 24 hours (1440 minutes), it could focus on changing the utilization as follows: 62.5*x*10=1440 625x=1440 x = 2.30 x − (u / (1 − u)) u / (1 − u) = 2.3

u = 2.3-2.3u 3.3u=2.3

u = 2.3/ 3.3 = .70 b. If management wants to promise its customers an average waiting time of no more then 24, what recommendations would be make:

Chapter 03 - Managing Processes and Capabilities

In this case, our goal is to change the various parameters to meet a new average waiting time of 1440 minutes (24 hours *60 minutes per hour). This can be done in numerous ways: 

reduce utilization from 80 percent to 69.7 percent.



reduce the average processing time

Similar approaches can be used for changing: •

The standard deviation of processing time

•

The standard deviation of arrival rates

•

The mean process time

•

The mean job arrival rate.

15. You have been approached by one of the staff who works testing equipment that passes through your facility. Every day, you receive computers from the university that have been repaired but now need to be tested to ensure that they can work under high stress. This means running them in your test labs. Because the test labs are as stressful on the test equipment as it is on the computers, you have planned for downtime in the past. To get this downtime, you have tried to ensure that effective capacity utilization is about 65 percent. Yet, the staff person has informed you that a backlog of yet-to-be tested equipment is building up. Furthermore, the test equipment is now starting to break at a rate faster than anticipated. To address this issue, you know that the design or maximum capacity is 720 hours and that over the last three weeks, you have spent 600 hours per week testing equipment.

Chapter 03 - Managing Processes and Capabilities

a. Based on this data, what is our effective capacity utilization? Effective capacity utilization: Actual output / design capacity = 600 / 720 = 83.3% , note that the desired effective capacity utilization should have been .65*720=468 hrs b. What does the data tell you about why the loads are building up and why the test equipment is breaking down? This information is pointing to concerns in the inputs. Since we are working over the effective capacity utilization, the problem would appear to be on the input size. This is a symptom – an indication of the root causes. We should study what is going to determine if this is a short term or long-term development. 16. Something seems to be wrong in your department. You have been given the following data: Design capacity: 1060 hours Effective Capacity ratio 85% Demonstrated (actual) capacity: 839 hours On-time delivery percentage: 75 percent of the jobs are being completed on time. a. Using this data, what can we say about the relationship between what we planned to deliver and what we actually delivered? First, let’s calculate the various ratios: •

Effective capacity = 1060*.85 = 901 hours

•

Demonstrated capacity = 839 hours

Chapter 03 - Managing Processes and Capabilities

•

On-time delivery percentage: 75%

Since the actual level of output is less than the desired effective capacity, we know that we are not making enough units. But we also know that there is a problem with on-time delivery. What this means is that we are not sure as to whether the problems are on the input or output sides? b. What areas would you look at if you wanted to improve performance? The answer is not simple here. You would have to look at both the input (rate of products being received from the upstream (suppliers)) and capacity (equipment condition) to see where the root cause of the problem lies. The point here is that we have here is a symptom – an indication of problem, not the reasons for the symptom. 17. You are the manager of Spartan Care – a local Redi-Care facility. While this facility serves a range of clients, everyone agrees that quick service is very important (defined as the difference from the time that they arrive and are registered at the front desk until they are seen either by a nurse or a doctor). Currently, you have been receiving numerous complaints from the clients that the time spent waiting to see someone is simply too long. To assess the situation, you collect the following information from a two week period: •

Average process utilization: 70 percent

•

Average processing time: 15 minutes

•

Average arrival time: 10 minutes

•

Processing time, standard deviation: 22.5 minutes 3-24

Chapter 03 - Managing Processes and Capabilities

•

Arrival rates, standard deviation: 20 minutes a. What is the average wait time?

Use equation 3.2

 ca2 + c 2p   u  waiting time =  * *t  2   1 − u  p  

ca = coefficient of variation of job arrival times = 20/10 = 2 cp = coefficient of variation of job processing times = 22.5/15 = 1.5

Waiting time = (125/2)* (.8/.2)*15 = 109.38 minutes

b. If our goal is to ensure no patient waits no more than 40 minutes on average, what options are available to us and how would these options affect wait time? When we look at this challenge, you have to look at what areas you can control. Our goal is to either (1) reduce the variances of either the job arrival times or the processing times or (2) increase process utilization. We can do this in several ways: •

Introduce advance scheduling of arrivals

•

Use specialization of servers to reduce the variance of processing times

•

Forecast loads and use this information to drive our scheduling. c. How could use technology to manage wait times?

Technology can be used in several ways: •

Have on-line registration app for patients – this app could be used by the patient to log in and to describe their symptom(s). It could then capture the urgency of the problem (a 3-25

Chapter 03 - Managing Processes and Capabilities

factor in scheduling). Finally, the app could also describe current and projected loads so that patients can decide when to come in. •

Use a large electronic sign to indicate the current expected wait times (where we are encouraging self-selection – if the time you see is greater than what you want to wait and the problems are not critical, then you would leave).

•

When the patient registers, they are asked to give a call-back number and the option of leaving the facility and being called when their expected wait time is expected to be less than 15 minutes (i.e., they are the next in line).

•

Spartan Care would implement an app using an iPad, smartphone or surface, where the patient describes their symptoms. This information would be immediately communicated to the office managers or nurses to determine whether a doctor was needed or whether a nurse would be adequate.

18.

You are responsible for setting up the front desk for Redi-Help Emergency Care systems. In conversation with the owners of this new facility, Hope Hospital Systems, you have found that the waiting room will accommodate 12 patients. However, management wants no more than 67% utilization for the waiting room. At peak times (e.g., for flu season testing or COVID-19 testing), it is anticipated that 30 patients would be arriving per hour. A. How would you use this information? [HINT: focus on wait time] Here, the key is to focus on calculating the target waiting times. Little’s Law = L = ƛ*W We know that we have a capacity for 12 patients to wait. Yet, management has indicated that they want no more than 67% utilization or (12*.67) 8 patients waiting for service. What this means is that we have to solve for the waiting time. 8=30*x

X = 8 / 30

X=0.2667 Or 0.2667*60 (60 minutes in an hour) = 16 minutes waiting time. 3-26 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

B. Given your answer to Part A, how would you use the resulting information? The issue then becomes that of how to design the process to make the 16 minute time inevitable. 19.

Jessica Mendoza owns a small ice cream shop, The Cherry Cream Republic, in the Traverse City area (Michigan). She primarily serves tourists who visit the area during the summer, when the demand can fluctuate widely depending on time of day, day of the week, or, in some cases, whether there is a festival going on (the biggest one in the area is the Cherry Festival that takes place just after the 4th of July). A major concern for Jessica is the customer’s waiting time and the space that she has available for customers to wait. One thing that Jessica has learned is that if the customers must wait too long or if there is not enough space in the waiting line, they will leave. She has collected some data from the past to study this problem. She knows that on average she gets about 45 customers per hour. Each customer spends about 9 minutes in the store – this time consists of placing the order, waiting for the ice cream, paying, waiting for the change, if any, and then leaving. Her shop can accommodate about 8 customers waiting in line. Jessica also knows that the demand can swing widely. For example, last year, during the Cherry Festival, she had over 65 customers per hour at the peak (11am to 3pm). She remembered that because she found himself pitching in to help with filling the orders. Jessica also knows that the demand can be as low as 15 customers per hour (again, last year over a three-day period of low temperatures in July). A. On average, does Jessica’s shop have enough space for her customers to wait? (Hint: Use Little’s law). The answer: Little’s Law = L = ƛ*W  = 9 / 60 = .15 hr L = 45 * .15 = 6.75 customers Jessica’s store has space for 8 customers. So, on average she is okay. B. If you were Jessica, would you be satisfied with the answer that you got to Part A? The answer is no. Why? Remember, Jessica’s shop is a service, and it experiences fluctuations in demand. Even though the shop can have as few as 15 customers, that is not of interest to her. What is of interest to her are those times when demand is high. In this case, when demand is at 65 customers per hour. If we use this information, we find the following results: Little’s Law = L = ƛ*W  = 9 / 60 = .15 hr L = 65 *.15 = 9.75 customers. This number is greater than the 8 spaces that the shop offers. So, we have a problem here. 3-27 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

C. Considering your answer to Part B, what recommendations would you offer Jessica? [Hint: think about low the service time would have to be to accommodate a customer demand of 65 per hour.) One way of addressing this question is to try to figure out how low the ƛ would have to be to ensure that we could have no more than 8 customers waiting? L = 8 = 65 *x, where x is the new ƛ. L = 8 / 65 = x = .1231. Or 7.39 minutes per customer We would have to reduce the processing time by 1.61 minutes per service. Now, we have encountered a situation that forces us to draw on process thinking – if you don’t like the outcome, then change the process. Alternatively, we could investigate expanding the waiting space from accommodating 8 customers to accommodating 10 customers. D. As Jessica ponders the data in front of her, she considers two options. The first is to have a second server involved at peak times. Alternatively, she could improve the current process. In talking with the servers who work behind the counter, Jessica knows that of the 9-minute service time, about 2-4 minutes is taken up with getting the money or credit card out and then processing the transaction. One recommendation that she is considering is to have a separate person whose only task would be to process the charges. That is, you would have one person serving the customer and one person who would then ring up the charge, thus allowing the server to move to this second customer. What recommendations would you offer to Jessica in light of this new information? Aside from the quantitative issues, what other considerations should Jessica make? What we have here are two very different process options. Let’s explore each one. Have a second server. What this would do is to cut the waiting time from 9 minutes to 4.5 minutes or  = .15 / 2 = 0.075 Applying Little’s Law again, we find that: L = 65 (peak demand) * 0.075 = 4.875 customers waiting in line – this works. Overlapping Operations With the change in process, we reduce the processing time from 9 minutes to 7 minutes (remember, the paying is now overlapped). This means that ƛ is now .1167 (or .12) If we compare this number with the answer we got from Part C, then we know that this new ƛ is less than the critical ƛ previously calculated (.1231). So, it works! Other considerations Both options solve Jessica’s problems. But they create some interesting trade-offs for Jessica to consider. • Having a Second Server – this means that Jessica would have to have two servers on hand all the time. Depending on the size the Shop, we may have a situation where the two servers are using the same ice cream tubes, thus 3-28 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

•

contributing to congestion and periodic bottlenecks. This may increase waiting times. It can also result in The Cherry Cream Republic appearing to be a confused place (this is an example of a moment of truth as will be discussed in Chapter 6). Overlapping Operations: Like the prior option, we have to hire a second person. Also, this second person will be underutilized most of the time (this person was taking between 2-4 minutes per customer as compared to the server’s 5-7 minutes – we got this by taking the 9 minute waiting time and subtracting 2-4 minutes for the checkout person, leaving the rest to be assigned to the server). If both are being paid this same, then this could lead to feelings of inequality. That is, server is working harder for the same money as the checkout person.

In other words, both meet our needs but there is no clear winner. E. Are there any other options that Jessica should consider? The answer is yes. Jessica might consider changing the process as we observe in places such as Five Guys or Wendy’s. That is, there is a person who takes the order and the payment. Another person then makes up and delivers the order. Once the order is taken, customer moves over to wait for their order to be delivered to them. Alternatively, we could use technology. For example, we would require that all payments be done via either credit or debit card. We could also remind everyone that they have to have their cards ready at the time that the orders are placed. This action eliminates the need for the customer to search through their wallets or purses for the money and the change; it also eliminates the need for the checkout person or the server to count out the exact change in return. Evergreen Products Case– Teaching Note PLEASE NOTE – This case can be used effectively not only for this module but also for the module dealing with process mapping. This case can be taught effectively by addressing the four assignment questions found at the end of the case. 1. What are the desired outcomes for Evergreen? What should Evergreen wish to accomplish with its order entry system? How do we know if the order entry system is working well or poorly? How is it doing now? To answer this question, we must begin by looking at the various customers served by Evergreen. You can point that Evergreen deals with consumers (people like you and 3-29 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

myself – people who buy the flowers and the pots), grocery stores and small florists. Of these various customers, it can be argued that the most critical customers are the florists. These are typically “Ma and Pa” operations, run by people who are interested in flowers and who are not experts in areas such as inventory management and demand forecasting. Often these people manage their inventory using the OSWO (Oh Shucks, We’re Out) approach – that is, we order when we run out. Consequently, it can be argued that given the relative simplicity of the products sold by Evergreen what we are selling to our critical customers is that of inventory management. Our role is to make sure that our customers do not run out of product at critical times. To understand this task, we must understand the nature of the product. We are selling a product that is strongly seasonal in nature. Yet, the timing of this seasonality is well known. We know when Mother’s Day will take place; we know when Valentine Day will take place; we know when Easter will take place. More importantly, there is difference between excess inventory and a stockout. Consider the value of a box of candies on February 14th and the value of the same box of candies on February 15th – very different. What this means is that we must meet these dates exactly and that having inventory after the critical dates have passed is very expensive. Having said this, we can look at the first question. Items such as quality and cost are essentially order qualifiers. Yet, items such as speed, reliability of meeting due dates, accuracy of orders (both taken and as delivered), and predictability of delivery become order winners. This means that we are looking at an order entry system that must quickly convert orders from the customer into accurate and acceptable schedule entries. This forces us to look at metrics such as: 3-30 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

•

Number of steps in the process

•

Number of inspections

•

Distance between the inspections and the place where the errors were created (the more steps between these two areas, the greater the possibility that we will be dealing with a lot of errors and rework).

•

Number of delays (areas where the order must wait and the wait time is highly variable).

2. What do the customers want from Evergreen? What type of problems do the existing customers pose for Evergreen? Why? Part of this question has been addressed in the preceding discussion. Yet, given our discussion of the critical customer, we know that the florists are not experts in inventory management or in forecasting. Their urgency gets higher the closer that we get to the critical dates (i.e., St. Valentine’s Day, Easter, Mother’s Day). This means that there is a lot of pressure to avoid or override the 5 day lead time that the operators would like to quote. 3. Apply the process for incorporating value through process thinking to this problem. What metrics would you apply to this process? What insights into the process did you obtain? Here, you would begin by laying out the steps. Before doing so, make clear how you are bounding the process. The process begins with the order is placed by phone (irrespective of the source), and it ends when the orders gets scheduled. Second, it makes sense to study the process without any rejects. Why? This process forms the 3-31 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

lower bound or best-case situation. If the problems are bad here, then they will only get worse when rejects are added. When you layout the process, you get the following process (these can be converted into the appropriate symbols using the techniques provided in the Process Mapping module). •

Order is received and entered.

•

It goes into a pile where it waits to move (here is a source of variance).

•

The order is moved to the Sales Accounts Manager.

•

It sits in a pile until it is checked by the Sales Account Manager.

•

It is checked and inspected.

•

The order goes into another pile to wait to be moved.

•

It is then moved to accounting.

•

It then sits until the accounting people can get to it.

•

It is entered into the data base for the purposes of billing.

•

It goes to another pile to wait until it is moved to production scheduling.

•

When it comes here, it goes into a pile, where it waits until the production scheduler can get to it.

•

The production scheduler inspects it (note – a second inspection).

•

The production scheduler schedules the order.

•

The order goes into the queue for the shop floor.

When you look at this process, several things become very evident. The first is that the process is very sequential. That is, a delay or problem in anyone step will affect the rest 3-32 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

of the process, thus increasing lead times. Second, in the process, there are two inspections. Yet, we are not clear as to why there is a need for two inspection and why the first is unable to identify or flag all of the potential problems. Third, the number of stages or steps between order entry and inspection is bothersome because it means that if we have a problem, we have to go back to the where the problem was first created and ask the operator what went wrong. The problem is that when demand is high, then the operator will most likely not remember what went wrong. This means that we have to go back to the customer – something that may not look good. Fourth, and this is very subtle, the process is essentially being managed as a “make-to-order” product. Yet, we know when the demand peaks are to be expected. There are some questions about the appropriateness of this approach. The various delays are based on the premise that people are not waiting for the arrival of the orders. They probably are working on other items. How do we verify what is happening? We must observe the operation of the process directly. This is one of the major principles of process mapping – when in doubt, go back to the process. 4. How would you improve the operation of the current order entry process at Evergreen? Be specific. Apply the nine strategies for enhancing value in dealing with this question (e.g., system simplification, system integration, parallel activities). There are several things that you could do to improve the effectiveness and efficiency of the current process: •

Parallel activities. We could arrange the process so that there are three parallel process taking place at the same time after the order has been received – the

Chapter 03 - Managing Processes and Capabilities

scheduling of the order; the inspection of the order by the Sales Account Managers; and, the entry of the order into the accounting database. •

System integration – bring together the order entry process and the two inspections and have them take place in the same room at the same time so that the order does not leave until it has been received, reviewed and approved. Any problems are flagged immediately and the reasons for the errors immediately identified.

•

System simplification. We could change the order entry process so that the operator who is taking down the order is also responsible for verifying the order accuracy.

At this point, we could deal with the question of how business process reengineering might approach this process. Here, we begin with the desired outcome – the florist to get the products when they want them. This means that we have to challenge some of the basic premises on which the current system is built. For example, why do we have to be a make-to-order firm? Why can’t we make to stock? Why can’t we convert the salesmen and their vans into rolling warehouses (something that Frito-Lay did with snack foods). This forms the basis for an interesting class discussion. Midas Gold Juice Company Case – Teaching Note This is a simple case that shows the importance of using a process map combined with capacity analysis to evaluate the appropriateness of a current capital acquisition request. This case can be taught by focusing primarily on the tools introduced in this module. To teach this case, begin by having the class map out the process. This is done in the accompanying process map. Once this map has been drawn out, the next step is to complete a 3-34 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

capacity analysis. The key to this analysis is to ensure that a common unit of measure for capacity is used. Department

Capacity

Capacity with Common Unit of Measure

Tin Department

80,000 lids (2 lids can)

40,000 cans

Stamping Department

4,000 sheets (12 can bodies per

48,000 cans

sheet) Filling Department

50,000 cans

Once the process map and this capacity analysis is presented, it can be seen that the capacities for the three departments are fairly equally balanced. If the proposal is approved, then we can see that this will create a massive imbalance in capacities since this department will not be able to produce 80,000 cans per time period. The answer to this problem is to examine if anything can be done to improve the capacity of the Tin Department by about 8,000 cans. This can be done using the Kaizen Event approach taught in the Lean Systems Modules.

Chapter 03 - Managing Processes and Capabilities

American Vinyl Products Case – Teaching Note Before discussing this case, it is useful to note that this is based on an actual company that one of the authors worked with. The memo found in this case is essentially the same memo that was received by the management of the company (and which the author saw in person). The major purpose of this case is to have the students apply the process mapping process presented in this module. It is very good at demonstrating the importance of the first three steps. 1. Identify and Bound the Critical Process.

Chapter 03 - Managing Processes and Capabilities

From this case, it is apparent that the critical process is the telephone system, the system responsible for processing the telephone calls received from the various customers. This process begins when the phone call is received and it ends with the order received and entered into the system. 2. Describe the important customers and the elements of value. It is clear from the case text that there are three major groups of customers: Do-it-Yourselfers: These customers are price sensitive. They constitute the major bulk of the calls in terms of the number of calls and the time spent per call. These are people who typically call the company to find out how to use the product. Overall, they account for 4000 minutes of load per day. In contrast, the professional users contribute 400 minutes of load while the large corporate accounts account for 100 minutes of load. These people, while taking up most of the capacity, also contribute the least amount in terms of revenue ($1,000 per day). They also contribute greatly to variance (this is a great place for the instructor to discuss the implications of this increased variance on overall utilization of the process). Professional Users: This group typically calls with the goal of getting answers to very specific problems. For these people, accessibility is an Order Winner and an Order Loser. Per day, this category accounts for $1600 of revenue. Large Corporate Accounts: These were the critical customers. They contribute the most in terms of revenue ($8,000 per day). Yet, they must compete on an equal basis with the other two groups. This group expects ready accessibility to the people at American Vinyl Products (AVP). With this information in hand, we can now proceed to the third step – documenting the existing process. In addition to the process map (the process is relatively simple – calls come into AVP 3-37 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 03 - Managing Processes and Capabilities

where they move into a Delay. From the Delay, they move to an Operation, that of being received and processed, with the final step being an inventory of orders/completed calls), it is important to note that the future growth of sales for American Vinyl Products is coming from the West Coast. Now, ask the class to explore the “So What?” question. Remember that American Vinyl Products is located in the Eastern Time Zone. This zone is three hours ahead of the time in California. Combined this with the fact that American Vinyl Products is open from 7 AM to 6 PM. In other words, AVP is open from 4 AM to 3 PM PST. This means that it is inadvertently making it more difficult for its West Coast customers to do business with it. Finally, the current process treats all three groups as being equally important, when they are not. The case can now proceed through the final three steps. When dealing with these issues in class, do not allow the students to focus on automating the current process. They must understand that the current process is both inefficient and ineffective. Automating this process will simply automate “stupidity at the speed of light.” What needs to be done is to rework the current process. There are several options that should be explored in class: •

Develop separate processes for the each of the three customer groups. This is an example of focus in action.

•

Provide toll free numbers for only the Professional Users and the Large Corporate Accounts, while the DIYs are given a regular non-toll-free number (this will tend to discourage all but the most important of calls).

•

Change the time over which calls are taken from 7 AM to 9 PM.

Chapter 03 - Managing Processes and Capabilities

•

Consider in the long term the possibilities of porting the revised system to the Internet in the form of an order taking system that is available 24 hours a day.

•

Provide specific account managers for the various large corporate accounts. Whenever there is a problem involving a large corporate account, that account can contact a specific person (i.e., there is a “single throat to choke”).

This is a good case for having students understand how the elements of customers and processes interact and the need for a comprehensive process analysis that begins and ends with value.

Chapter 03 – Supplement: Process Mapping and Analysis

Chapter 3 Supplement Process Mapping and Analysis

Problem Solutions 1. You are making your weekly trip to the local Wal-Mart. Use a process flow diagram chart to describe your decision-making process about what to buy and where to buy it. What inputs did you use in helping you make these weekly decisions? How could an advanced consumer information system have made your process easier? Before beginning this problem, it is important that you tell the student that this problem be solved from their perspective. In class, it may be useful to take one student’s solution, present it, and then allow other students to comment on this process. What is interesting is that often in practice there are very few differences. The emergence of a “common” process is important because it helps companies such as Wal-Mart to develop more effective and efficient processes and to make the shopping experience more attractive to the consumer. The process breaks into two subprocess: (1) determining what to buy; and, (2) the actual purchasing. These two are interdependent. This interdependence is important because it provide us with the vehicle for addressing the last question posed within this problem. Determining what to buy? The first process focuses on identifying what you have to buy. This consists of you going through the various cupboards and the refrigerator and identifying: •

What items are below the reorder/trigger points;

•

What items are necessary and must be bought;

•

What you will plan to do in the coming week;

•

What meals you will be making; and, 3S-1

Chapter 03 – Supplement: Process Mapping and Analysis

•

What areas in which you are willing to buy something if you have the space and the price is “right.”

Inputs needed: •

Amount of money available for purchases;

•

Amount of storage space available;

•

Level of demand (a function of the number of people that your purchases will be serving);

•

Any special activities to be done in the upcoming week (e.g., you are hosting a party on Friday night);

•

Classification of items – what purchases critical; and,

•

What your schedule is like for the upcoming week (will you be busy? Will you be out of time for a period of time).

The process begins as follows: 1. Determining amount of money/funds available for the next week’s purchases (this is an inspection). 2. Checking the cupboards and refrigerator to determine what products we need. At first glance, this would seem to be an inspection because we are checking. Yet, this is not the case. Rather, since this is part of the planning process for determining what we need, it is classified as an operation. 3. Next, we create the actual shopping list (assuming that you do create such an entity). This is again an operation. 4. We next move to Wal-Mart. This is a transportation. The Actual Purchase 3S-2

Chapter 03 – Supplement: Process Mapping and Analysis

Here, we are looking at our ability to complete the shopping trip quickly and to get as many items as we want. These two metrics (i.e., speed and line item fill rate) are affected by the following factors: •

The size of the shopping list (determined in the preceding step).

•

The availability of the various items in stock.

•

The busyness of the store (a function of the number of people and the average content of their shopping cart).

Each of these three factors is itself based on a source of information. With this information, we can generate the following process: 1. Find a parking spot and park the car. Note that if the store is busy, we may find this element consisting of two activities: a delay (waiting for a parking spot) and an operation (parking the car). 2. Looking for the items and buying them (all of these are essentially part of one activity – an operation). 3. Waiting in line for a cashier (a delay). 4. Going through the cashier (an operation). 5. Packing the car (an operation). 6. Driving back home (a transportation). 7. Restocking the cupboards (an operation). Given this process, it is evident that Wal-Mart could develop a customer information system with the following information: •

What items are on sale

•

Current prices of items

3S-3

Chapter 03 – Supplement: Process Mapping and Analysis

•

The location of the various items

•

A shopping calculator so that you can determine the total cost of the order

•

An indicator of what times the store is least and most busy (so that you can plan when to shop –- a form of demand management).

These items of information link nicely to the current process and the major sources of uncertainty or variance. For example, for most consumers, the location, price, searching for items, and store congestion are major sources of uncertainty and variances. These items are addressed within the proposed consumer information system. 2. Your eyeglass frame-making firm is considering one of two distribution alternatives. The first is to make all shipments from your Chicago plant to one of three regional warehouses located in Philadelphia, Chicago, and Reno. All orders from eyeglass retailers would be shipped from these sites. The second alternative would be to create one warehouse in Memphis, Tennessee and ship all orders via Federal Express. a.

Prepare a process flow diagram of each alternative.

What additional information would you need to ascertain which alternative will provide the best value to your customers?

Is this different from a lower cost solution? Why?

This problem reinforces the value theme and the impact of value, as well as the difference between the value solution and cost driven solution. 1. Process flow chart for each alternative. Process Flow for Three Warehouses: This is a relatively simple process: Operation – produce the eyeglass frames Storage – finished goods inventory Decision – make a decision as to where we should ship the frames 3S-4

Chapter 03 – Supplement: Process Mapping and Analysis

Transportation – move the frame to one of the three warehouses Storage – store the frames in the warehouse. Operation – receive the order from the customer. Decision – decide which warehouse will be used to ship out the order. Operation – Pick, Pack, and prepare to ship the order. Transportation – Ship the order. Process Flow for the Centralized warehouse: Operation – produce the eyeglass frames Storage – finished goods inventory Transportation – move the frame to the centralized warehouse Storage – store the frames in the warehouse. Operation – receive the order from the customer. Operation – Pick, Pack, and prepare to ship the order. Transportation – Ship the order. As can be seen from this simple comparison, the two systems are differentiated by the following traits:

•

The three-warehouse process saves on transportation costs at the cost of a more complex (more steps) system that may have more inventory (remember we have three warehouses and so we have to be concerned about determining if we have to move inventory from one warehouse to another).

3S-5

Chapter 03 – Supplement: Process Mapping and Analysis

•

The one-warehouse process is simpler but it may have more inventory to manage and its shipping costs have been higher (remember, we are sending everything out FedEx).

2. What additional information would you need to determine which alternative will provide the best value to your customer? There are several issues that must be addressed to answer this question. The first is that of who the critical customer(s) is (are). Remember that we are dealing with a chain of customers going from the purchasing agent to the eyeglass doctor. Once you have identified the critical customer, you next have to determine what it is that they want from your frame facility. This means identifying the Order Winners, Order Qualifiers, and Order Losers. It may be that we are dealing with customers are more interested in having quick delivery of a wide range of product within a very short period of time rather than having shipments delivered at a lower cost (the first alternative). You can only get this information by first identifying your critical customer and then seeing what it is they want – this latter task is best fulfilled by direct observation. 3. Is this different from a lower cost solution? In many cases, there may be differences. For example, if our critical customer is interested in variety, speed of delivery, and flexibility, then the solution is very different. The differences are due to the system to viewing the process not from a cost-based perspective but from a customer/value-based approach. 3. Murphy's Bagel Shops is a chain of bagel eateries supported by a central bakery. Most raw materials are delivered to MBS's bakery where the ingredients are inspected for quality and

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Chapter 03 – Supplement: Process Mapping and Analysis

then stored in the raw materials warehouse, which is located on the bakery's second floor. The second floor is also where the ingredients are measured into batch quantities before being inserted into the bagel dough blender. Two hundred-pound batches of each bagel blend are mixed for about one hour. The mixed dough is then extruded into bagel shapes and placed on flat baking pans. The full pans are placed in "shipping racks" which are then sent about fifty yards to the shipping area. Each day, the shops order bagel blanks in increments of the number on each flat baking pan. The shipping department rearranges the number of each type of bagels on each shipping rack to assure that the number shipped to a given bagel shop matches the number ordered. Each shop's filled shipping rack are segregated by the delivery department to assure that the incoming trucks can be accurately and quickly loaded. Loading a truck requires approximately 20 minutes. The bagel dough rises during the transportation process for about forty minutes. The trucks are scheduled to arrive at each bagel shop at 5 o'clock in the morning. There the bagel shop crew unloads each shipping rack, places any surface ingredients, i.e., poppy seeds, to the bagel trays as needed, and then places them either into the shop's ovens or the raw bagel storage area. It takes approximately 40 minutes to cook most bagels. Trays of cooked bagels are removed from the ovens and placed in the bagel cooling area. Once sufficiently cooled, the fresh bagels are placed into the retail area displays that are designed to send bagel-scented air in the direction of the customer-seating area. Fresh bagels are cooked each morning as needed. Unsold bagels are packaged into six-pack bags and sold at a discount after 2 PM. a. Prepare a process flow diagram of the above business.

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Chapter 03 – Supplement: Process Mapping and Analysis

Process Flow Chart

Page _____ of _____ Overall Description of Process Charted: Date Charted: ____________________ Charted by: _____________________________ Check appropriate box: Current Process: (x) Proposed Process: ( ) Dist FT Meters

Time (ave)

60 min 50 yd

Symbol

40”

Value Code V/W/N/?

Description of Activity (indicate outcome)

O

D

Transport in the raw materials.

O

D

Store the raw materials.

O

D

Inspect the material.

O

D

Put the raw materials to storage.

OD

Move the materials to the area where mixed.

OD

Mix the items, place in pans.

OD

Move to shipping area.

OD

Put into inventory.

OD

20 “ 40 “

Pers Invol.

Order, rearrange the number of bagels, match to an order.

OD

Move to trucks.

OD

Wait to be loaded into trucks.

OD OD

Place into trucks. Transport (while allowing bagels to rise).

OD

Wait to be unloaded.

OD

Unload trucks.

OD OD OD OD

Move to work areas. Mix, cook. Move to cooling area. Allow bagels to cool. Move to retail area displays. Sit in displays and wait to be sold.

OD OD

V N V 3S-8

Chapter 03 – Supplement: Process Mapping and Analysis

6 8 1 2 4

b. Indicate the operations in which value is being added. Inventory

Raw materials of goods placed in storage.

Inspection

Ingredients are inspected for quality.

Delay

Items are held temporarily before being moved.

Transportation

Moved to storage on the second floor.

Inventory

After inspection, the raw materials are placed in storage again.

Operation

Ingredients measured into 200 pound batches.

Operation

Mixed and extruded into bagel shapes and placed on flat baking

pans. Delay

Full pans placed into shipping racks.

Operation

Arrange the blanks into orders consistent with shop orders.

Delay

Orders waiting to be shipped to shops.

Operation

Trucks loaded.

Transportation

Move orders to shop.

Operation

Orders – dough rises (occurs in parallel with transportation).

Operation

Trucks unloaded.

Operation

Bagels processed (e.g., poppy seeds placed on them) and baked.

Delay

Bagels placed in the bagel cooling area.

Transportation

Bagels moved to the retail area.

Storage

Wait until sold.

Operation

Disposal of the product.

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Chapter 03 – Supplement: Process Mapping and Analysis

The criteria for a value-adding is three-fold: (1) it must be an operation; (2) it must be done right the first time; and, (3) the customer is willing to pay for it. Using these three criteria, we can only identify three steps that satisfy these criteria. These have been denoted using in bold, italics fonts. All other steps are simply to move the product around. 4. Using Evergreen Products (the case found in Chapter 3), carry out the first step in the process of process mapping and analysis, as presented in this supplement for the two different key customers: • •

Florists Grocery stores

What differences did you note in terms of the desired outcomes for the processes and in the measures and metrics used?

To address this problem, we must first establish the order winners, order qualifiers, and order losers for both key customers: Traits Order Winners

Order Qualifiers

Florists

Grocery Stores

•

Flexibility (change order mix as needed)

•

Responsiveness – speed – from the time that the order is placed until it is received.

•

Reliability – the degree to which the order deliveries are predictable in terms of timing

• •

•

Cost – we compete on cost and we deal in an industry where close management of cost is critical

Accuracy of order

•

Flexibility

Quality of product – we need enough quality to get the product over the holiday.

•

Responsiveness – speed

•

Reliability

•

Accuracy

Cost – cost here is passed on to the customer.

•

Quality

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Chapter 03 – Supplement: Process Mapping and Analysis

Order Losers

Key Measures/Metrics

•

Lead times – slow or late deliveries

•

Responsiveness

•

Order accuracy

Output

Cost (too high and we will not deal with you).

•

Order accuracy

•

Reliability

Output

•

Number of orders ontime

•

Average order speed (from the time that the order is placed until the order is delivered)

•

Percentage of orders that are accurate (total orders accurate/total orders placed)

•

Cost variance analysis – the ratio of the actual costs to the budgeted costs

•

Orders on-time

•

Order Reductions over time

Process •

Number of steps in the process

Process

•

Distance covered

•

Number of steps in the process

•

Distance covered

Perfect orders (described in greater detail in Chapter 9)

•

Perfect orders (described in greater detail in Chapter 9)

•

Number of inspections

•

Distance between where error is created and where it is found (as this distance, as measured in steps, increases and if the problems are created by a system problem, then this means that we have a lot of potential rework to correct).

•

Number of inspections

•

Note that these process measures are similar, yet the focus is different – it is on cost.

Number of operations relative to total steps 3S-11

Chapter 03 – Supplement: Process Mapping and Analysis

(as this percentage increases, we are spending more time on potential valueadding activities) •

Number of delays (more delays, more variance in the system).

2. To what extent can the same process effectively serve both key customers equally well? If we look at the order winners, order qualifiers, and order losers, we see very different requirements. Consequently, the answer is evident – no – the same process cannot serve both key customers equally well.

3. What is the implication of your analysis for how firms should think about key customers and the processes that serve them? The answer is both simple and critical – the key customers should drive the design and management of the processes. That is why we start with the key customers first and then move to the process.

5. Management is not happy with the current process that is present at Evergreen Products. You have been called into the office of the CEO and given the following task. Beginning with a blank sheet of paper, you are to reengineer the entire order fulfillment process so that it can achieve the following performance metric: Irrespective of however the order is placed (phone or by the salesman), from the time that the order is placed until the customer receives the order must be no longer than four hours. This new system must even provide delivery of orders on holidays (e.g., on St. Valentine’s Day). You are allowed to challenge any of the current practices in place. In doing your analysis, please recognize the following assumptions and constraints:

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Chapter 03 – Supplement: Process Mapping and Analysis

1. Time is measured from the moment that the order is placed by the customer until the order is in the hands of the customer. 2. It takes about 90 minutes to build a load and to fill a truck for shipments. 3. No less-than-truckload quantities will be allowed. 4. It takes, on average, about 60 minutes to go from the plant to the specific florist. 5. Assume that it takes about 60 minutes from the time that a call is received until enough orders are consolidated for a full truckload to be planned. 6. Truck drivers/salesmen have cellphones and are in contact with the plant. (Hint: there is a feasible solution to this problem - only if you are willing to challenge any and all assumptions and practices found in the current process!) There are three key elements to this answer. The first is to get the student to understand that the current process cannot be refined or fine-tuned to meet these objectives. Once the student understands this, then what is required is essentially a rethinking of the entire process. This rethinking requires challenging several of the key assumptions on which the old process was based, namely: •

Going from Make to order → assemble to order/make to stock (remember the holidays are well known and we know when they take place).

•

Moving the products closer to the customers

•

Rethinking the role of the trucks (currently, they are used to transport the finished products to the customer).

To achieve the objectives, we have to design a new process. The following is an example: •

The trucks are converted into rolling warehouses that are stocked with finished goods or with components that can be easily assembled into completed goods.

•

An order is phoned into Evergreen. The operator then looks for a truck with sufficient inventory that is close to the customer.

•

That truck is then contacted and directed to the customer.

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Chapter 03 – Supplement: Process Mapping and Analysis

•

The items are delivered. Once they are delivered, the driver contacts the company to tell them how many items (and type) delivered. This information is used to update the truck’s inventory records. It is also used to generate an invoiced that can be either mailed to the customer or faxed or sent by email.

This is not a radical solution. It is the very same approach that Frito-Lay used to defeat and drive out of the snack business, Anheuser-Busch (that sought to compete in this space through its Eagle Brand line of snacks). For more information, see “How Anheuser’s Eagle Became Extinct.” Business Week, March 3, 1996 (see http://www.bloomberg.com/bw/stories/1996-03-03/how-anheusers-eagle-became-extinct) 6. This problem uses American Vinyl Products (the case found in Chapter 3). The management at American Vinyl Products has decided that a rigorous and effective approach has to be applied. Consequently, they have decided to apply service blueprinting. For this case, identify and discuss the following elements: • • • • •

Physical evidence Customer action Front stage action Backstage action Support processes

Also, use this process to identify any potential fail points in the process. For the purposes of this exercise, you are to focus primarily on the large customers as the key One way of seeing this problem is to use the document presented below. Here we are assuming that American Vinyl has implemented both an on-line system and a phone system. Using this approach, we can see several potential failure points. For example, in this implementation, we have assigned specific people to be contact personnel. This can be a problem if that person is not available. This means that American Vinyl Products has to ensure that there is a backup person – something that must be introduced into the support

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Chapter 03 – Supplement: Process Mapping and Analysis

processes. Another failure point is our ability to verify and validate where the problem is and how it has been resolved. Currently, we have a person assigned to do that. This takes times – we should consider alternative approaches. Finally, when we close out the problem (final column), we should get a sense from the customer of how the resolution was handled so that we can identify what went right, what went wrong, and what was missing. Evergreen - Service BluePrint Approach email or telephone call

Phyisical Evidence Customer Email or telephone Action call Front Stage Contact person

Greet Person and key contract representative

Transfer to Get contract summary representa of Investigat Solve tive problem e problem problem

Report solution

Send person out to check status Order Problem Database/ Resolution Manufact Order Database uring Database/ (where we Execution Problem Training recorde System resolution Customer system/Sc problems where Problem database/ Support Database/training heduling for orders are resolution Order Processes system system review) tracked database database Backtage contact person

7. Sustainability is increasing in importance. In many cases, sustainability focuses on what wastes the company generates when making the product and how it disposes of these wastes, once created. Given these factors, how would you modify the process mapping and analysis of AHMP? 3S-15

Chapter 03 – Supplement: Process Mapping and Analysis

a. What changes would you make the process map and why? In addition to making the flows of information and goods, you would also identify and map the flow of waste out of each operation and what was done with that waste (e.g., Was it stored, if so, where? Was it recycled? Was it disposed of in landfills). The result would be a fuller picture of what was happening with process from a sustainability perspective. b. Would you limit your mapping to what happens to the products within AHMP or would you extend it and why? With the shift in perspective to sustainability, we should strive to include in our analysis what happened to the raw materials to get them to our process. It is important for us because how the raw materials are extracted and processed can contribute with problems with pollution and/or misuse of people within the supply chain. In addition, we would like to know how the products are used and how they are disposed of (since these considerations may become future liabilities for our company). The result of these factors is that we transformed our process flow analysis of AHMP from being internally oriented to becoming an end to end supply chain analysis that considers all stages of the life cycle. We have established the foundations of life cycle analysis as presented and discussed in Chapter 16 of this book. c. Would this change in focus - from lead time to sustainability influence areas such as performance measurement? If so, how and why? The answer is yes – it would influence areas such as performance measurement for several reasons. First, since what we want to achieve from our process has now changed, these changes must be captured within the performance measures (which describe to the people involved in the process what the desired outcome is). Second, this shift would influence 3S-16

Chapter 03 – Supplement: Process Mapping and Analysis

now only the output measures (e.g., the amount of waste produced) but also the predictive or process-based measures (e.g., yield rates per operation or what percentage of the order is lost during processing, and the ability of the process to use/integrate recycled material).

Midwestern Lighting (A) This case is interesting in that it can be used to help the participants understand how process flow analysis can be used to deal with issues of sustainability. Size-up: Begin the class by having the students describe the manager, his expectations and the company (and its objectives). This is an important step because (1) it helps the student understand the importance of seeing the “big picture” before they do anything like process mapping (this establishes the desired outcomes); and, (2) it helps them understand the expectations of the management (in this case, management is driven by the need for shortterm results). The size-up should identify the following issues: •

Management is very cost driven; they are not driven by issues of sustainability. Rather, they are more concerned about their ability to reduce cost. What this means to a person like Time Bryant is that he must link any sustainability initiatives to cost if he wants management to hear him and if he wants management to support these sustainability-driven initiatives. For a little extra insight, the instructor can introduce the five classes of managers discussed by Geoffrey Moore, in his book,

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Chapter 03 – Supplement: Process Mapping and Analysis

Crossing the Chasm1 – (1) innovators (driven by the attraction of the innovation); (2) early adopters (driven by the potential benefits of the innovation or change); (3) early majority (the bulk of the adopters – risk adverse – driven by actual cost savings); (4) late majority (like early majority but more risk adverse, less likely to act); and, (5) laggards (will not act unless they are forced to). For the case, it appears that Barry Jamieson is either a late majority or laggard. It is interesting to note that he seems to assume that since Midwestern Lighting has not been fined in nearly six years, everything is fine. Not a great assumption. •

Given the reputation of Barry Jamieson for being “hard-nosed”, we will need to support any conclusions that we make with data (hopefully drawn from the operations).

•

The order winner for this facility seems to be cost – everything else (quality, reliability of delivery, and speed) are either order qualifiers or order losers.

•

Urgency is an issue. We have to this project quickly.

•

We also have to convince Barry Jamieson that we are more than added overhead.

Production Process Mapped. Now, we ready to map the process. For this process, we will use the process flow diagramming technique discussed on pages 92-93. In applying this technique, it is important to get the class to note that much of the data (especially as it pertains to waste) is not available.

Moore, G.A. 1991. Crossing the Chasm: Marketing and Selling Technology Products to Mainstream Customers. New York, NY: Harper Business.

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Chapter 03 – Supplement: Process Mapping and Analysis

It is also important that the class understand that the current accounting system effectively makes waste hidden to someone like Barry Jamieson. This is because of the current accounting practice of summing the total costs incurred in production and then dividing this number of the number of good (acceptable) pieces. What this practice does is to effectively assign the cost of scrap and waste to the good pieces, thus hiding them. What Tim Bryant needs to do is to break out the costs into several components: •

Costs of producing good units (assuming no scrap)

•

Current costs

•

The cost of waste (which is effectively the difference between total cost and cost of producing good units (without scrap).

What this approach does is to make scrap and waste highly visible. Remember – visibility is critical to making management attack a problem. Our scope is from the start of production until it is complete. Our measures should focus on cost, waste and lead time. The following is the process flow diagram for the taillight assembly for the Dodge Ram.

Now we are ready to address the questions given in the case. 3S-19

Chapter 03 – Supplement: Process Mapping and Analysis

1. How you assess the operations at LFP? Based on the process flow analysis, there are numerous areas where waste is generated but nothing is done to correct it. For example, we find that there are six areas of waste that no one is doing anything about. These areas of waste are consuming resources and driving costs up – but Barry Jamieson is unaware of them. 2. Assess the production process for the Ram light assembly. How efficient is it? Using the process flow diagram, we can see that the process does not satisfy Barry’s requirement of being low cost. 3. Do you have enough information on which to assess the environmental problems encountered? We do not have enough information for calculating the cost of waste here because the people in the system are aware of them but they have never done anything to reduce them. Why should they? After all, these areas have never been measured. What you do not measure, you cannot control! Without being able to capture these hidden costs, we cannot show Barry how much is lost because of waste. The evidence is present that these are big issues. 4. What is the process map of the process? See the attached map. 5. What strategy/approach would you use for dealing with Barry Jamieson? First, begin to collect data on the areas where waste is present. This can be done through sampling. Next, using the estimated cost of waste, subtract it from the total costs to generate the costs if no waste were to be created. Divide this number by the number of good pieces to generate the “per unit” cost with no waste. Second, talk with operators to identify any other problems created by the current process; document these costs. Third, take the resulting process flow diagram, the cost data (total,

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waste, cost per good piece), and the summarized comments from the operators and go to Barry Jamieson. Remember, because Barry Jamieson is either a late majority or laggard, we have to use data to make our arguments – observations, while important, are not enough. Present them and get his “buy-in” to attack the resulting problems. Get him to approve projects aimed at monitoring the costs of waste – something that we are not doing now. We have now laid out a process for helping Barry achieve his objective of reducing cost per unit while also making the process more sustainable – a true “win/win”.

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Chapter 04 - Product/Process Innovation

Chapter 4 Product/Process Innovation Suggested Answers to Discussion Questions 1. Describe a situation where the functional/sequential approach to product development might be more appropriate than the integrated/concurrent engineering approach. If a new product development effort is mainly incremental in nature, that is, the technologies are well established and the design and develop steps are well understood, then there are not as many unknown or unforeseen cross-functional interdependencies in the design decisions. In this case a functional approach may be more appropriate, as it is less costly. 2. Operations personnel tend to favor product component standardization while design and marketing personnel tend to resist it. Why is this true? What are the potential disadvantages to standardization? This is true because an implied goal of operations personnel is to create efficiencies by reducing variability and promoting stability in operating processes. Operations personnel are primarily focused on managing costs. Marketing personnel are typically motivated to grow sales. A basic means for growing sales is by differentiating products by adding new variants that may appeal to additional market segments. 3. Why are discipline and flexibility both needed in new product/process innovation? Are these two capabilities in conflict with each other? A disciplined innovation project has well-defined process steps, consideration and inclusion of all relevant stakeholders and decision makers, and well thought out metrics and incentives. A flexible innovation project includes rigorous risk analysis and contingency plans; planned evaluation and decision points where the project may be 4-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

killed, redirected, or continued; and extra resources (funds, people, equipment) that can be quickly redeployed. This is exactly why these two are needed; they both entail the necessary components of creating a new product or process. These two capabilities could be in conflict with each other: with discipline comes concreteness and security while flexibility means more of an ability to change, to adjust the product or process if there are any glitches or change in customer demand. An important way to manage this conflict is to not let discipline lead to rigidity, and to not let flexibility lead to lack of diligence in decision making. 4. What major differences would you expect to find in the management approaches used for breakthrough innovation projects versus those used for derivative or enhancement projects? The management approach used for breakthrough innovation projects would entail using an entirely new technology or developing through an advanced development project. Typically a project team would be collocated, given broad goals, and ample resources. The management approach used for derivative or enhancement projects would be to refine and improve selected features of existing products and, clearly, its scope would be much narrower. This project might use more of a functional/sequential approach with narrowly defined goals and tight controls on resources. 5. Discuss the pros and cons of open innovation. The pros of open innovation are increasing the number of sources for new and better ideas, leading to higher-quality products; companies can increase the number of products they successfully launch, and reduce the time it takes to bring new products and processes online. Also, when companies work together to codevelop new products, they often share the financial and legal risks of development. 4-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

The cons of open innovation are by including more partners, a firm risks losing control over intellectual property; either intentionally or accidentally, a codevelopment partner may leak secret plans or technical knowledge to competitors or other parties who might use this information against the firm; and a firm can lose control over the goals and timing of the innovation project if it becomes too dependent on partners. 6. Under what circumstances might concurrent engineering (overlapping the stages of design and development) be a bad idea? If the firm making the product needs to save on development costs, concurrent engineering might be a bad idea. In the functional/sequential approach, the design and development stages are pursued sequentially, without much interaction among various functional groups. This approach can lower the development costs because each functional group focuses only on its specific development tasks. 7. Discuss the roles that personnel from warranty/field service and the manufacturing shop floor might play when conducting an FMEA. The roles that these personnel play when conducting an FMEA are to suggest changes in the product design in order to solve problems found in the product. Personnel from field service and manufacturing are likely to have insights into failure modes and causes because they are respectively closer to customers and to production processes. These are the places where product failures are first detected. 8. In which stages of a new product design and development project are supply chain operations managers most likely to have the greatest impact? Why? Supply chain operations managers can play important roles in all the phases of product design and development. In early concept development they can offer ideas on sourcing, 4-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

production, and delivery strategies. In detailed design they can provide detailed information on the operational capabilities of selected processes. In these early phases supply chain innovation may be required if the product does not make use of existing process technologies and capacities. In product testing phases, supply chain operations mangers contribute by testing out the processes and identifying problems that might occur once the product is launched. In the product launch phase, supply chain managers make an impact by rapidly and efficiently installing and ramping up new processes and supply chain relationships.

9. You have probably experienced some form of “virtual reality.” Discuss the types of “realities” that might be simulated when evaluating the merits of a given product design. Product designers are using virtual reality to evaluate all aspects of user experiences in interacting with the product, including ease of use, ergonomics, safety, and aesthetics. In addition, virtual reality or “simulations” can be used to evaluate product performance under different environmental conditions, including temperature, shock, moisture, etc. It is useful to pick a specific product (e.g., car, washing machine, clothing) and ask students to identify different ways the product can be tested and evaluated during development, and then ask how VR might be used to support sales and ordering processes (e.g., customer and virtually try on a dress before ordering).

Problem Solutions 1. Refer back to the QFD for housekeeping services shown in Figure 4-6 a. What seem to be the biggest opportunities for improvement, relative to competitors’ levels of performance? 4-4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

“Consistency of service” and “room cleaned at my convenience” appear to be the customer desired traits for which the hotel does poorest, relative to competitors. b. Which technical feature is most strongly related to the goal of protecting the safety and security of guests’ possessions? Number of guest room doors open at one time. c. Why would room cycle time and defect rate be negatively correlated? If workers hurry to clean the room faster they are more likely to make mistakes or to forget process steps. d. Which technical feature has the strongest associations with the largest number of guest requirements? Defect rate is “strongly associated” with three guest requirements: “fully stocked room”, “room serviced right the first time”, and “consistent service provided” 2. Given the FMEA data provided in the following table:

a. What is the RPN for each failure cause? M: RPN = 5×2×1=10 N: RPN = 3×4×9=108 X: RPN = 12 Y: RPN = 42 Z: RPN = 45 b. Which failure cause would be of least concern? M, because it has least RPN; it is only moderately severe, unlikely, and easily detectable. c. Which failure cause would be of greatest concern? 4-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

N, because it has highest RPN, mostly due to undetectability d. For the failure of greatest concern, would your recommended action be aimed at reducing failure severity, occurrence, or undetectability? On what other information would your answer depend? Undetectability is the primary driver of RPN for Failure Cause N. Recommended actions might be to increase the built-in testing and monitoring systems in the product design. The answer depends on whether the failure cause is truly unpredictable (such as a random occurrence), or if the undetectability is due to a lack of design quality (in which case it could be improved). 3. Identify three or four important failure modes for a cellular phone. -

no reception battery failure lost connection no audio no video battery life is shortened (won’t hold a charge) etc.

4. Conduct an FMEA for a simple service or tangible product with which you are familiar. Identify a few failure modes, estimate the RPNs, and recommend possible improvements.

Ball point pen

No ink flow Make marks

Pen leaks

Effect

Cause

Undetectability (U)

Function

Occurrence (O)

Name

Failure Mode

Severity (S)

Chapter 04 - Product/Process Innovation

RPN = S×O× U

Ball corrodes and will not roll

Ink clots

120

Broken mechanism

128

Pen thrown away prematurely

Damage to clothing or documents

Recommendation

Use higher grade non-corrosive parts. Tighten part tolerances for tighter fit to keep out dirt and moisture. Ensure quality of ink that withstands clotting under temperature variation. Ensure ink is not contaminated. Strengthen parts. Tighten connections with tighter tolerances.

5. Complete a value analysis for the following products: a. Paper clip

Step 1. Identify the functional purposes of a product or component. Step 2. Separate the various functions into two categories, those that make the product work, and those that make it sell.

Chapter 04 - Product/Process Innovation

Make it work: Capacity/size of the clip (capacity in terms of number of papers it can hold; strength of the material Make it sell: Surface appearance (e.g., smoothness, shininess, color) Step 3. Estimate the value (benefits and costs) of each function. Value

Cost

Capacity/Size:

high

medium

Strength:

medium

high

Surface appearance:

low

high

Step 4. Compare the importance of each function with its cost. Could investigate different designs or mechanisms to hold papers together. The capacity of the clip could be increased by using different forms of the wire used to make the clip. Could also investigate using different materials with varying strengths and appearance characteristics. Could standardize by selling only large clips, as they tend to work as well for small jobs as small clips do. Step 5. Implement changes to the product design that maximize the value of the product. Verify the team's conclusions by gathering information from customers and suppliers, whomever has a stake in the success of the product. Then make the changes and measure the results. b. Textbook

Step 1. Identify the functional purposes of a product or component. Product communicates information and concepts. Product promotes learning. 4-8 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

Step 2. Separate the various functions into two categories, those that make the product work, and those that make it sell. Makes it work: Makes information visible/legible. Provides examples and practice (e.g., practice problems) to foster learning. Makes it sell: Visually appealing (colors, pictures). Easy to use (has many ancillary instructors aids). Up to date information. Step 3. Estimate the value (benefits and costs) of each function. Value

Cost

Quality of information

high

medium

Quality of visuals

medium

high

Quality of ancillary instructors aids

high

low

Up to date information

medium

low

Step 4. Compare importance of each function with its cost. Add or subtract pictures (which are costly)? Reduce cost and improve some aspects of visual quality and information delivery by switching to electronic media? Other? Step 5. Implement changes to the product design that maximize the value of the product. Verify the team's conclusions by gathering information from customers and suppliers, whomever has a stake in the success of the product. Then make the changes and measure the results. 6. Make a list of customer desired traits for a pencil. 4-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

Small Easy to use Makes marks and erasures reliably without need for sharpening or other maintenance Low cost 7. Document the steps that someone using the House of Quality procedure might follow in developing: a. A new mountain bike. b. An introductory operations management course. c. A new candy bar.

The steps are basically the same for each product. Establish the “whats” 1. Identify customer desired traits and their relative importance – this could be done through surveys of customers, sales representatives, or other means 2. Assess the performance of our current product offering against competitors on the desired traits – could be done through customer focus groups, benchmarking, product testing. Establish the “hows” 3. Identify the technical requirements and the target values associated with each customer trait – this is done through cross-functional design and planning, led by product design and engineering personnel Establish the inter-relationships and tradeoffs 4. Identify the relationships among the technical specifications and the customer desired traits. Identify the interactions among technical specifications (i.e., whether they conflict or are mutually supportive) – this step also requires cross-functional planning and evaluation. Establish Process Specifications and Plans 5. Use the technical specification information to create process specifications for the operational systems that will deliver the customer desired traits.

8. Patients at an emergency department located in a large, urban hospital frequently experience long wait times before they actually see a physician. The hospital decided to use FMEA to determine an action plan for addressing the problem, defining a "failure" as a wait time of 30 minutes or longer. A group study produced the following data: Cause Peak demand exceeds staff capacity

Severity

Occurrence

Undetectability

Chapter 04 - Product/Process Innovation

Cause

Severity

Occurrence

Undetectability

Patient fails to register correctly

Patient is placed behind more urgent cases

a. Which failure mode has the largest RPN? Peak demand: Patient fails: Patient is placed:

5 × 5 × 8 = 200 This has the largest RPN 5 × 2 × 1 = 10 5 × 3 × 4 = 60

b. Provide a suggestion on how to lower the probability of occurrence or impact for each of the three failure modes (causes). Peak demand exceeds staff capacity: o Improve forecasting and staffing to minimize occurrence of understaffed department. o Place staff on call to come in to flexibly respond to sudden increases in demand Patient fails to register correctly: o Create checksheet and/or signage to help patients register o Create digital registration that immediately detects errors and/or missing fields Patient is placed behind more urgent cases: o Create automating notification if patient is bumped in priority more than once, or if patient total waiting time is more than × minutes o Create a “fast lane” (separate process with dedicated resources) for patients with less time-consuming or less urgent cases The Alpha Timer Development Project Cases (A) (B) and (C) – Teaching Notes There are at least three major areas of discussion that these cases support fairly well. First, Case (A) gives an illustration of a “real life” QFD effort and associated “House of Quality”. In addition to demonstrating how complex such an analysis can be, the case creates the opportunity to discuss the cross-functional involvement that is needed to accomplish it. A second issue addressed in the cases is, how should suppliers and original equipment manufacturers (OEMs) work together in the co-development of new products? What is each partner looking for in the relationship and how can managers ensure that effective working relationships are achieved? The third area of focus centers on NPD project management. The 4-11 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

Doorley Controls company made some pretty serious mistakes on the Alpha project. Many can be chalked up to “rookie” errors. A company like this might only attempt a major NPD once every 10 years or so, so they can’t be expected to have mature NPD processes. Still, a lot can be learned from the experience, and especially from the post-project comments of the project team members. I like to position the discussion of the case as a project post-mortem analysis. Ask the students to put themselves in Roger Terry’s shoes. This is his (their) chance to developed lessons learned from the project while it is still fresh in the project team member’s minds. Based on the narrative, what should he (they) learn? Synopsis: The case addresses three primary themes related to NPPD: 1.

The struggles of an OEM supplier to accelerate new product development while simultaneously improving product cost and quality and also maintaining secrecy to protect itself from competitors.

A small supplier’s challenges in co-developing a new product with a larger, more powerful customer.

A company’s initial successes and failures in applying NPPD tools such as QFD, DFM, and teams.

The case experience illustrates the difficulties a supplier faces when trying to design a component to meet the differing needs of multiple customers. The case highlights the importance of communication in the NPD process: communication between internal functions, between suppliers and customers, and between top management and the NPD team. Finally, the case provides examples and insights into the implementation of many of the new tools associated with accelerated product development.

Chapter 04 - Product/Process Innovation

Case A Questions: 1. What features of the timer design appear to offer Doorley the strongest advantages over its competitors’ products? What features are apparent weaknesses? 2. Which manufacturing methods are most strongly related to the goal of producing a flexible drive system? Do any of these methods conflict with each other? 3. Which design parameter has the strongest dependence on any of the manufacturing methods? 4. What evidence is there that the ALPHA team has used a DFM approach? Case B Questions: 1. Assess the outcomes of the Alpha project. Was the project a success? 2. Were the “problems” encountered in the development project “typical”, or could they have been avoided? Case C Questions: 1. How would you describe the team members’ morale at this point? What are their primary concerns? 2. Given the team members’ comments, what advice would you give Roger Terry regarding the double-block timer development effort? Case A Analysis: 1. What features of the timer design appear to offer Doorley the strongest advantages over its competitors’ products? What features are apparent weaknesses? This is a fairly straightforward reading from the House of Quality diagram given in the case. The Doorley product seems in “applications specific contacts” and in the first three elements of quality: “quality,” “reliability”, “contamination”. Weak features are (especially) “ease of assembly”, and “quiet during manual advance”. 2. Which manufacturing methods are most strongly related to the goal of producing a flexible drive system? Do any of these methods conflict with each other? “Build from one direction”, “Build motor into timer”, and “Redesign using DFA” 3. Which design parameter has the strongest dependence on any of the manufacturing methods? The “turning torque” is strongly associated with “redesign using DFA” (see roof of the house) 4. What evidence is there that the ALPHA team has used a DFM approach? They have included quality parameters and manufacturing methods directly into the analysis as part of the “technical features” portion of the house of quality. This enables them to address both product design and process design interactions (the roof) simultaneously. Most QFD efforts only look at interactions among product design parameters in the top level house of quality, then they address process issues in a later stage. 4-13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

Case B Analysis: 1. Assess the outcomes of the Alpha project. Was the project a success? The primary motivation for developing the Delta timer was to take advantage of the additional business volume promised to Doorley by Whirlpool. Doorley won a 3 year contract, increasing its share of the Whirlpool business from 40% to 75% and including a promise if 100% of future business. Doorley won the contract primarily based on price negotiations in addition to quality performance in the past and its association with Emerson (another large supplier of Whirlpool). Given the aggressive pricing, Doorley needed to reduce costs in order to maintain profitability. They chose a product redesign as the method to reduce costs (as opposed to improving production for the existing product). A perhaps more strategic motivation for the product redesign was to edge out the competition. Doorley believed that quickly offering Whirlpool a major cost reduction in addition to the “quiet select” feature would effectively “wipe out the competition”, leaving all of the business for itself. The stated objectives for the project apply primarily to product cost and quality. Most students will identify these goals easily as they are stated in the case. More subtle but tremendously important goals pertain to project timing and the development of the “quiet select” product feature. These two aspects of the development were most important to Doorley’s competitive strategy since it was imperative that competitors not have time to develop a similar product feature or cost-reduced product. Secrecy was also an important objective. While Doorley appears to have won most of the battles associated with cost and quality goals (based on preliminary production figures), it may have lost the war. The extra year that it took to develop Delta allowed a major competitor to develop its own new product. In addition, 4-14 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

relations with Whirlpool have been strained and possibly damaged irreparably. One could argue that it was Doorley’s failure on the Delta project that caused Whirlpool to reconsider their single source policy. In fact, Doorley’s portion of the Whirlpool business was reduced to 58% late in 1995. 2. Were the “problems” encountered in the development project “typical”, or could they have been avoided? A primary cause of the failures of the project was the presence of internal conflicts among the goals for the project. First, the focus on cost reduction was hampered by the excitement and confusion created by including the “quiet select” feature in the product redesign. While the feature is not necessarily in conflict with cost reduction, Doorley did not anticipate the problems Whirlpool would have in including such a feature in its mid-level washers that was superior to its high-end product features. This led to the need to design versions of the timer with and without the “quiet select” feature and started the project down the road toward product variants, a condition that certainly is in conflict with the objective of cost reduction and high volume, automated production. A related conflict concerns the need to maintain secrecy while rapidly developing new product materials and features. The need for secrecy restricted both internal and external communications on the project. Improved communications might have enabled Doorley to avoid the time consuming material and tooling problems and the time lags resulting from the need to design product variants. An even worse outcome is related to the fact that Whirlpool was in the process of developing a radically new washing machine concept in the midst of Doorley’s timer development. Doorley personnel assumed they knew what Whirlpool wanted. They did not share or acquire sufficient information with/from Whirlpool, again because of a 4-15 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

perceived need for propriety. Consequently, Doorley may have designed a new timer that will be soon obsoleted by Whirlpool’s new product concept. A lack of appropriate resources also played a strong role in the project. Too much responsibility was laid on a very few individuals. In addition, the primary engineers involved were not highly experienced. Project leadership changed hands 3 times during the project execution. While it is difficult to estimate the impact of these changes, it is likely that each change in leadership had some cost in time required for the new leader to come up to speed and for the development team to adjust to the new leader’s management policies. Also, communication links forged by the previous leader are lost when a new leader takes over, and differences in management style can cause confusion. It is clear from this discussion that deficient communications was the leading cause of failure on the project. This is particularly distressing given the amount of visibility and effort communication enhancement methods like QFD and DFM were given on the project. The problems with Doorley’s applications of these methods are discussed in the following sections.

Clear program goals • Loss of focus, priorities attached to goals were unclear • Initial concept was for single, “robust” design to cover 95% of Whirlpool’s product line: - would not address double block products - would not change motor, camstack, or terminal block from existing design • This concept turned out to be fundamentally flawed and unviable in that it did not satisfy customer desires. Dedicated team management • Project champion was missing • Communication between team and company management was unclear • No direct lines of communication? • Team leaders not well-suited to high-stress project management • Team leadership changed, Frankfort plant managers changed. 4-16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

Aggressive project management • Critical path scheduling and management – recognize that in compressed projects there are likely to be many critical paths • Weekly team meetings • Frequent management updates • Schedules may have been too overlapped without contingency plans (e.g., equipment and tooling was ordered before product design was fixed) Cross functional project team • Marketing absent from team – Doorley does not really have “marketing”, they have sales reps. • Manufacturing not really members of core team? Included on as-needed basis? (And engineers decide when this is). Operations personnel at corporate are not necessarily intouch with the needs at the plant. • Engineers did not work well together Quality Function Deployment • Viewed as a good exercise to complete but not actively pursued for its benefits. Engineers already had design concept in mind. Lip service to customers. • QFD done initially, then set aside. Many changes occurred in the design and development period before and during initial tooling and prototyping. Should have revisited QFD periodically to document and rationalize the changes better. When QFD is viewed as an “exercise” it is often set aside when things begin to get hectic. • Many of the DFM activities were conducted too late, after prototypes were already in work. • Customers not intimately involved. Only 4 people directly involved: 2 design engineers, 1 tool engineer, 1 marketing • Different functions had different agendas. Strongest personnel win. Design-for-Manufacturing • Manufacturing not brought in early enough • Communication was mostly uni-directional (from designers to manufacturing) • Mostly meetings with suppliers and manufacturing, no real-time input or collocation • Plant personnel were primarily brought on to discuss choices regarding equipment design and equipment suppliers. Most design issues were confined to engineering discussions. Concurrent product testing: supplier, Doorley, Whirlpool • Not complete honesty between parties, loss of trust 3D Modeling Design System - Computer design to hard tools • Only 1 designer, not previously trained on the system • Unable to freeze design early enough to prevent tooling reworks 4-17 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

Case C Analysis: 1. How would you describe the team members’ morale at this point? What are their primary concerns? There are clearly some strong feelings of frustration and consternation among the team members. They perceive that the Alpha program was mismanaged, and they are quick to point out seemingly obvious (in hindsight) mistakes that were made. The primary concerns include: -

Management’s inability to set a clear vision and stick to it. Perceived inconsistencies in the goals and metrics used to guide the project Damage to the company’s relationship with Whirlpool Lack of clear and timely communication across functional groups, especially between the design team and manufacturing plant personnel

2. Given the team members’ comments, what advice would you give Roger Terry regarding the double-block timer development effort? Issues that need to be addressed Need to restore confidence in management’s leadership abilities. Company culture Functional organization - lack of cooperation and communication Engineering driven Functionally deployed and controlled resources Need a strong Champion to overcome these barriers Possibly need to co-locate and isolate the NPD team from executive management pressures Need for secrecy vs. hearing the voice of the customer - time is more important than secrecy, if the product can be developed more rapidly than your competitors, the need for secrecy is greatly diminished. Whirlpool’s desire for exclusivity vs. eventual need to address other customer concerns Team make-up Need for dedication vs. lack of resources Personalities and skills of team members Underestimate of capital requirements Proliferation of product features

Chapter 04 - Product/Process Innovation

In sum, the team is experiencing low morale and mistrust of management. Roger should push for as much autonomy and control as he can get. He should work hard to gain buy-in from the team members and from Whirlpool, perhaps even getting an on-site representative from Whirlpool to participate in the project. Taco Explosion Case Teaching Notes This brief case provides the instructor an opportunity to discuss causes and outcomes of nonintegrated development processes. The instructor might start the discussion by asking students what their favorite “limited-time-offer” (LTO) items are. There are tons of examples of these types of promotion, including McDonald’s “McRib”, “Shamrock Shake” (for St. Patrick’s day), etc. In addition to these seasonally recurring LTOs, most restaurant chains frequently offer one-time LTOs to drive customer attention and traffic into stores. Sales for these LTOs are notoriously difficult to forecast, especially when the menu item strays farther from the restaurant’s existing menu. For example, Shake-Shack offered a spicy Korean chicken sandwich a few years ago that far exceeded sales forecasts. Compounding the problems they had with this promotion, an important spice for the sauce was actually sourced in Korea, a fact that was highlighted in promotional materials that suggested that the sandwich was more “authentically Korean”. Unfortunately, order lead time for the spice was well over six months, making reorders during the promotional period (which is typically 6-12 weeks) impossible. This case highlights the tension between culinary and marketing specialists and supply chain managers. The former groups typically want to offer unique ingredients and flavors in LTOs to drive innovation and customer excitement. However, procurement of these items and “production” in restaurant stores can involve long and uncertain lead times, as well as requiring extra testing and training of restaurant employees in order to produce the unfamiliar items reliably. Sometimes even special tools (e.g., dispensers or mixers) are needed to produce the item. Planning for larger scale, “new platform” products often starts one year in advance, but design choices, market testing, and financial planning frequently cause delays, so that the time to pull the trigger on executing supply orders and operational training can be quite late in the process, and therefore rushed. Performance impacts of non-integrated design and launch of LTOs are pretty straightforward. If demand outstrips supply during the promotion, customers may be disappointed, even angry that they are not able to get promised items. Note that this circumstance might occur either because the initial forecast was too low or because of delays or other problems with supply. For example, as mentioned in the case, variability in sauce “portioning” because of inadequate operational training could cause supplies to run out early, and there may be few available substitutes. On the other hand, in a promotion supply may far exceed demand, either because demand forecasts were too high or perhaps because supply managers over-ordered product to cover demand uncertainty – remember that they often do not have the opportunity to re-order during a promotional period so they have to make their best guess in one order. If supply is greater than demand, then the company must dispose of unsold product. Because restaurant chains are worried about effects on their brands, marketing personnel rarely want to extend promotions beyond the initially advertised periods. Also, buying promotional space on TV or 4-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 04 - Product/Process Innovation

other marketing channels is itself a long lead time item. Consequently, supply managers frequently must write-off excess inventories of LTO products, or find some salvage value (e.g., donating to food banks or other users). The “solution” to this case is to encourage greater involvement of operations and supply chain managers in the up-front product and promotional design decisions. The instructor should ask students to consider how receptive “creative types” in culinary design and marketing will be to inputs from operations and supply chain managers. They are likely to see only the “constraints” to innovation posed by operational considerations. An important step is for all parties to recognize the competing objectives of the different functional groups, and to make trade-offs in innovativeness versus reliable execution explicit. Once this is done, then crossfunctional design and execution teams can make rational choices about the risks and rewards of design choices and they can devise ways to share risks associated with their LTO plans. This also highlights the importance of contingency planning, especially when ingredient choices limit the flexibility of supply chain managers to respond to demand-supply mismatches (e.g., because lead times are too long). Because of differing functional objectives and metrics, creating such an integrated process is not easy. However, some leading chains are implementing more well-defined, “stage-gate”, processes that address opportunities and risks more comprehensively and earlier in LTO design and development projects.

Chapter 05 - Manufacturing and Service Process Structures Chapter 5 Manufacturing and Service Process Structures Suggested Answers to Discussion questions 1. Airlines allow customers to purchase tickets, select seats, and check-in using mobile apps. How does this process differ compared to a check-in process at an airline ticket counter? Airline check-in is an example of a mass service. The level of customization is low and the labor intensity is high. By using the mobile app, customers have much more flexibility over when the service is delivered as well as more control over the comparisons and choices that they make. At an airline counter, the customer must wait and the customer service agent sees the alternatives and makes the decision for the customer. The airline benefits with the mobile app because it needs fewer customer service agents. However, the airline incurs the cost of outsourcing or developing and maintaining the apps that must interface with its computer system. Further it must continually upgrade its app as customer expectations and mobile technology changes and protect against cybersecurity threats. 2. Think of two companies in the same industry that use different process structures. Why is this the case? Is one process structure a better choice than the other? Why or why not? Students can find many different examples. A company that designs custom racing bikes with frames that fit each individual’s height and weight would likely use a job shop to produce each bike because each bike would be unique. A company that makes low-priced bikes for children is more likely to use a repetitive process because the product is relatively high volume with little variety.

Chapter 05 - Manufacturing and Service Process Structures 3. Consider several members of the supply chain of a company that makes plastic toy cars and trucks. Which of the five processes described in the product-process matrix is likely to be used by the following supply chain members? Why? a) the company that assembles the toys: Repetitive process because of relatively high volume and low variety. b) the company that produces the parts that go into the toys: Batch because of moderate volumes and moderate variety. c) the company that produces the plastic: Continuous process for a high volume, low variety process. 4. Provide an example of how technology has made it possible to use processes that are not on the diagonal of the product/process matrix. The Internet allows many companies to mass customize their products. For example, via its website, Element Skateboards (https://us.elementbrand.com/mens/shop/skateboards) to allow customers to design their own unique skateboards by choosing from a range of options for the board deck, wheels and bearings, trucks, and accessories. This is an example of mass customization that would not be possible without the website that enables customers to communicate their preferences in advance of production. 5. Are some process structures inherently safer or more environmentally friendly than others? Safety encompasses many aspects including preventing accidents and injury, fires, explosions, and exposure to hazardous chemicals. Environmental performance has to do with the effect of the process consuming too many resources such as raw materials, water and energy. The waste and pollution resulting from a process also is an aspect of environmental performance. Different process structures are likely to have different 5-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures issues with respect to safety or environmental performance. For example, a project or job shop may have more opportunities for workers and machines to interact, increasing the potential for accidents. However, continuous processes such as an oil refinery may have more of the possibility for a fire or explosion because of the nature of the materials being processed. A construction project can affect the environment due to cutting down trees while a batch process might consume a large amount of energy and also have a higher probability of an accident because of the nature of the work. 6. Which of the service categories would you put a large state university? Why? Would a small private university be in the same category? Why or why not? A large state university could be categorized as a mass service. The customization of the education is low, but the labor intensity is high. At a small private university, the education is more highly customized to meet each student’s needs but the labor intensity remains high. Thus, a small private university would be more like a professional service than a mass service. 7. Some upscale restaurants have their kitchens visible to their customers changing the traditional view of front-office and back-office processes. What are the benefits and drawbacks to this approach? In a regular restaurant, the dining room and the kitchen are decoupled and operate as separate processes. In the dining room, the décor and layout must be designed with the customer’s comfort and enjoyment in mind. In addition, the appearance of the servers and their interaction with the customers is important to the quality of the dining experience. However, in the kitchen, the customer is not involved so the layout and appearance can be designed for the effectiveness of the process without considering the 5-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures impact on customers’ perceptions. When the kitchen is visible to customers, the impact of all aspects of the kitchen process including layout, appearance, and appearance of the employees on customers’ perceptions must be considered in design and delivery. 8. Think about three of your favorite fast food restaurants. What type of layout is used in the food preparation area of each? Are these layouts a good fit with the organization? Why or why not? Should the layout be changed and if so, how? Taco Bell uses a product layout. The food preparation starts at the far end of the kitchen and flows toward the customer pick-up at the counter with each worker doing a different activity to prepare the food. McDonald’s and Arby’s use a process layout with similar groups of resources grouped together. For example, the deep fryer is in one location and sandwich preparation is another. Given the types of food prepared, the layout for each is appropriate. 9. Provide an example of automation that enhances customer service and one that reduces customer service. Why is this the case? The self-service checkout line at the grocery store is one example of how automation improves customer service. Customers with fewer groceries do not have to wait in line with those that have a large order to complete their transactions. Automated customer service phone lines have reduced customer service. Rather than being able to quickly explain your problem to a person, you have to go through a series of automated questions, entering the answer on your phone or carefully stating the answer before you are able to have your problem resolved. Often, you may never speak to a person in this process.

Chapter 05 - Manufacturing and Service Process Structures 10. Postal services and logistics companies are experimenting with delivery using drones. What are the benefits and drawbacks with this application of technology? Cost and delivery speed are some of the biggest benefits of using drones for package delivery. Drones are relatively inexpensive to purchase and operate compared to conventional trucks and vans. The fact that they will not get stuck in traffic or on streets with low speed limits are a benefit. Some of the drawbacks are that the number and size of packages that a drone can carry are currently limited. In addition, currently an operator is still needed but in the future drones may be programed to follow specific routes. Safety is a concern especially with interference with other aircraft. Storms would also ground the drone fleet. Finally, the current state of technology is a challenge, for example battery life, which limits the travel distance. Because the technology is relatively new, government regulations are still in flux. 11. One concern with the adoption of process automation such as self-driving vehicles and robots is the impact on society. What are the societal challenges with process automation? How might these be addressed? Automation offers both benefits and challenges. Autonomous vehicles are reportedly safer and will avoid accidents associated with “human” error. Further people who are not able to drive, such as the elderly can have the ability to independently travel. Robots can be used in dangerous work environments such as welding reducing work related accidents and can work 24/7 without fatigue or breaks. A major concern with these technologies is that they will eliminate many low skilled jobs such as taxi and delivery drivers. (See an interesting article in the Economist https://www.economist.com/graphic-detail/2018/04/24/a-study-finds-nearly-half-of-jobs5-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures are-vulnerable-to-automation). Further, it is likely the fewer people will own their own cars and trucks can operate without drivers needed to take a break so there may be impact in the vehicle production industries. While some jobs will be eliminated, others will be transformed, or new jobs will be created. These jobs will likely have higher skill requirements so access to education and quality of education will be key to employment.

Problem Solutions 1. An assembly line currently has five workstations and the time required for each is shown in the figure below.

a. What is the efficiency of the current process? Hint: Identify the bottleneck workstation. Efficiency = [45 sec + 32 sec + 38 sec +50 sec + 42 sec]/[5 workstations × 50 sec] × 100 = 82.8% b. Customer demand is 80 units per hour. What is the hourly production rate of the current process? Output per hour = [60 min /hour × 60 sec /minute]/50 sec /unit = 72 units per hour c. What does the takt time need to be to be able to meet demand? Takt time = [60 min/hour × 60 sec/min]/80 units/hour = 45 seconds per unit d. What changes to the process are needed? The time at workstation 4 needs to be reduced by 5 seconds so that it does not exceed the takt time of 45 seconds. Perhaps some tasks being completed in workstation 4 can be moved to workstation 3 and workstation 5. Note that only 3 seconds of work can be 5-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures shifted to workstation 5 because its already has 42 seconds of work. Another alternative is to add another workstation 4 in parallel. 2. An insurance company uses the following tasks to process insurance claims. Forty claims need to be processed in an eight-hour workday.

D 4 min.

A 3 min. C 6 min.

E 2 min.

F 2 min.

B 5 min.

a. What is the takt time? Takt time = [8 hours/day × 60 min/hour ]/40 claims/hour = 12 minutes per claim b. What is the theoretical number of workstations? N = [3 min + 5 min + 6 min + 4 min + 2 min + 2 min]/12 min per claim = 1.8 rounded up to 2 workstations c. Assign the tasks to the workstations to balance the line using the longest operating time rule. Need to use 3 stations because of time allotments Workstation

Tasks in

Workstation

Idle Time

Order

Time (Minutes)

(Minutes)

A, B

Chapter 05 - Manufacturing and Service Process Structures 2

C, D, E

d. What is the efficiency of the balanced line? Efficiency = [3 min + 5 min + 6 min + 4 min + 2 min + 2 min]/ [3 workstations x12 min/workstation] × 100 = 61.1% 3. Swoosh Snowboard Company must set up an assembly line for snowboards. Forecasts show that 600 units per day should be produced. The plant operates two eight-hour shifts each day and runs the line continuously during both shifts. The tasks required, task times, and precedence relationships are as follows: Task

Time (seconds)

Predecessors

–

C, E, F

a. Draw the precedence diagram.

Chapter 05 - Manufacturing and Service Process Structures

B 27 sec

E 30 sec

A 40 sec

C 30 Sec

G 55 Sec

D 35 sec

F 40 sec

H 39 sec

b. What is the takt time? Takt time = [2 shifts/day × 8 hours/shift × 60 min/hour × 60 sec/min]/600 units/day = 96 seconds per unit c. What are the theoretical number of workstations N = [40 sec + 27 sec + 30 sec + 35 sec + 30 sec + 40 sec + 55 sec + 39 sec]/96 seconds/ unit = 3.08 round up to 4 workstations d. Assign the tasks to the workstations to balance the line using the longest operating time rule. Workstation

Tasks in

Workstation

Idle Time

Order

Time (Seconds)

(Seconds)

A, D

F, C

B, E

G, H

Chapter 05 - Manufacturing and Service Process Structures e. What is the efficiency of the balanced line? Efficiency = [40 sec + 27 sec + 30 sec + 35 sec + 30 sec + 40 sec + 55 sec + 39 sec]/ [4 workstations × 96 sec/workstation] × 100 = 77.1% 4. The Carry-on Luggage Company must set up an assembly line for a wheeled carry-on bag. Forecasts show that 60 units per hour should be produced. The tasks required, task times, and precedence relationships are as follows: Task

Time (seconds)

Predecessors

–

C, E, F

D, G

a. Draw the precedence diagram.

Chapter 05 - Manufacturing and Service Process Structures

B 27 sec

E 30 sec

A 30 sec

C 50 Sec

G 55 Sec

D 35 sec

F 40 sec

H 39 sec

b. What is the takt time? Takt time = [ 60 min/hour × 60 sec/min]/60 units/hour = 60 seconds per unit c. What are the theoretical number of workstations N = [30 sec + 50 sec + 25 sec + 10 sec + 25 sec + 15 sec + 10 sec + 30 sec]/60 seconds/ unit = 3.3 round up to 4 workstations d. Assign the tasks to the workstation using the longest operating time rule. Workstation

Tasks in

Workstation

Idle Time

Order

Time (Seconds)

(Seconds)

A, C

B, D

E, F, G

e. What is the efficiency of the balanced line?

Chapter 05 - Manufacturing and Service Process Structures Efficiency = /[30 sec + 50 sec + 25 sec + 10 sec + 25 sec + 15 sec + 10 sec + 30 sec]/ [4 workstations × 60 sec/workstation] × 100 = 81.3% 5. Wild Widget must set up an assembly line for widgets. Forecasts show that 50 units per hour should be produced. The tasks required, task times, and precedence relationships are as follows: Task

Time (seconds)

Predecessors

–

C, B

E, F

a. Draw the precedence diagram.

B 30 sec

A 10 sec

E 25 sec

D 35 sec

C 15 Sec

G 35 Sec

F 10 sec

Chapter 05 - Manufacturing and Service Process Structures b. What is the takt time? Takt time = [ 60 min/hour × 60 sec/min]/50 units/hour = 72 seconds per unit c. What are the theoretical number of workstations N = [10 sec + 30 sec + 15 sec + 35 sec + 25 sec + 10 sec + 35 sec]/72 seconds/ unit = 2.2 round up to 3 workstations d. Assign the tasks to the workstations to balance the line using the longest operating time rule. Workstation

Tasks in

Workstation

Idle Time

Order

Time (Seconds)

(Seconds)

A, B, C

D, E, F

e. What is the efficiency of the balanced line? Efficiency = [10 sec + 30 sec + 15 sec + 35 sec + 25 sec + 10 sec + 35 sec]/ [3 workstations × 72 sec/workstation] × 100 = 74.1% f. If demand decreased to 40 units per day, what changes would be needed, if any? If demand decreased to 40 units per day, the new takt time would be 90 seconds per workstation. The line should be rebalanced with the new takt time. Only two workstations would be needed. 6. Golf Carts Inc. must set up an assembly line for golf carts. Forecasts show that 10 units per day should be produced. The plant operates one eight-hour shift each day and runs the line

Chapter 05 - Manufacturing and Service Process Structures continuously during the shifts. The tasks required, task times, and precedence relationships are as follows: Task

Time (minutes)

Predecessors

–

A, B

E, F

a. Draw the precedence diagram.

A 12 min D 24 min

F 30 min

B 10 min

G 15 min C 16 min

E 14 min

b. What is the takt time? Takt time = [ 8 hours/day × 60 min/hour ]/10 units/day = 48 minutes per unit 5-14 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures c. What are the theoretical number of workstations N = [12 min + 10 min + 16 min + 24 min + 14 min + 30 min + 15 min]/48 minutes/ unit = 2.5 round up to 3 workstations d. Assign the tasks to the workstations to balance the line using the longest operating time rule. Workstation

Tasks in

Workstation

Idle Time

Order

Time (minutes)

(minutes)

C, E, A

B, D

F, G

e. What is the efficiency of the balanced line? Efficiency = [12 min + 10 min + 16 min + 24 min + 14 min + 30 min + 15 min]// [3 workstations × 48 minutes/workstation] × 100 = 84% f. If demand increased to 12 units per day, what changes would be needed, if any? If demand decreased to 12 units per day, the new takt time would be 40 minutes per workstation. The line should be rebalanced with the new takt time to ensure that the customer demand can be met. 7. Williams Motor Manufacturing assembles small motors for sale to major appliance manufacturers around the world. Average demand for its best-selling motor is 600 units per day. The assembly line operates continuously during a single eight hour shift. The tasks required, task times, and precedence relationships are:

Chapter 05 - Manufacturing and Service Process Structures Task

Time (seconds)

Predecessor

B, D

F, G

a) Draw the precedence diagram.

b) What is the takt time? Takt time = [ 8 hours/day × 60 min/hour × 60 sec./min.]/600 units/day = 48 seconds per unit c) What are the theoretical number of workstations? 5-16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures N = [12 sec.+ 22 sec. + 20 sec.+ 20 sec. + 18 sec.+ 30 sec.+ 17sec. + 25 sec. + 20 sec.]/48 sec/ unit = [ 184 sec/48/sec./unit] = 3.8 round up to 4 workstations d) Assign the tasks to the workstations to balance the line using the longest operating time rule. Workstation

Tasks in

Workstation

Idle Time

Order

Time (seconds)

(seconds)

B, C

E, G, A

H,I

e) What is the efficiency of the balanced line? Efficiency = [12 sec.+ 22 sec. + 20 sec.+ 20 sec. + 18 sec.+ 30 sec.+ 17 sec. + 25 sec. + 20 sec.]// [5 workstations × 48 seconds/workstation] × 100 = 77%

Chapter 05 - Manufacturing and Service Process Structures f) If demand increases to 650 motors per day, what changes would be needed, if any? If demand decreased to 650 units per day, the new takt time would be 44 seconds per workstation. The line should be rebalanced with the new takt time to ensure that the customer demand can be met. 8. A company that assembles high fidelity headphones needs to design an assembly line for one of its new products. The tasks needed and their relationships are shown in the following figure. To meet demand, the company must produce 80 headphones an hour.

a) What is the takt time? Takt time = [60 min/hour × 60 sec./min.]/80 units/day = 45 seconds per unit b) Design the line by assigning the tasks to the workstations to balance the line using the longest operating time rule. Workstation

Tasks in

Workstation

Idle Time

Order

Time (seconds)

(seconds)

G, E, A

Chapter 05 - Manufacturing and Service Process Structures 2

F, B

C, D

c) Redesign the assembly line by assigning the tasks to the workstations to balance the line using the most followers rule. If a tie is encountered, use the longest operating time rule to decide which task to enter. Workstation

Tasks in

Workstation

Idle Time

Order

Time (seconds)

(seconds)

A, B, G

E, C, D

F, H

d) Which approach to line balancing results in the most efficient assembly line? Why? The efficiency is lower with the longest operating time rule than when the most followers rule is used so the most followers rule results in the most efficient line in this case. Efficiency with longest operating time rule= [121 seconds]/[4 workstations × 45 seconds/workstation] × 100 = 67.2 % Efficiency with most followers rule = [121 seconds]/[3 workstations × 45 seconds/workstation] × 100 = 89.6 % 9. The Office Interiors Company has developed a new, modern office chair. Initial sales forecasts are for 50 chairs per day. The assembly operations will run for two, eight hour shifts. 5-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures The process engineer and operations manager are working together to balance the line to make the new chair as efficiently as possible. The process engineer suggests using the longest operating time rule while the operations manager suggests using the most followers rule to design the line. If there is a tie, use the other rule to break the tie. Based on the processing information, which approach do you recommend? Why? Task

Time (Minutes)

Predecessor

C, D

E, G

First, calculate the takt time that will be used to balance the line. Takt time = [ 2 shifts/day × 8 hours/shift × 60 min/hour]/50 units/day = 19.2 minutes per unit at each workstation Using the operating time rule the balanced line is: Workstation

Tasks in

Workstation

Idle Time

Order

Time (Minutes)

(Minutes)

6.2

Chapter 05 - Manufacturing and Service Process Structures 2

F, A

2.2

B, C

1.2

E, G

7.1

9.2

Efficiency with longest operating time rule= [70 minutes]/[5 workstations ×19.2 minutes/workstation] × 100 = 72.9% Using the most followers rule the balanced line is: Workstation

Tasks in

Workstation

Idle Time

Order

Time (Minutes)

(Minutes)

A, B

0.2

D, C

0.2

F, E

1.2

G, H

5.2

Efficiency with most followers rule= [70 minutes]/[4 workstations ×19.2 minutes/workstation] × 100 = 91.1% Based on efficiency, use the most followers rule to balance the line. Coffee Roasters Case – Teaching Note 1. Using the product/process matrix, which processes are likely to be used by Ohori’s and Folgers’? Why? Because it produces a high volume, standard product, Folgers would use a continuous process. Differentiation occurs primarily at the end of the line through different grinds or 5-21 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures through different sizes of packages. Ohori’s is more likely to use a batch process. This allows it to roast a wider variety of different coffee beans. Each batch would be made and packaged, and then the equipment would be cleaned before a new batch would be made. 2. Explain how the choice of process supports each organization’s competitive priorities. Folgers aims to deliver a consistent quality, of a limited number of products at a moderate price. A continuous process is designed to produce standard products at a low cost. Ohori’s focuses on delivering a wide range of different coffees, with high quality and at high price. The batch process gives it the flexibility it needs to produce a wide range of products while maintaining close control over the quality of each batch. 3. Is the operations layout likely to be the same or to be different at Ohori’s and Folgers? Why? A product layout is consistent with the continuous processes used at Folgers. The coffee would follow the same process flow and differentiation would be at the end of the production line. Ohori’s is more likely to use a process layout in which different equipment such as the roasters and packaging lines are grouped together. 4. What changes would Folgers need to make to compete directly with Ohori’s? Why? To complete directly with Ohori’s Folgers should consider installing a batch process either within its current facility as a plant within a plant or at a different location. The set-up costs associated with changing over to different types of coffees is likely to be too great with Folgers current continuous process to be competitive.

Chapter 05 - Manufacturing and Service Process Structures Sonnie’s Gourmet Sandwich Café: Teaching Note Questions 1. Compared to a fast food restaurant such as McDonald’s, where would Sonnie’s sandwich shop be placed on the service process matrix? What challenges and opportunities does this position create relative to McDonald’s? Why? Applying the service process matrix, both McDonalds and Sonnie’s Gourmet Sandwich Shop would be considered mass services. Within the mass service quadrant, Sonnies has higher levels of customization than McDonalds. Customer interaction is also likely to be higher at Sonnie’s compared to McDonalds because with higher customization, customers may have more questions when placing their orders. Because customers have more choices, Sonnies must have a higher variety of ingredients available, and is likely to be slightly more labor intensive in preparation and assembly. The time to make the sandwich is likely to be higher at Sonnie’s because of the variety. 2. How many customers is the current process able to accommodate per hour? Currently, the first step of the order fulfillment process, putting the choice of side on the plate and then assembling the sandwich is the bottleneck in the process. These two steps consume a total of 115 seconds. This means that only 31.3 customers can be served per hour (3600 seconds/hour)/115 seconds at the bottleneck process.

Chapter 05 - Manufacturing and Service Process Structures Task

Task Time

Predecessors

(Seconds) Ordering

None

Order in system

Ordering

Get beverage

Order in system

Add side

Order in system

Assemble sandwich

Order in system

Add toppings

Assemble sandwich

Slice

Add toppings

Checks accuracy

Slice

Moves and call

Slice

Order in system

customer to pick-up area Payment

Balance the ordering and order fulfillment process to design the process to serve 40 customers per hour. The first step is to determine the takt time to serve 40 customers per hour.

Takt time with 40 customers per hours (60 min/hr. × 60 sec./min)/40 customers per hour = 90 minutes per workstation. It is helpful to draw the precedence diagram before balancing the line.

Chapter 05 - Manufacturing and Service Process Structures

Balance the line using the longest operating time rule. Check to see if the balanced line makes logical sense considering the process. Balanced Line for ordering and food preparation using the longest operating time rule. Workstation

Task

Idle Time

Time

(Seconds)

(Seconds) 1

Ordering, order in the system

Assemble sandwich

Add toppings, add side, slice

Get beverage, check, move

With the balanced line, the bottleneck is now the ordering and putting the order in the system which takes 90 seconds. With the balanced line, 40 customers can be served per 5-25 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 05 - Manufacturing and Service Process Structures hour. The “mass customization” approach allows customers a wide range of choices in making their sandwiches but also creates more complexity in the ordering and assembly process creating opportunities for quality problems. Sonnie may want to consider replacing the paper order forms with an electronic ordering system that shows the order to the customer and to the employees at each step in the assembly process.

Chapter 06 - Managing Quality

Chapter 6 Managing Quality Suggested Answers to Discussion Questions 1. Pick a product good or service that you are interested in consuming sometime in the near future. Analyze the offerings of two competing firms. How do the products compare on various dimensions of quality? From these differences, what can you infer about each company's strategy and the customers that they seem to be targeting? Student answers will vary. What works best is to have a student identify two products and then to have that student compare the two products using the various quality traits outlined in this chapter (e.g., functionality, reliability, aesthetics, durability, safety, perceived quality, and serviceability). For each trait, how the student provide an operational definition (what does reliability, for example, mean in the case of M&Ms?). Then have the student evaluate them and identify the features that are most critical. Now, discuss how these critical traits on which each product does best might be indicators of the firm’s strategic stance. 2. Employee empowerment is an essential element of quality management, especially in services. From your own experience, cite instances where a service provider empowered its employee to go the extra mile to delight you. Then indicate an instance where the opposite happened. Again, student answers will vary. The important point is to have the students understand the importance of empowerment. It involves allowing the employees to have the authority AND the resources needed to resolve any problem that they see that involves the customer immediately (without having to wait for management’s approval). This is important because, from the customer’s perspective, the result is a significant reduction in the time spent waiting 6-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

for a resolution. If the employee sees a problem, then they do something about it now. For one instructor, the impact of this empowerment became evident from the following experience at a Home Depot. The instructor went there looking for an air compressor (for pumping up tires on the cars and the motorcycles). The compressor that the instructor wanted was out of stock. The Home Depot associate that was working with the instructor informed the instructor that there were supplies in another Home Depot store located clear across town. When the instructor told the associate that this was too much of a bother, the associate informed that they could reduce the price by $xx. When asked if this would cause a problem with their superior, the instructor was informed – no, anything to keep the customer happy. The instructor bought the compressor and walked out of the Home Depot with a better product and with a new respect for Home Depot. Students can easily come up with problem stories. 3. You have been appointed head of quality control for your organization (a firm you have worked at or your college). During the first month, you interview disciples of Deming, Juran, and Crosby. Each seems to be equally affable and competent. Which consultant would you hire for your organization? Why? To address this question, have the student turn to Table 6-3. The strengths of each consultant are clearly laid out there. However, in reviewing these three disciples, we often find that the Deming disciple is most attractive. Why? Because of the focus on the customer and the holistic view of quality. These views often appeal to top management and to the rest of the firm. 4. It has been said that quality management is really a “people” system, more than a technical system. If this is true, what conditions must first be in place for a firm to be 6-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

successful with quality management? What are the possible repercussions for the firm if the employees aren’t committed to the quality management program? What this question gets at is the importance of people to TQM. For TQM to work, the people involved in the system must believe in it and they must be ready to support. Consequently, for TQM to work and to involve the people, the following conditions must be present: •

Understanding – the people must understand the goals, tools, and philosophy of TQM.

•

Adequate resources – there must be sufficient resources so that the people can do the things necessary to have TQM succeed.

•

Trust – between top management and the people charged with delivering TQM.

•

Authority/responsibility – the people charged with delivering TQM to the customers must have not only the responsibility but also the authority to make those decisions consistent with TQM goals and objectives.

•

Total management support – everyone, including top management, must be committed visibly to TQM.

•

Adequate training/education – in the use of the tools of TQM.

•

Appropriate reward/punishment – rewards for actions that are consistent with TQM and punishment or correction when inappropriate actions are time.

•

Patience – it takes time for a system to change; management must be willing to give people the time needed.

If these actions are not taken, then we can create conditions hindering the deployment of TQM. We can find ourselves in a position where people give lip service to TQM but are not willing to 6-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

take the actions necessary to make TQM work. This causes frustration and confusion throughout the system – frustration that is felt at the customer, employee, top management, and ultimately at the bottom-line. 5. The chapter noted that digital technologies are giving firms and their consumers increased visibility into the supply chain and its activities. Would this visibility be important to you? Why? Would you be willing to change your shopping habits in response to such visibility (i.e., pay more or change where you shop)? Why? Student’s perspectives on the value of visibility will vary across students and across product and service types. For example, many consumers share growing concerns about the provenance of food items and other products that have direct effects on health and safety. Consumers may be less concerned about other products affecting their personal well-being. However, there appears to be a growing interest in the well-being of workers, animals, and communities who are involved in supply chains. Interestingly, research provides little evidence that consumers are actually willing to pay more for visibility into the supply chains of items that they do not perceive to have direct effects on their health and safety. Questions also arise regarding the veracity of the visibility information provided to consumers, e.g., “organically” grown produce or “sustainably” raised protein items. 6. As noted in the previous question, visibility (especially across the supply chain) is becoming increasingly more important. However, is visibility enough? What other conditions have to exist for any firm to be able to use this visibility to improve overall quality? Visibility is important because it enables managers to identify potential problems in advance. 6-4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

However, to act on these problems requires the involvement of the suppliers. The suppliers must be willing to share the information with the firm. This means that the firm must develop and maintain good buyer-supplier relationships with its suppliers. Such relationships lead to trust and mutual respect. It also leads to a situation where the suppliers are willing to act on behalf of the buying organization. 7. Prevention is preferred to savings. Why? If prevention is preferred to savings, why is so difficult for many firms to effectively implement systems focusing on prevention rather than on savings? The answer can be traced to the performance measurements. When we save costs, we are taking a bad decision and improving on it. We can measure the current state and the new, improved state. The improvements can be quantitatively measured and reported. It is easier to justify such investments. The same is not the case with prevention. It is difficult to measure and evaluate the resulting improvements. Therefore, it is more difficult to justify such investments. 8. Supply chain visibility often involves the usage of three seemingly similar terms visibility, traceability, and transparency. Do they have the same meaning? Why are these three concepts so important when it comes to quality, especially in the supply chain? Let’s begin by noting that these three concepts are not the same. Visibility involves how far into the supply chain can the firm and its management see activities (e.g., how many tiers). Traceability deals with the ability of the firm or the operations manager to track items (e.g., orders) and their progress through the system. It also denotes that the firm can identify specific items and locate them (excellent for product/component recalls). Transparency deals with the 6-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

ability of the firm to determine whether what the people within the system say that they are doing is consistent with what they are actually doing. All three concepts are critical when dealing with quality. Visibility helps to identify potential problems early on within the supply chain; traceability helps us to identify potential defective items and to withdraw them before they can create problems; transparency ensures that what we expect (based on what the people either within our firm or at our suppliers have told us) is actually what is being done. When one or more of these three concepts is missing, our ability to attain and maintain quality is severely hindered.

Problem Solutions 1. Allocate activity to various categories of cost: a. Total Appraisal Cost = $323,000 (Incoming materials inspection) + $450,000 (Quality Assurance) + $372,000 (Product testing and inspection) = $1,145,000 b. Total Prevention Cost = $205,000 (Equipment Maintenance) + $310,000 (Product Redesign) +$250,000 (Training) + $75,000 (Travel to suppliers/ process certification) + $120,000 (Process Improvement/Kaizen) = $960,000. c. Total Cost of Internal Failures = $230,000 (Material Scrap) + $426,000 (Rework labor) = $656,000 d. Total Cost of External Failures = $550,000 (Product warranty and repair) + $150,000 (After sales customer support) + $80,000 (Travel to customers/problem solving) = $780,000. e. Total Cost = 3,541,000 2. 10 degree range/12 = .833 Therefore oven can only have variation of .83 degrees to achieve Six Sigma level of quality 3. a. Standard deviation in temperature of oven would be 10/6 = 1.67 degrees for Three Sigma level of quality. b. 66,810/1,000,000 = 0.06681 or 6.681% of the time (66,810 comes from Table 6-5.) 4. 6-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

a. 20/12 = 1.66 minutes variation in drop off time in order to maintain 20-minute window at Six Sigma level of quality. b. 3.4 times in a million will the bus arrive either late or early (outside of the 20-minute window) Aqua-Fun Case – Teaching Note This case provides an opportunity for the class to discuss more of the specifics in how quality improvement programs might be financially justified and executed. The objectives of this case are: 1. Reinforce the need for quality improvement programs (like Six Sigma) to require the buy-in and involvement of many functions in the firm (not just operations). 2. Provide experience in wrestling through ambiguities about what activities should and should not be included in a COQ analysis. 3. Give the student a simple example of how investments in quality improvement programs might be justified. Questions 1. Review the COQ Analysis. Should marketing research and other similar cost categories be included? What other cost categories should be included? Where should Roberta go to get estimates for these other costs? Who else might need to be involved? There is no absolute correct answer to this question – it is designed to get the student thinking about how marketing and product design decisions affect customers’ expectations and perceptions of quality. To at least some extent, one could argue that marketing research efforts serve to better define the critical-to-quality attributes for Aqua-Fun’s products. For example, research that defines the functional requirements for a product (e.g., reliability, durability, 6-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

aesthetics) will have large impacts on the operations group’s abilities to deliver consistent levels of quality. Perhaps Roberta could suggest that at least the portion of marketing research budget that is aimed at defining product characteristics should be counted toward the cost of quality. The other categories that have ???? entries can be discussed at the instructor’s discretion. The case can usually be made pretty easily that items such as quality planning, supplier qualification, and source inspection should be included in the COQ. Other items such as other prevention costs, miscellaneous evaluations, and extra operations prompt the student to think beyond the categories that are already defined. For example, the instructor might ask students to think about extra operations and resources that are needed to manage the disruptions and congestion that can result from quality failures. Some of the ???? items are there because the costs may be difficult to estimate. For example, what is the real cost of downgraded product ratings, or lost sales? The instructor should make the point that, though it is difficult to assign accurate values to these categories, some best guess should be included. Many times top managers are willing to be quite liberal with these guesses, or they are quite conservative, depending on how badly they want a quality improvement program to be justified. 2. If Aqua-Fun implements Six Sigma, what costs might be expected to go up, at least in the short term? What costs should be expected to go down? Can this program be financially justified? How? One would certainly expect prevention and appraisal costs to go up in the short term, as most of the program investments would be in these areas. The instructor should consider reinforcing the core value that prevention is better than cure – a belief that every dollar invested in prevention will return more than one dollar (hopefully much more) in appraisal and failure 6-8 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

costs. Consequently, we would expect to see failure costs go down fairly rapidly. A simple way to discuss financial justification of the program would be to take the costs and benefits given in the case and compute a simple payback period. Generally, anything less than a 2 year payback is considered a good investment (though this varies of course depending on the cost of capital and alternative opportunities in a given firm). If we take the conservative estimate of the COQ given in the case, $37,453,000 and estimate a 10% yearly reduction (the most conservative case), this yields a cost savings of $3,745,300 per year. The investment required (training) can be estimated conservatively as: $30, 000 per green belt ´ 75%´ 650 employees = $14, 625, 000 $50, 000 per green belt ´ 5%´ 650 employees = $1, 625, 000

Total training cost = $16, 250, 000

The most conservative payback estimate would then be: Payback = $16, 250, 000 / $3, 745,300 = 4.3 years

If we use the highest return and lowest cost estimates: Cost savings = 20% ×$37,453,000 = $7,490,600 $20, 000 per green belt ´ 50% ´ 650 employees = $6,500, 000 $40, 000 per green belt ´ 2%´ 650 employees = $520, 000 Total training cost = $7, 020, 000

The best case (most liberal) payback estimate would then be: Payback = $7, 020, 000 / $7, 490, 600 = 0.9 years

So the most likely case is probably somewhere between these two estimates. But remember that we have not included all the missing costs in the COQ analysis. It is therefore likely that a 6-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

rigorous analysis would yield a payback of less than 2 years. Given an assumed training cost, the instructor might want to ask students to calculate what the costs of quality savings would need to be in order to meet a 2 year payback, and then ask, would expecting this level of savings be reasonable if we consider some of the missing items in the COQ table. 3. Thinking about the core values of quality management, what factors should Roberta encourage the management team to consider as they design a Six Sigma implementation? This is an opportunity to discuss the meaning behind the core values identified in the chapter, including: •

Holistic view of “total” product quality

•

Focus on customers’ definitions of quality

•

Systems view that includes suppliers

•

Top management commitment and buy-in

•

Problem solving at the operational levels / empowerment

•

Prevention being better than cure

•

Importance of data, measurement, and managing by fact (not opinion)

•

Continuous improvement

•

Principles of the top management gurus captured in Table 6-3

A Comment on Management Attitude Case – Teaching Note This case typically works well with students. It teaches TQM at multiple levels and it does so in a setting with which most students are familiar – the hotel. 6-10 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 06 - Managing Quality

1. To address the first question of “How would you rate Dinsmore’s hotel? What evidence would you provide to support your position? What is quality when it comes to a hotel? Here, we can look at issues such as cleanliness, services, extent to which the staff helps you and anticipates your needs, breadth of services, a good restaurant, a business center, and no surprises. Who is the critical customer for a hotel such as the one run by Dinsmore? For such hotels, the critical customer tends to be the business traveler. There are several reasons – frequency of visits, length of visits, and they are not price sensitive (since their companies are paying for the costs of the hotel). Why is it important that hotels targeting such customers recognize the importance of quality? There are many replacements for a hotel that fails to perform well. If you don’t perform, then the traveler will go to another hotel located close to you. In other words, failure to deliver is an order loser. 2. To what extent is Dinsmore’s hotel a quality establishment? The best approach here is to list the various problems and frustrations encountered by the author beginning with the arrival. It is important that the students understand that these are examples of moments of truth – events that affect how the customer perceives the company: •

The doorman will not help the author go from his car to the lobby; informs the author that he could only leave the car for 10 minutes before it was towed.

Chapter 06 - Managing Quality

•

Author retrieves luggage without any help from the doorman (except for him lending the author an umbrella).

•

No one seems to great the author when he gets to the desk (they were talking with each other).

•

No one can find his reservation (that’s okay because there are lots of extra rooms).

•

Takes three rings before a bellhop comes to help

•

Room was not made up.

•

Dinsmore’s office is cluttered.

•

One of the elevators was not working.

•

Secretary refers to Dinsmore as Elmer (shows unacceptable informality).

•

Read book while author waits.

•

Offers coffee with the warning that the hotel coffee was bad.

•

No sympathy for the fact that the author was wet because the room was not made up.

•

Dinsmore poorly dressed.

•

Magazine/newspaper stand – poor.

3. What do you think of Dinsmore’s handling of the dispute involving the vacuum cleaners? •

Dinsmore did everything wrong:

•

He jumps into the discussion without having all of the facts.

•

He overrides the authority of his head housekeeper. 6-12

Chapter 06 - Managing Quality

•

His solution attempts the symptom (the lack of vacuum cleaners), not the root cause (hallways are not clean).

4. What would you recommend to Dinsmore about the manager of the restaurant? •

Keep him; the restaurant is the only part of the hotel that is doing a great job.

5. If you were hired as a consultant by the owners of this hotel, what would you do? Why? •

Before making any recommendations, make sure you really understand why Dinsmore did what he did. For example, if Dinsmore was told to reduce costs, then his actions make sense.

•

List the observations regarding the poor quality of the hotel.

•

Recommend that a new manager be brought in. Even if Dinsmore is not to blame, he is still responsible for what is going on in the hotel. He must be fired to signal to everyone within the hotel that a significant change is now taking place.

•

A total plan for improving quality at the hotel must be developed and implemented.

Chapter 06 – Supplement: Quality Improvement Tools

Chapter 6 Supplement Quality Improvement Tools Problem Solutions 1. The time students entered the class room of OM 390, Introductory Operations Management, was recorded by the professor in the table below for 5 class meetings. Create and analyze a histogram of this data. Minutes arrival before class

Class 1

Class 2

Class 3

Class 4

Class 5

(class starts at time 0) 15

−1

−2

−3

−4

−5

−6

−7

−8

−9

−10

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Answer:

2. Using the data from the preceding question, the instructor in charge of these five classes strongly feels that the arrival patterns are strongly influenced by the class (i.e., the arrival rates vary by class). Does the data support this position (hint: look at the histograms for each class separately)? In reviewing this data, consider whether the error terms are equally important. That is, which creates greater problems for the class and the instructor - arriving early or arriving late - and why? Let’s first group the data: A table has 7 rows and 5 columns. The columns are labeled class 1, class 2, class 3, class 4, and class 5. The rows are labeled 010-020, 008-009, 006-007, 004-005, 002-003, 000-001, and less than 00. The text below reads, now, let's look at the five classes.

Chapter 06 – Supplement: Quality Improvement Tools

Now, let’s look at the five classes. Histogram Class 1

Class 2 Histogram

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Class 3 Histogram

Class 4 Histogram

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Class 5 - Histogram

If we look at the histograms, we do see very different behavior especially between Class 5 and the rest. This should be explored in greater detail which is what we will do in the next question.

Chapter 06 – Supplement: Quality Improvement Tools

3. Using the data from question 1, you have been asked to develop an overall cause and effect chart explaining why students arrived so early? The variance is the difference in arrival times and why it is so important. From here, we can identify the following factors: •

Student schedules

•

Location of the classes (distance between classes)

•

Time of day when the class took place

•

Personal habits of the student

•

How the students use the early arrival time (e.g., to finish up homework, to meet with class mates, review class material)

•

Availability of class prior to the start

4. The injection molded caps of disposable ball point pens must met tight specifications to fit snugly on the pen. One specification that is tracked is the cap’s weight, which should be 0.2 g. A sample of 100 pens is taken each day. Make a histogram of the data for one day’s production, given the data in the table below. Weights of molded caps in grams 0.225 0.190 0.210 0.161 0.159 0.161 0.163 0.200 0.214 0.216

0.243 0.186 0.210 0.171 0.229 0.193 0.196 0.207 0.233 0.160

0.239 0.203 0.185 0.208 0.173 0.165 0.181 0.225 0.194 0.210

0.231 0.230 0.225 0.208 0.228 0.154 0.197 0.162 0.181 0.222

0.228 0.228 0.204 0.170 0.184 0.192 0.248 0.229 0.208 0.157

0.215 0.180 0.152 0.204 0.223 0.214 0.238 0.151 0.249 0.174

0.161 0.230 0.245 0.250 0.240 0.189 0.205 0.224 0.220 0.173

0.161 0.194 0.231 0.178 0.193 0.208 0.207 0.169 0.197 0.240

0.207 0.243 0.152 0.205 0.170 0.227 0.244 0.220 0.204 0.203

0.177 0.177 0.150 0.236 0.241 0.169 0.208 0.182 0.247 0.247

Chapter 06 – Supplement: Quality Improvement Tools

The specification for the weight of a box of cereal is 16.2 oz  .1 oz. The actual mean and standard deviation from a sample of 200 boxes is 16.1 oz and 0.05 oz respectively. What are the C p and Cpk ?

S=.2, P = 6*.05 = .3 Cp = S / P = .2 / .3 = .667 K = abs[D − X] / (s / 2) = abs | 16.1 − 16.2 | /(S / 2) = .1 / .1 = 1

Cpk = (1 − K)Cp = (1 − 1)·667 = 0.0

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A professor who teaches the Introduction to Management course has noticed that 20 percent of the students in her sections receive a grade lower than 2.0 on a 4.0 scale. This is the first management course that any of these students have taken. The text for the course is a standard survey text, which is used at many other colleges and universities. All of the students in the class are first semester junior, business students. The students work in teams to manage a simulated factory. As part of this they must use a computer spreadsheet to do simple income statements, balance sheets and cash flow problem. Prepare a cause-and-effect diagram to analyze the problem of ‘why do students in OM 301 receive low grades?’ For the main branches of the CED, use the titles of student, books, faculty, and equipment.

Create a check sheet to organize the data given in problem 1 above.

To address this question, we would focus on how to organize the check sheet and its categories. To so, let’s consider the following structure: 6S-8 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Issues

OM 301 Sect 1

OM 301 Sect 2

OM 301 Sect 3

OM 301 Sect 4

OM 301 Sect 5

Total

Student – not enough preparation Student – wrong material studied Student – lack of ability Student – failure to come to class Student – distractions Book – poor presentation of material Book – not appropriate for class Book – not enough practice material Faculty – poor presentation of material Faculty – course expectations not clearly presented Faculty – exams set not consistent with what is taught Faculty – too much covered Faculty – Pace of instruction too fast.

Chapter 06 – Supplement: Quality Improvement Tools

Equipment – adequate equipment not available Equipment – wrong equipment present Equipment – confusion over what equipment to use. ANOTHER APPROACH TO ADDRESSING THIS QUESTION: This can be a complex exercise UNLESS YOU REALIZE THAT THE ONLY OUTCOME THAT MATTERS INVOLVES LATE ARRIVALS. A late arrival is often disruptive because they interpret the flow of the class. Consequently, one way of developing this checksheet is to focus on two categories – on-time arrivals (students arrive either on time or early) and late students (students who arrive late). Using this approach, we can generate a very simple checksheet:

Category

Number of Students (% in brackets)

On-Time

148 (96.7%)

Late

3 (2.0)

Really Late

2 (1.3)

Now, it is clear that we have two students that are really late. We should examine this in greater detail to see if this is a systematic problem or if it is random. That requires more study. 8.

Create a check sheet to analyze the data in problem 2 above.

The answer can be found in the prior question ANOTHER APPROACH TO ADDRESSING THIS QUESTION: Here we repeat the approach previously described: Category

Section 1

Section 2

Section 3

Section 4

Section 5

On-time

31 (100)

29 (96.7)

21 (95.5)

29 (94)

30 (97)

Late

0 (0)

1 (3.3)

0 (0)

1 (3)

Really Late

0 (0)

1 (4.5)

1 (3)

0 (0)

Now, it is clear that our focus should be on sections 4 (with 2 late arrivals), section 3 (1 very late), and sections 5 and 2 (1 late each)

Chapter 06 – Supplement: Quality Improvement Tools

In an apparel factory, every time a sewing machine breaks, the symptom is recorded. In the past 30 days, all of the sewing machine breakdowns were recorded in the table below. Create a check sheet to organize and analyze this data.

Day

Machine Number Reason for breakdown 1 217Dull knife 1 145Skip stitch 1 193Stuck pedal 1 187Skip stitch 1 234Breaking needles 2 165Air pressure low 2 192Breaking needles 2 217Thread breaks 2 217Skip stitch 2 165Skip stitch 2 181Breaking needles 2 201Dull knife 2 172Breaking needles 2 195Stuck pedal 3 187Skip stitch 3 234Breaking needles 3 165Air pressure low 3 192Breaking needles 3 151Skip stitch 4 187Skip stitch 4 234Breaking needles 5 195Stuck pedal 5 187Skip stitch 6 165Air pressure low

Day

Machine Number Reason for breakdown 6 192Breaking needles 6 165Other 6 192Breaking needles 6 217Thread breaks 6 217Skip stitch 7 165Skip stitch 7 195Stuck pedal 7 187Skip stitch 7 234Breaking needles 7 165Air pressure low 8 192Other 8 234Breaking needles 8 165Air pressure low 9 192Breaking needles 9 217Thread breaks 9 151Other 9 187Skip stitch 9 234Breaking needles 9 151Breaking needles 10 234Skip stitch 10 165Air pressure low 10 192Breaking needles 10 187Skip stitch 10 131Other

Check sheet with the focus on machines

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Machine 131 145 151 165 172 181 187 192 193 195 201 217 234

Number of Incidents X X XXX XXXXXXXXX X X XXXXXXX XXXXXXX X XXX X XXXXXX XXXXXXX

Total 1 1 3 9 1 1 7 7 1 3 1 6 7

With this analysis, we can see that most of the problems take place 165, 187, 187, 217 and 234.

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Check sheet with the focus Dull Knife

131 145 151 165

Skip Stitch

Stuck Pedal

Breaking Needles

Air Pressure Low

Thread Breaks

Other

x x x xx

172 181 187

x x

xxxxx x x x

xxxx xxx

192

xxxxx x

193 195 201 217 234

x xxx x x

xx x

xxx xxxxx x

Here, we see a very different picture – a richer picture. We can see that for 165, the problems are caused by primarily Air Pressure Low; 187 – skip stitch; 192 – Breaking Needles; 234 – Breaking Needles. We now have a better idea of where to look. 10.

The quality inspectors at Windows Inc. visually inspect each sheet of 4 foot x 8 foot glass when it is through with the annealing process. They record all of the defects onto a form. The defects that have been found this week are given in the table below. Use this data to create a location check sheet.

Corner Body Left upper center Left upper Right lower left of center Left upper Left upper Left lower

Defect chipped corner indentation chipped corner scratch bump chipped corner chipped corner scratch

Corner Left upper Right upper Right lower

Body center chipped corner right of center

Left upper Left lower Left upper

Defect scratch chipped corner scratch indentation chipped corner scratch crack

Answer:

Chapter 06 – Supplement: Quality Improvement Tools

First, let’s assign codes to the various defects: Chipped Corner Indentation Bump Crack Scratch

C I B R S

Next, the location check sheet: CCCCCCCR

C B

At this point, it is evident where most of the problems are occurring and the nature of the problems. 11.

Use the data in problem 9 to create a Pareto diagram.

Breaking Needles Skip Stitch Air Pressure Low Stuck Pedal Other Thread Breaks

15 14 6 4 4 3

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12.

Use the data in problem 10 to create a Pareto diagram. Chipped Corner Scratch Indentation Bump

13.

8 5 2 1

For the following check sheet, assume that o indicates a surface scratch, x a blowhole, D a defective finish, * improper shape and ? others. How would you go about analyzing the following check sheet? Worker

March 1 March 2

1 2

Mon AM oox* oxx*

Mon PM ox oooxx*

Tue AM oxx oooooxx

Tue PM oooxxxo oooxx

Wed AM oooooxxxo ooooooxx*

Wed PM ooxx ooooox*

Thur AM oooo ooooxx

Thur PM oxx ooox**

Fri AM Oo Ooxx*

Fri PM oDxx ooooo

Mon AM oox* oxx*

Mon PM ox oooxx*

Tue AM oxx oooooxx

Tue PM oooxxxo oooxx

Wed AM oooooxxxo ooooooxx*

Wed PM ooxx ooooox*

Thur AM oooo ooooxx

Thur PM oxx ooox**

Fri AM Oo Ooxx*

Fri PM oDxx ooooo

Wed AM oooooo oooooo

Wed PM oo ooooo

Thur AM oooo oooo

Thur PM o ooo

Fri AM o o

Fri PM o ooooo

Answer: Original Data Worker March 1 March 2

1 2

Let’s begin by separating out the defects Worker March 1 March 2

1 2

Mon AM oo o

Mon PM o ooo

Tue AM o ooooo

Tue PM oooo ooo

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What we see here is that March 1 generated 24 surface scratches while March 2 generated 30 scratches. The check sheet also indicates some interesting patterns. For March 2, the problems seem to be persistent, beginning after Monday AM. In contrast, the problems with March 1 began Tuesday PM and ended Thursday AM. So, this would lead us to investigate what happened during this time period. Next, let’s focus on blowholes (x) Worker

Mon

Tue

Wed

Thur

Fri

March 1

xxx

March 2

xx x

xx xx

For blowholes, Mach 1 generated 16 defects and March 2 generated 15 defects. Repeat the analysis for D or defective finishes. Worker

March 1

March 2

Mon

Tue

Wed

Thur

Fri

PM D

March 1 generated only 1 D; March 2 – generated 0. Repeat the Analysis for * or improper shapes. Worker

Mon

Tue

Wed

Thur

Fri

March 1

March 2

March 1 – 1; March 2 – 7 Pareto Analysis Surface scratch Blowhole Improper shape Defective finish Other

61 32 8 1 0

Chapter 06 – Supplement: Quality Improvement Tools

By focusing on surface scratches and blowholes, we have 86 defects or about 91 percent ( 86 / 95 * 100 ) of the problems.

Chapter 06 – Supplement: Quality Improvement Tools

Is stratification of the data important? Yes – if you look at the first and second check sheets, you see that there are differences by both machine and by time period. Without stratification, these differences and factors would be overlooked.

14.

Construct an X bar-R Chart for the following data set.

Sub group No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

6:00 14.0 13.2 13.5 13.9 13.0 13.7 13.9 13.4 14.4 13.3 13.3 13.6 13.4 13.9 14.2 13.6 14.0 13.1 14.6 13.9 13.3 13.9 13.2 13.2 13.3

10:00 12.6 13.3 12.8 12.4 13.0 12.0 12.1 13.6 12.4 12.4 12.8 12.5 13.3 13.1 12.7 12.6 13.2 12.9 13.7 13.0 12.7 12.4 12.3 12.8 12.8

14:00 13.2 12.7 13.0 13.3 12.1 12.5 12.7 13.0 12.2 12.6 13.0 13.3 12.0 13.5 12.9 12.4 12.4 13.5 13.4 13.0 12.6 12.7 12.6 12.8 12.0

18:00 13.1 13.4 12.8 13.1 12.2 12.4 13.4 12.4 12.4 12.9 13.0 13.5 13.0 12.6 12.9 12.5 13.0 12.3 12.2 13.2 12.8 12.4 13.1 12.3 12.3

22:00 12.1 12.1 12.4 13.2 13.3 12.4 13.0 13.5 12.5 12.8 13.1 12.8 13.1 12.8 12.5 12.2 13.0 12.8 12.5 12.6 12.7 12.8 12.7 12.6 12.2  of x Grand Mean ( x )

x bar 13.00 12.94 12.90 13.18 2.72 12.60 13.02 13.18 12.78 12.80 13.04 13.14 12.96 13.18 13.04 12.66 13.12 12.92 13.28 13.14 12.82 12.84 12.78 12.74 12.72 323.50 12.94

R 1.9 1.3 1.1` 1.5 1.2 1.7 1.8 1.2 2.2 0.9 0.5 1.1 1.4 1.3 1.7 1.4 1.6 1.2 2.4 1.3 0.7 1.5 0.9 0.9 1.1 33.8 1.35

For this problem, we use the information provided in the chapter:

Chapter 06 – Supplement: Quality Improvement Tools

Data Points Central line Lower control limit (LCL) Upper control limit (UCL) 15.

Xbar chart

Rbar chart

12.94 12.94 − .58*1.35=12.16 12.94+ .58*1.35=13.72

1.35 0 2.12*1.35=2.86

You are responsible for managing a process that manufactures electronic capacitors. This process has experienced an unacceptable level of rejects. Consequently, you asked that the people responsible for the process that manufactures these products collect data regarding to defects and the reason for these defects. This information has been collected in the following table (assume that the data are representative).

Observation

Reject Cause

Observation

Reject Cause

Observation

Reject Cause

Corrosion

Oxide defect

Contamination

Oxide defect

Misc

Oxide defect

Contamination

Metallization

Oxide defect

Contamination

Oxide Defect

Contamination

Corrosion

Silicon Defect

Misc

Contamination

Misc

Doping

Oxide defect

Metallization

Contamination

Oxide defect

Contamination

What conclusions can draw from this data? What techniques would you use? How would you manage the data?

16.

As a result of a Six Sigma exercise, the process described in the preceding question has been modified. Data have been again collected and summarized in the following table. To what extent have the improvements introduced by the process modification been successful in improving the process?

Chapter 06 – Supplement: Quality Improvement Tools

Failure Cause

Number Observed

Doping

Corrosion

Metallization

Misc

Oxide defect

Contamination

Silicon defect

For this table, we would construct a Pareto Chart with the following information: Reject Cause Contamination Oxide Defect Misc Corrosion Metallization Doping Silicon Defect

Number 15 9 3 2 2 1 1

We now know to focus on contamination and oxide defect. Tools to use here include: • •

Cause and effect analysis Checksheets

We have some interesting results: • • • •

Number of defects decreased from 33 to 19 Significant decrease in Oxide Defects (from 10 → 1) Significant decrease in Contamination (from 14 → 8) Increases in Silicon Defects and metallization

Chapter 06 – Supplement: Quality Improvement Tools

17.

Big Turkey Burger Farms (BTBF) produces a large turkey burger that is world famous. This burger is known not only for its quality, but also its size and consistency. They produce a turkey burger that on average is 12 ounces large (with a standard deviation of 0.10 ounces). Currently, it has been approached by two major restaurant chains: Monarch Burgers and Audrey’s. 1. Monarch wants a turkey burger that is between 11.77 to 12.23 ounces. i. For this supplier, calculate the Cp.

S = 12.23 − 11.77 = 0.46 P = Std Devn * 6 = 0.10 * 6 = 0.60 Cp = S / P = 0.46 / 0.60 = 0.767

ii. Calculate the Cpk value. K = abs | D − X | /(S / 2) = abs | 12 − 12 | /(.46 / 2) = 0

Cpk = (1 − K)* Cp = (1 − 0)* .767 = 0.767

iii. How well would BTBF’s products meet the demands of Monarch Burgers? Given that Cp/Cpk <1, the answer is BTBF’s would not satisfy the demands of Monarch Burgers. 2. Audrey’s, in contrast, wants a turkey burger that is 11.95 ounces on average with a tolerance of 0.30 ounces. i. For this supplier, calculate the Cp.

Chapter 06 – Supplement: Quality Improvement Tools

P (from the previous question) = 0.60 S = 0.60 Cp = S / P = 0.6 / 0.6 = 1.0

ii.

Calculate the Cpk value.

K = abs | D − X | /(S / 2) = abs | 11.95 − 12 | /(0.6 / 2) = .05 / .3 = 0.167

Cpk = (1 − K)* Cp = (1 − 0.167)*1.0 = 0.833*1 = 0.833

iii.

How well would BTBF’s products meet the demands of Audrey’s?

Again, note that for Cp, we meet Audrey’s requirements but just barely. Yet, for Cpk, we do not meet the requirements since Cpk<1.0. 3. If BTBF had a choice of restaurant chains to serve (it can only pick one), which one should it select? Why? If we focus on the Cpk, then we would rather go with Audrey. However, since the Cpk for Audrey and Monarch are very close, we might want to go with Monarch since the mean of their specifications and the mean of our process are equal. This means that if we can improve the performance of our process, then we can go a better job in terms of performance.

Chapter 06 – Supplement: Quality Improvement Tools

18.

In an article in Quality Engineering, a research article presented individual measurement data on sand compactibility, as follows:

For these data, the author reported that the lower and upper specifications for sand compactability are 38 and 46, respectively. Use this information to calculate the Cp and Cpk values. Answer: S=46−38=8 for the process is 41.84 Std deviation = 1.84 S = 6*1.84=11.04 Cp = S / P = 8 / 11.04 = .725 K = abs[D − X] / (s / 2) = abs | 42 − 41.84 | /(8 / 2) = .16 / 4 = 0.04

Cpk = (1 − K)* Cp = (1 − 0.04)* .725 = .696

Chapter 06 – Supplement: Quality Improvement Tools

19.

Calculate the Cp and Cpk for a process characterized by the following data: Production specifications: 1.00 + / − 0.08 cm Process standard deviation: 0.005 cm Process distribution centered at 0.95 cm.

S = 0.08*2 = 0.16 P = 0.005*6 = 0.030 Cp = S / P = 0.16 / 0.03 = 5.333 K = abs | D − X  bar | /(S / 2) =| 1 − .95∣ /0.08 = 0.05 / 0.08 = 0.625

Cpk = (1 − 0.625)* Cp = .375* 5.333 = 2.0

Chapter 06 – Supplement: Quality Improvement Tools

20.

Suppose that you collect data for 15 samples of 30 units each and find that, on average, 2.5 percent of the products are defective. What are the UCL and LCL for this process?

The first thing to realize is that we are dealing with a NP chart analysis. Using the formulae for this type of chart, we find the following: p = 0.025 UCL = p + 3*((p*(1−p))^1/2 = 0.025+ 3*(.025*(1−.025))^1/2 = 0.111 LCL = p − 3*((p*(1−p))^1/2 = 0.75 − 3*(.025*(1−.025))^1/2 = 0.0

Chapter 06 – Supplement: Quality Improvement Tools

21.

Peerless Windows is a major manufacturer and installer of windows into new homes. Currently, management has found that it has experienced a large number (about 15 percent of all orders placed) of customer claims against Peerless. These customers, often builders, are claiming that they are receiving shipments of windows that are built to the wrong specifications. Correcting these errors has cost Peerless a great deal in terms of time, resources, and disrupted schedules. To determine if the order entry process is at fault, management has collected orders from the last two years. For each month, 100 orders were withdrawn and reviewed. The results are summarized in the table below. Past experience with this product has resulted in the mean defect rate being 7.5 with the LCL being 0 and the UCL being 15. As an analyst, you have been asked to review the order entry process with the goal of assessing whether this process is causing the problems.

Chapter 06 – Supplement: Quality Improvement Tools

Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Number of Orders Reviewed 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Number of Orders with Errors 11 10 6 14 8 10 9 12 2 14 18 7 12 12 14 13 11 10 8 6 19 17 25 24

This is a relatively simple graphing exercise where we use this data to generate a Np chart where we plot the third column (the number of orders with errors) against the LCL (0.0), the UCL (15), and the = 7.5. This is done in the graph below:

Chapter 06 – Supplement: Quality Improvement Tools

As we can see from this graph, the process is out of control and something must done immediately to bring it under control.

Chapter 06 – Supplement: Quality Improvement Tools

22.

You are concerned about the quality of parts that you are receiving from your supplier. Consequently, you decide to take 25 batches of samples (where each sample consists of 50 units) and to do 100 percent inspection on these samples. The results are summarized below.

Batch number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Totals

Defectives 5 6 5 6 3 3 6 5 3 5 5 7 8 10 10 6 5 4 5 5 6 5 6 3 4 136

Sample size (n=50) 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 1250

This forms the basis for the initial analysis. Next, you collect information about 20 recent orders that you have received from your supplier in the last month. By the way, it is important to note that your supplier is aware that your firm is concerned about the quality of its parts. These are summarized below: Sample Data – June 13

Chapter 06 – Supplement: Quality Improvement Tools

Sample Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Sample size

Number of Defects

50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50

3 2 3 4 1 2 4 3 1 1 2 2 3 1 3 3 4 5 5 5

a) Given the information in this problem, calculate the , UCL, and LCL from the base line data. Plot these as an Np control attribute chart. b) Plot the data from the recent samples using the Np chart derived in (a). What concerns, if any, does this analysis reveal? What management actions would you recommend and why? c) You receive a telephone call from your supplier informing you that they (the supplier) have significantly changed the production process for your orders at their facility? How would this affect the previous analysis (Np control attribute chart)? a. This is a straight forward exercise in Np chart calculations: Np = 10.88

UCL = Np +3* Np :(1 − p) = 20.22

LCL = Np − 3* Np *(1 − p) =1.54 If we were to plot these, we would get the following Np control chart.

Chapter 06 – Supplement: Quality Improvement Tools

B. Plot the sample data from June 13. Using the previously derived chart as the template, we would plot the sample data taken from June 13. The following would be the resulting Np chart.

As a manager, I would be faced by an unusual problem – there is strong evidence that the supplier’s process is generating significantly fewer errors than we expected. It is out of control but in a good way. c. You receive a telephone call from your supplier informing you that they have significantly changed their production process. What impact would this have on the analysis?

Chapter 06 – Supplement: Quality Improvement Tools

The answer is that since the production process has been significantly changed, this would cause us to throw out the old data using in the Np chart calculation and generate a new Np chart. When the process is changed, the old data is no longer applicable. 23.

A store is concerned with the number of late shipment that it generates each day. Consequently, it decided to track the number for the last seven days. The data are summarized in the list below:

a. Calculate the LCL and UCL for this data.

24.

Using the control chart developed in the previous problem, plot the following data received from the store for a 10-day period. What insights for management do you have based on your analysis?

If you do this, then you get the following chart.

If you look at this data, then you see that, while the process is under control, there is a definite upward trend present. This is a definite condition for management intervention because, unless something is done, the process will eventually get out of control.

Chapter 06 – Supplement: Quality Improvement Tools

25.

Management is concerned about the operation of its 123XYZ work center. From past studies, it knows that x-bar is 12.14, the LCL is 11.74 and the UCL is 12.54. The following data were collected for a 20 day period. (where each observation is the mean for the processing times for that day): a. Plot and analyze the resulting data:

B. What can you say about the process? Is it under control? Is there anything that bothers you about the process? The process, while under control, seems to be “hugging” the process mean. This is something that we would not expect. It would seem to point strongly to the presence of intervention – maybe the employees adjust the operations so that the process mean is meant. This is not desirable because it masks what is happening in the system. 26.

Chapter 6 introduced the case, “A Comment on Management Attitude.” Review that case from a Moment of Truth perspective. What are the key takeaways for you when this approach is applied? What recommendations would you make to the owners of Dinsmore’s hotel based on this analysis?

Here, the key is to apply the tool. Several issues become clear from the application of this tool:

Chapter 06 – Supplement: Quality Improvement Tools

•

• • •

There are many moments of truth present in the case (e.g., driving up to the hotel, waiting at the desk, the check-in with the lost reservation, the condition of the lobby, the trays in the hallways, the attitude of Dinsmore’s secretary, the condition of the waiting room, the poor coffee, the appearance of Dinsmore). The hotel never met the expectations of the customer. The only element of the hotel that met or exceeded expectations was the restaurant. Dinsmore’s office, the incident with the housekeeping staff regarding vacuum cleaners, and the incident involving the bellhops and tips are different because they are critical events – they illustrate key elements of Dinsmore’a approach – one that is focused on symptoms, not root causes; quick decision-making before all of the facts are in; and an approach that emphasizes cost and cost-savings.

Before you can make any recommendations, you have to gather certain, critical pieces of information: • • •

Is there enough time and resources available to turn things – if not, then you can only recommend that the hotel be closed. What are the objectives of the hotel owners? If these objectives are focused on cost, then this focus largely explains what we saw in Dinsmore’s hotel. Is the ownership willing to change their business model (approach)? If not, then we cannot succeed.

Assuming that we get positive answers to the preceding questions, then we can make the following recommendations: •

•

Fire Dinsmore – even if Dinsmore is not the cause of many of the observed problems, we need to fire him for several reasons. First, it sends a strong message to the rest of the hotel – things are changing. Second, Dinsmore is ultimately responsible for success or failure. As Truman said, “The buck stops here” and here is Dinsmore. Third, we are not sure whether Dinsmore has the “right” skill sets to turn the hotel around. Change the current business model. This means identify clearly: o Who are our key customers are and what they want? o What the value proposition is and how does it differentiate us in the market place? o Are our current capabilities sufficient given the changes taking place elsewhere. Once we get these answers, we can begin to generate more concrete recommendations.

Chapter 06 – Supplement: Quality Improvement Tools

Problems – Cases 1. The Tragedy of R.M.S. Titanic On the evening of Sunday April 14, 1912, RMS Titanic, while on her maiden voyage, struck an iceberg about two days from New York City. Within three hours, she was gone (Monday April 15, 1912). On this voyage, there were 2,201 passengers and crewmembers, of which 711 survived. Initially, it was thought that the survivors came primarily from the first class (with some from the second class). After all, the passengers in first class had paid the most to travel on the Titanic’s maiden voyage (in some cases paying in excess of $100,000 in today’s dollars). These people were closest to the lifeboats. They represented some of the most important people in 1912 society – John Jacob Astor IV and his wife Madeleine Force Astor, industrialist Benjamin Guggenheim, Macy’s owner Isidor Straus and his wife Ida, Denver millionaire Margaret “Molly” Brown (who became known later on as the “Unsinkable Molly Brown”, Sir Cosmo Duff Gordon and his wife Lucy, and silent film actress Dorothy Gibson. In contrast, the third class was located the furthest away from the lifeboats. Also, as a result of the U.S. immigration requirements, the gates that would have given the third class passengers access to the lifeboats were locked when Titanic left Southampton. You have been asked to study the passenger list for Titanic and to determine if the premises stated in the previous paragraph really did occur. Specifically, consider the following: a. b. a.

Using the Excel spreadsheet found in Connect, analyze the data to determine what type of person would be most likely to survive? Least likely to survive? Read about the Titanic and develop a CED to explain why so many people died on this ship? To address the first question, we need to calculate the Np by categories, as is done in the accompanying table:

Chapter 06 – Supplement: Quality Improvement Tools

Status Crew Crew First First First First Second Second Second Second Third Third Third Third Total

Years Adult Adult Adult Adult Child Child Adult Adult Child Child Adult Adult Child Child

M/F Female Mail Female Male Female Male Female Male Female Male Female Male Female Male

Obs 23 892 144 175 1 5 93 168 13 11 165 462 31 48 2201

Survive 20 192 140 57 1 5 80 14 13 11 76 75 14 13 711

Np 86.96 22.27 97.22 32.57 100.00 100.00 86.02 8.33 100.00 100.00 46.06 16.23 45.16 27.08 32.30

This analysis yields some interesting results: • • • • •

While less than 1/3 survived, the survival rates were significantly affected by several factors – class, age and sex. The survival rate was lowest for Second Class Adult Males. The survival rates were highest for children in the First and Second classes. If you look into the Titanic, you will find that she carried enough lifeboats to carry 1178 people. Yet, only 711 were saved. This means that only 60.36 percent of lifeboat capacity was used!! By the way, it is interesting to note that the sinking of the RMS Titanic was the last time that the cry of “Women and children first” was ever used.

Develop a CED to explain why so many people died. The attached CED is an example of a possible chart. Note that it is not meant to be exhaustive. A review of the records uncovers the following contributing factors: • • • •

There were not enough lifeboats (equipment) The lifeboat drills were cancelled on Sunday (methods) Water was icy cold (environment) Telegraph operator upset other operators when he told one of the operators from another boat (who was trying to warn the Titanic of the ice field) to “shut up” when the RMS Titanic operator was sending out messages from the passengers. This

Chapter 06 – Supplement: Quality Improvement Tools

• •

•

caused the operator on the other boat to go to sleep, thus preventing him from hearing the S.O.S. signal. (personnel) The decision to release the lifeboats with less than full loads. (methods) Lack of guidelines when to launch lifeboats/Lack of urgency – the decision to abandon ship was done relatively late - there was a delay of more than 1 hour from the time of the impact until the decision to launch the first lifeboat. (method) People could not believe that the RMS Titanic was really sinking – after all, wasn’t she unsinkable. (people) Procedures regarding Third Class. The gates allowing Third Class to leave their areas was locked when the RMS Titanic left England – a U.S. Immigration Requirement. Thus, the Third Class passengers were not able to leave their areas and travel to where the lifeboats were (located near First Class) until the locks were opened or broken. (method) Location of the passengers. The first class had the highest probability of survival because they were located closest to the lifeboats. The Third Class, being located in the Aft and Forward sections of the RMS Titanic, were furthest away from the lifeboats. They had the greatest distance to travel (often not in a straight line). (Equipment) Impact of individual decisions. The loading of each lifeboat was supervised by a ship officer. These officers used their own discretion. For example, Second Office Lightoller would not allow couples to enter the boats together. This delayed the loading as the couples decided what to do or said their last good-byes. (people). The tendency of Third Class passengers to wait for instructions rather than acting on their initiatives. People in Third Class were told that they could only act when supervised by ship personnel. These personnel were busy elsewhere and could not spare the time to go to Third Class areas.. (people)

With this information, we could draw the following CED:

Chapter 06 – Supplement: Quality Improvement Tools

2. The Bully Boy Bagging Line Things were not going well at Bully Boy Products (BBP). BBP was a regional producers of organic fertilizer, potting soil, growing loam and various gardening products for the discriminating gardener. It had been founded in 1976 when two agricultural students had decided that something had to be done to provide better supplies for gardeners. As one of the founders point, “Living better chemically may be great for chemicals but it has no place when it comes to gardening supplies.” Since their founding, BBP had grown by always remember their core competencies – quality, variety, and innovative organic groups. As a result of this group, the management of BBP had decided in 2011 to expand their production facilities. Part of this expansion was a new automated packaging line. This line was designed to allow quick product changeovers – something critical to BBP given their wide and ever-changing product line. The line was brought on line at the start of 2012. After four weeks of debugging, the line was viewed as a ready for full-scale production. Yet, as soon as the line started up, problems became evident. These problems took a variety of forms – bagging seams poorly made at the top; some bags overfilled, while other bags were under filled; and, bags experiencing various forms of rips (the most form of defect). Whenever a bagging problem occurred, the standard operating procedure was to stop, clear the problem, write up the issue, and then restart production. Top management had decided that the situation in the bagging line was no longer acceptable – something had to be done. To that end, they gave the problem of identifying whether the problems were random or systematic in nature to Lisa Vickery. Lisa reviewed the production on the firm’s large bag packaging line. There seemed to be much more variation in quality than she would normally expect. After calling for a

Chapter 06 – Supplement: Quality Improvement Tools

summary of the data from production control, she received the following data (www.xxx.com) for the last 16 work weeks. a. b. c.

What does this data tell you? Which tools did you use to determine what is happening? (Hint: consider looking at the impact of staffing? Of day of the week?) What management actions are appropriate? What would you recommend to Lisa Vickery? At first glance, this is a daunting case because so much is happening. We have present at least three major possible causes (Week Day, No. of Employees and No of Bags produced) along with their interactions. The data seems to offer a very confusing picture of what is going on. This is why this is such a good case to end this supplement with. Types of tools that could be used: • • • • •

Pareto Histograms (defects by day of week, defects by no of employees, defects by no of bags) Check sheets (to look at impact of no of employees, defects, no of bags – individually or in combinations) CED to identify possible reasons. Np charts

Ultimately, an analysis of the data uncovers the following: •

•

The biggest influence on the number of defects is the staffing levels (a good reason can be made for this -- fewer employees, more work for each employee, more pressure to meet production schedules at the cost of quality) Another influence is the load – as load goes up, defects go up. This would strongly argue to management that we should be careful in not overloading the system. Have the students think about how many bags per employee would be a good standard when doing capacity planning for this line.

Chapter 07 – Managing Inventories

Chapter 07 Managing Inventories Suggested Answers to Discussion Questions 1. Why do some executives believe that inventory is “bad”? Explain why this thinking is incorrect. Some executives think that inventory is “bad” because inventory has a significant financial impact on an organization. From the standpoint of financial accounting, inventory represents both an asset on the balance sheet as well as a cost that impacts the profitability of any firm. However, inventory plays many significant roles in an organization and failure to have inventory in stock also results in cost, such as lost sales and, potentially, lost customers due to dissatisfaction. Or, a production plant which has no inventory of needed components may have to shut down, resulting in significant expense. 2. Explain the different types of costs related to inventory planning. The different types of costs related to inventory planning are product costs, carrying costs, order and setup costs, and stockout costs. Product cost is the amount paid to suppliers for the products that are purchased. Carrying costs are the costs of holding inventory such as storage space, insurance, costs of obsolescence and loss, costs of material handling, tracking and management. Order cost is a cost associated with replenishing inventories. Setup cost includes administration expenses, expenses of changing over or rearranging a work center to get it ready to produce an item. Stockout cost is incurred when a company does not have inventory available to meet demand. 3. Explain the tradeoffs involved in the economic order quantity. How do these change when quantity discounts are considered? The tradeoffs involved in the economic order quantity are ordering costs and inventory carrying costs. If a company orders more often with fewer products per order, they incur more ordering costs and

Chapter 07 – Managing Inventories

fewer carrying costs. If the company orders fewer items but more products per order, they incur more inventory carrying costs and fewer ordering costs. The product price is not critical in the basic model. When quantity discounts are considered, product price must also be considered since different order quantities have different prices. 4. Why does total system inventory increase as a company increases its number of stocking locations? The variation in demand that each location will face individually is greater than the variation in demand that is faced by serving the entire country from a single location. This occurs because from a single location, some of the variations in demand that exist across different markets are partially offset by one another. Increasing the number of locations means that this offsetting does not occur. Thus, while the two locations will each carry safety stock that is less than required by a single location, the total safety stock carried by the firm will have to be increased to provide the same protection against stockouts. 5. Early in the chapter it was stated that planning inventory levels is both an art and a science. Explain in your own words why this is true. This is true because there are many quantitative or “scientific” planning models that have been developed to aid in making inventory decisions. However, considerable judgment still must be exercised. For example, the decision concerning the appropriate level of safety stock requires judgment about customer reaction to stockouts, or at least some estimates of the cost of a stockout. These decisions are not as likely to be made with “hard” quantitative information.

Chapter 07 – Managing Inventories

6. A firm is presently using the basic EOQ model and is considering switching to the production order quantity model (i.e., receiving gradual deliveries over time). If all the cost and demand parameters stay the same, what changes should the firm expect? The firm should expect decreased inventory carrying costs. Since the orders will be filled gradually, it will sell a portion of what is received in stock before it receives the next part of the order. Therefore, it will have to store less inventory and incur less carrying cost while not increasing the ordering costs. 7. Suppose you have been given the task of reducing inventory in your company, without negatively impacting customer service. What actions might you be able to take to accomplish this task? Student answers to this question will vary. They should address such actions as attempting to reduce variability in both demand and lead time. Consolidating inventory into fewer locations to reduce total safety stock required is another approach. They might also make reference to ABC analysis as a way of focusing on the most important inventory items. 8. What steps do you think companies can take to improve the accuracy of their inventory information systems? To improve the accuracy of inventory information, companies should ensure that procedures exist for recording all product receipts, movements, and sales. Technology such as scanning can aid in this process. Employees must be trained too and the importance of accuracy stressed to them to help avoid potential errors. Also, audits and cycle counting can help to correct human errors. 9. Why should one company in a supply chain consider total supply chain inventory as well as its own inventory levels?

Chapter 07 – Managing Inventories

A focus on the supply chain requires consideration of how one firm’s actions and decisions may impact inventory of other firms in the supply chain. One company’s inventory levels and policies may result in problems for the others. For example, if a supplier has insufficient inventory and cannot deliver enough goods, the company depending on those goods may suffer stock outs, resulting in dissatisfied customers at the next level of the supply chain. The result is that all companies in the supply chain suffer negative consequences.

Problem Solutions 1. Akers Inc. maintains an average inventory of $1,000,000 (at cost). Last year, Akers sales volume was $10,000,000 and cost of goods sold was $7,000,000. Akers has determined that its inventory carrying cost is 15 percent annually. a. What was the inventory turnover rate? b. How much was inventory carrying cost for the year? Inventory turnover rate : cost of goods sold / average inventory at cost = 7, 000, 000 / 1, 000, 000 = 7times

Inventory carrying cost: cost of inventory*carrying cost percentage = 1,000,000*15% = $150,000 2. The following table contains data about the inventory for five items at Jones Corporation. Complete the missing items in the table. Item

Beginning Unit

Ending Unit

Average Unit

Annual Unit

Inventory

Sales

Turnover

150,000

120,000

135,000

400,000

2.963

Chapter 07 – Managing Inventories

40,000

60,000

50,000

80,000

1.600

85,000

97,000

91,000

190,000

2.088

200,000

170,000

185,000

350,000

1.891

50,000

60,000

55,000

165,000

3.000

Total

525,000

507,000

516,000

1,185,000

2.30

3. Suppose Jones Corporation in the above problem determined that its annual inventory carrying cost = 18 percent. The item unit cost was as follows:

Item 1 = $25.00 Item 2 = $60.00 Item 3 = $5.00 Item 4 = $10.00 Item 5 = $1.00 Compute the dollar values in the above table and determine the inventory carrying cost for each item and the total annual inventory carrying cost. Inventory carrying cost = (average unit inventory × cost per unit) × (carrying cost percentage) Item 1 = (135,000 × $25) × 18% = $607,500 Item 2 = (50,000 × $60) × 18% = $540,000 Item 3 = (91,000 × $5) × 18% = $81,900 Item 4 = (185,000 × $10) × 18% = $333,000 Item 5 = (55,000 × $1) × 18% = $9,900 7-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

Total annual inventory carrying cost = $1,572,300 4. Again, using the data for Jones Company in Problem 2 and 3, suppose Jones believes that in the upcoming year, the rate of sales expected for each of the 5 items is as follows: Item 1 = 4,000 units per day Item 2 = 2,000 units per day Item 3 = 15,000 units per day Item 4 = 7,000 units per day Item 5 = 2,000 units per day Compute the days of supply for each item. Days of supply : ending inventory / unit sales per day

Item1= 120,000 / 4,000 = 30 days

Item2 = 60,000 / 2,000 = 30 days

Item3 = 97,000 /15,000 = 6.47 days

Item 4 = 170,000 / 7,000 = 24.29 days

Item5 = 60,000 / 2,000 = 30 days

5. Complete an ABC analysis of the five items that Jones Corporation carries in inventory. Item #

Annual Sales

$25 x

% of Annual Units Sold

% of Annual Sales

Cumulati ve % of Sales 400 / 000 /1,185,000 = 33.75% 10,000,000 /19,415,000 = 51.5%51.5% 7-6

Clas s A

Chapter 07 – Managing Inventories

Total

400,000 = $10,000,0 00 $60 × 80,000 = $4,800,00 0 $5 × 190,000 = $950,000 $10 × 350,000 = 3,500,000 $1 × 165,000 = 165,000 $19,415,0 00

80,000 /1,185,000 = 6.75% 4,800,000 /19,415,000 = 24.7%76.2%

190,000 /1,185,000 =16.3%950,000 /19,415,000 = 4.9%

99.1%

350,000 /1,185,000 = 29.54% 3,500,000 /19,415,000 = 18.0%94.2%

165,000 /1,185,000 = 8.92%165,000 /19,415,000 = 0.9%

100%

There is always some judgment required in ABC analysis. The classification criteria may differ from company to company. This problem can be used to stimulate some discussion of issues in ABC analysis.

In this problem, the only data provided concern sales. On the basis of sales, Item 1 is likely to be classified as a Class A item because it accounts for about 52% of revenue and only 34% of total number of items. Item 2 is quite interesting in that it’s a small percentage of items (<7%) but almost 25% of revenue. It is likely to be classified as an A, but might be argued to be a B item. Item 4 is most likely to be classified as B because it accounts for 18% of sales. Items 3 and 5 are class C items because they account for only 5.8% of sales but for over 25% of the number of items. 6. Suppose management of Foods Galore (in solved problem 3 above) found that it had drastically underestimated its annual inventory carrying cost. Rather than the 10 percent carrying cost assumed in the solved problem, carrying cost is actually 25 percent. Rework all parts of the solved problem assuming the 25 percent carrying cost. 7-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

a. Economic Order Quantity =

2  200,000  $40 $20  .25 = 1,789 cases Average Inventory: 1,789/2=894.5 cases Inventory Turnover: 200,000/894.5=223.6 times b. Economic Order Quantity at $18

2  200,000  $40 = 1, 885.62 = 1, 886 cases $18  .25 However, Foods Galore must order 10,000 cases to receive this price. Therefore, the calculated EOQ for the $18 price is not relevant. TAC of ordering at the $20 price (1,789 cases each time) Annual Product Cost = $20*200,000 cases = $4,000,000 Annual Inventory Carrying Cost = $20*.25*894.5 cases = $4,472.50 Annual Ordering Cost = $40* (200,000cases / 1,789cases) = $4, 471.77

Total Cost = $4,008,944.27 TAC of ordering 10,000 cases Annual Production Cost = $18*200,000 cases = $3,600,000 Annual Inventory Carrying Cost = $18*.25*5,000 cases = $22,500 Annual Ordering Cost = $40* (200,000cases / 10,000cases) = $800

Chapter 07 – Managing Inventories

Annual Ordering Cost = $40* (200,000cases / 10,000cases) = $800

Total Cost = $3,623,300 Food Galore should order 10,000 cases at a time because they would save $385,644.27 c. Standard Deviation of Demand during Lead Time =

8days ( 60cases ) + ( 800cases ) (1.5days ) 2

= 1,211.94 5% risk of stockout equals 1.65 deviations of safety stock = 1.65*1,211.94 cases = 2,000 cases (rounded up) Inventory Carrying Cost = 2,000 cases*$18*.25 = $9,000 1% risk of stockout equals 2.33 deviations of safety stock = 2.33*1,211.94 cases = 2,824 cases (rounded up) Inventory Carrying Cost = 2,824 cases*$18*.25 = $12,708 7. Suppose Thomas Toys Ltd. (in solved problem 4) decides to reduce the review period from 21 days to 10 days. Rework the problem assuming everything else remains the same. Uncertainty period = 10 days +14 days = 24 days Standard deviation =

22 ( 24 ) = 9.8 sets

Order quantity for building blocks = (5 sets per days)(24 days) + 1.96(9.8 sets)-160 = -21 sets There is no need to reorder at this time. 8. Suppose Johnson Plastics (in solved problem 5) reduces setup cost to $20. Rework the problem. Production Order Quantity

Chapter 07 – Managing Inventories

Qp =

2(1, 000)$20 = 73.03 = 74 units 4   .10($100)  1 -   16 

Producing 74 units in a production run at a rate of 16 per day requires 74 / 16 = 4.625 days. 9. Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information: Average demand = 20 units per day Average lead time = 30 days Item unit cost = $50 for orders of less than 200 units Item unit cost = $48 for orders of 200 units or more Ordering cost = $25 Inventory carrying cost = 25% The business year is 250 days a. How many chairs should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time. b. What will the firm’s average inventory be under each alternative? c. What will be the annual ordering and holding costs be for each alternative? The EOQ and TAC at the $50 price is:

EOQ =

2  5,000units / year  $25 / order = 141.42 = 142 units $50 / unit  .25

Average inventory = 142 units / 2 = 71 units

TAC of ordering 142 units

Chapter 07 – Managing Inventories

Annual Ordering Cost = $25* (5,000 units / 142 units) = $880.28 Annual Inventory Carrying Cost = $50*.25* (142 units / 2) = $887.5

Annual Product Cost = $50*5,000 units = $250,000 Total Cost = $251,767.78 The EOQ at the $48 price is:

EOQ =

2  5,000units / year  $25 / order $48 / unit  .25 = 144.34 or 145 units.

Since 200 units must be ordered to obtain this price: TAC of ordering 200 units Annual Ordering Cost = $ 25 *(5, 000 units / 200units) = $625

Annual Inventory Carrying Cost = $48*.25* (200 units / 2) = $1,200

Annual Product Cost = $48*5000 units = $240,000 Total Cost = $241,825 The firm should order 200 chairs each time. It will save $9,942.78 each year. 10. A sporting goods company has a distribution center which maintains inventory of fishing rods. The fishing rods have the following demand, lead time and cost characteristics: Average demand = 100 units per day, with a standard deviation of 12 units Average lead time = 12 days with a standard deviation of 2 days 250 days per year 7-11 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

unit cost = $25 desired service level = 95% Ordering cost = $50 Inventory carrying cost = 20% a. What is the standard deviation of demand during lead time? b. How many fishing rods should the distribution center carry to provide the desired service level? c. What is the EOQ? d. What is the average cycle stock? Standard deviation of demand during lead time =

 ddlt = 12 * 12 2 + 1002 2 2

= 204.27 = 205 units

SS = 1.65*205 = 338.25 = 339 units

EOQ =

2  25,000units / year  $50 / order = 707.11 = 708 units $25 / unit  .20

TAC of ordering 708 units Annual Ordering Cost = $50* (25,000 units / 708 units) = $1,765.54 Annual Inventory Carrying Cost = $25*.20* (708 units / 2) = $1,770

Annual Product Cost = $25*25,000 units = $625,000 Total Cost = $628,535.54 Average Cycle Stock = 708 units / 2 = 354units

Chapter 07 – Managing Inventories

11. A company experiences annual demand of 1,000 units for an item that it purchases. The rate of demand per day is very stable, with very little variation from day to day. The item costs $50 when purchased in quantities less than 100, $48 for 100 or more. Ordering costs are $40 and the carrying cost is 25 percent. How much should the company buy each time an order is placed? EOQ and TAC at $50:

EOQ =

2  1,000units / year  $40 / order = 80 units $50 / unit  .25

TAC of ordering 80 units Annual Ordering Cost = $40* (1,000 units / 80 units) = $500 Annual Inventory Carrying Cost = $50*.25* (80 units / 2) = $500

Annual Product Cost = $50*1000 units = $50,000 Total Cost = $51,000 EOQ at the $48 price

EOQ =

2×1,000 units / year×$40 / order = 81.65 units = 82 units, which cannot be ordered. $48 / unit ×.25

TAC of ordering 100 units Annual Ordering Cost = $40(1000 units / 100 units) = $400

Annual Inventory Carrying Cost = $48*.25* (100 units / 2) = $600

Chapter 07 – Managing Inventories

The company should buy 100 units each time an order is placed; they will save $2,000 annually. 12. Meyer Stores carries a specialty line of flavored syrups. On average, Meyer sells 30 bottles per week of its popular raspberry syrup. Meyer’s cost is $8 per bottle. Meyer has determined its order cost to be $50 and inventory carrying cost is 20 percent. Meyer is open for business 52 weeks per year. What is the EOQ for raspberry syrup? If Meyer orders the EOQ quantity each time, what will be the inventory turnover rate for raspberry syrup? Annual demand = 30 units × 52 weeks = 1,560 units EOQ =

2(1,560)$50 156, 000 = = 97,500 = 312.25 units, rounded 313 units. . $8(.20) 1.60

Average inventory =

313 = 156.5 units 2

1,560 = 9.97 times. Note, if EOQ is rounded down to 312 units, then average 156.5 inventory is 156 units and inventory turnover is 10 times. Inventory turn over =

13. Talbot Industries is evaluating its service level policy for a product that is considered critical to customers. Demand for item average 100 units per day and the lead time form the supplier of the item averages 6 days. An analysis of demand and lead time patterns has shown that the standard deviation of demand during lead time is 110 units. The existing service level policy allows for a stockout probability of 10 percent during the during the replenishment cycle. Marketing managers claim that the item is so critical that the firm should carry three standard deviations of safety stock. If the item cost is $60 and Talbot’s inventory carrying cost is 20 percent, what is the incremental inventory carrying cost of the suggestion by marketing managers? The existing service level of 90% requires 1.28 standard deviations of safety stock, or 1.28(110) = 140.8, rounded to 141 units of safety stock. The inventory cost of the policy is 141($60)(.20) = $1,692. 7-14 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

The suggested policy will cost 3(110)($60)(.20) = $3,960.00. The incremental cost is $3,960 - $1,692 = $2,268. 14. Johnson Corporation has the following information about a product that it carries in stock: Average demand = 40 units per day Average lead time = 15 days Item unit cost = $55 for orders of less than 400 units Item unit cost = $50 for orders of 400 units or more Ordering cost = $30 Inventory carrying cost = 20% The business year is 300 days Standard deviation of demand = 2.5 units Standard deviation of lead time = 1.5 days Desired service level = 97.5% a. What is the annual total acquisition cost of ordering at the $55 price? b. What is the annual total acquisition cost of ordering at the $50 price? c. What level of safety stock should Johnson maintain for the item? d. If Johnson chooses the ordering policy that results in the lowest total annual acquisition cost, and maintains the safety stock level for 97.5% service, what will Johnson’s average inventory be for this item? e. What will the annual inventory turnover rate be for this item? f.

What will the reorder point be for the item?

Annual Demand = 40 units / day x 300 days = 12,000 units

EOQ at the $55 price =

2(12, 000)$(30) 720, 000 = = 65, 454.56 = 255.85, rounded to 256 units $55(.20) 11

Chapter 07 – Managing Inventories

 12,000  Total Ordering Cost = $30   = $1, 406.25  256   256  Total Inventory carrying cost = $55(.20)   = $1, 408  2 

TAC = $662,814.25 Note: Answers may differ by a few dollars due to possible differences in rounding. b. EOQ at $50 price =

2(12, 000)($30) = 268.33units. . $50(.20)

In order to qualify for the $50 price, Johnson must order a minimum of 400 units. Therefore, the following costs are calculated based on this order quantity. Total Product cost = $50(12,000) = $600,000  12,000  Total Ordering cost = $30   = $900  400  Total Inventory carrying cost = $50(.20)

400 = $2, 000 2

TAC = $602,900 c. The standard deviation of demand during lead time is: 15 ( 2.52 ) + 402 (1.52 ) = 93.75 + 3,600 = 3693.75 = 60.78 units.

The 97.5% service level requires 1.96 standard deviations of safety stock. Therefore safety stock = 60.78(1.96) = 119.21 units, rounded up to 120 units. d. Average inventory will be 200 units + 120 units = 320 units. 12, 000 units = 37.5 times. 320 units

Inventory turnover will be

ROP = (40 × 15) + 120 = 720 units

Chapter 07 – Managing Inventories

15. Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF buys the figurines from a manufacturer for $10 per unit. They send orders electronically to the manufacturer, costing $20 per order and they experience an average lead time of 8 days for each order to arrive from the manufacturer. Their inventory carrying cost is 20 percent. The average daily demand for the figurines is 2 units per day. They are open for business 250 days a year. Answer the following questions: a. How many units should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time.

EOQ =

2  500units / year  $20 / order = 100 units $10 / unit  .20

b. How many orders will they place in a year? 500 units per year / 100 units per order = 5 orders

c. What is the average inventory? 100 units / 2 = 50 units

d. What is the annual ordering cost? $20* (500 / 100) = $100

e. What is the annual inventory carrying cost? $10*20%*(100 / 2) = $100

16. The supplier in the above scenario now decides to offer a volume discount. They will sell the crystal figurines at $8 per unit for orders of 250 units or more. Answer the same set of questions.

a. EOQ =

2  500units / year  $20 / order = 111.8 = 112 units, which cannot be ordered. $8 / unit  .20 7-17

Chapter 07 – Managing Inventories

Units/order must be 250 units.

b. Number of orders = 500 units per year / 250 units per order = 2 orders c.

Average inventory = 250 units / 2 = 125 units

Annual ordering cost = $20* (500 / 250) = $40

Annual inventory carrying cost = $8*.20* (250 / 2) = $200

17. Freeport Corporation finds that demand for surfboards has average demand of 10 units per day, with a standard deviation of 3 units. Lead time from the supplier averages 12 days, with a standard deviation of 2 days. The item costs $50 and the inventory carrying cost is 30 percent. a. What is the standard deviation of demand during lead time for this problem? 2 2 2  ddlt = t  d + d  t

 ddlt = 12*32 + 102 *22 = 22.53 units b.

Suppose management decides to offer a 95% service level. That is, it is willing to experience a

stockout probability of 5% during the order cycle. How much safety stock should be carried? Z for 95% = 1.65 SS = 1.65*22.53 = 37.17 = 38 units c. How much is the annual inventory carrying cost of the safety stock because of this decision? Annual inventory carrying cost = $50*.30*(38) = $570 d. You decide that you want this company to give better service to its customers. You decide that a 99 percent service level is appropriate. How much safety stock must be carried to offer this service level? SS = 2.33*22.53 = 52.49 = 53 units 7-18 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

e. What is the additional inventory carrying cost that will be incurred on this item because of your decision to increase the service level? Annual inventory cost = $50*.30*(53) = $795 Additional inventory carrying cost = $795 - $570 = $225 f.

What will the reorder point be for the company if your decision is implemented?

ROP = (10*12) + 53 = 173 units 18. Suppose you are a corporate buyer. One of your suppliers delivers a particular part in 12 days on average, with a standard deviation of 3. The daily usage averages 20 units per day with a standard deviation of 4. What is the standard deviation of demand during lead-time? If you use a continuous review policy, how much safety stock would you want on hand to ensure at least 90 percent availability of the part while waiting for replenishment?

 ddlt = 12*42 + 202 *32 = 61.58 units SS = 1.28*61.58 = 78.82 = 79 units 19. Korner Hardware manager Emerson Jones is interested in determining how many Nativity Scenes to order for the ten-day holiday season. Past experience indicates that demand for these Nativity Scenes average 8 per day during this ten-day period, with a standard deviation of two per day. Demand is approximately normal. Emerson purchases the Nativity Scenes for $15 per unit and sells them for $30 each during the season. After Christmas, they are marked down as sale items for $10 each. How many should Tom order for the coming holiday season? C so = Unit selling price - Unit cost = $30 - $15 = $15. C os = Unit cost + Disposal Cost - Salvage Value = $15 + 0 - 10 = $5. 7-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

TSL =

C so 15 = .75 C so + C os = 15 + 5

From the Appendix, we see that a TSL of .75 requires approximately .67 standard deviations of demand as safety stock.

Q = expected demand + SS = (10*8) + (.67*2) = 80 + 1.34 = 81.34 or 82 units. 20. You have a one-time chance to purchase an item for $5. The item can be sold to customers for $30. After one day, the item has no salvage value because it becomes rotten at the end of the day. It will then cost you $15 to properly dispose of any unsold items. You think you can sell 1,000 units in one day, but also know that the standard deviation of demand for the item is 50 units. How many units should you order?

The cost for a stockout (C so ) of the item = Unit selling price - unit cost = $30 - $5 = $25 Thecost of overstock (C os ) of the item is = Unit cost + Disposal cost - Salvage value = $5 + 15 - $0 = $20

Target service level = Cso / ( Cso + Cos ) Therefore, the target service level (TSL) for the T - shirts = $ 25 / ($ 25 + $ 20) = 0.5555

This TSL will provide an 55.55% probability of meeting all demand for the item. From the table of cumulative probability in Appendix A, we see that this target probability is closest to 0.14 standard deviations. Therefore, the target order quantity is: Order Quantity = Expected demand + Safety stock = 1,000 + 0.14(50) = 1,007 units 21. Jasper’s Grocery places an order for Monster every 3 weeks. Once the order is placed, delivery to the store typically occurs in 1 week. Average demand is 100 cases per week and the standard deviation of demand is 20 cases/week. The store policy is to stock an amount of inventory which allows for an 7-20 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

average stockout condition of 10 percent while waiting for replenishment. It is time to place an order and there are 420 cases on hand. How many units should be ordered?

 ddup = 4 *202 = 40 cases Q = (100 / week* 4weeks) + (1.28*40) − 420 = 31.2or 32units

22. Dreyfus Company has a policy of counting on-hand inventory of one of its products every 45 days. When a replenishment order for the product is placed with the supplier, lead time is 8 days. Demand for the product averages 6 units per day with a standard deviation of 1.5 units. It has just been determined that the company currently has 42 units on hand. How many units should the company order if it strives to maintain a 99 percent service level on this item.

The uncertainty period for the item is 45 days (the review period) plus 8 days (lead time) = 53 days. The standard deviation of demand during the uncertainty period is

1.52 (53) = 119.25 = 10.92 units. The order quantity for the item is: (6 units per day)(53 days) + 2.33(10.92 units) – 42 units = 318 + 26 – 42 = 302 units. 23. You manage inventory for your company and use a continuous review inventory system to control reordering items for stock. Your company is open for business 300 days per year. One of your most important items experiences demand of 20 units per day, normally distributed with a standard deviation of 3 units per day. You experience a lead time on orders from your supplier of 6 days with a standard deviation of 2 days. If you order less than 1,000 units, you pay the supplier $5.00 per unit. Orders of 1,000 or more can be bought at a unit price of $4.75. Your ordering cost is $50. Your inventory carrying cost is 20 percent. You have established a service level policy of 97.5 percent on this item. What is your optimal order quantity? What is your reorder point? How much safety stock do you carry? What is your average inventory? 7-21 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

EOQ =

2  6,000units / year  $50 / order = 774.59 = 775 units $5 / unit  .20

EOQ =

2  6,000units / year  $50 / order = 794.72 = 795 units, but must order 1, 000 $4.75 / unit  .20

TAC of ordering 775 units AnnualOrderingCost = $50* (6,000units / 775units) = $387.10

Annual InventoryCarryingCost = $5*.20* (775units / 2) = $387.50

Annual Product Cost = $5*6,000 units = $30,000 Total Cost = $30,774.60 TAC of ordering 1,000 units AnnualOrderingCost = $50* (6,000units /1,000units) = $300

Annual InventoryCarryingCost = $4.75*.20* (1000units / 2) = $475

Annual Product Cost = $4.75*6000 units = $28,500 Total Cost = $29,275 The optimal order quantity is 1,000 units. Standard deviation of demand during lead time:

 ddlt = (6*32 ) + (202 *22 ) = 40.67units = 40.67 SS = 1.96*40.67= 79.71 = 80 units ROP = (20*6) + 80 = 200 units Average inventory =(1,000 units/ 2)+80 units =580units

Chapter 07 – Managing Inventories

24. Suppose in problem 23, you were able to reduce your order cost to $10. What is the impact on all other variables?

EOQ =

2  6,000units / year  $10 / order = 346.41 = 347 units $5 / unit  .20

EOQ =

2  6,000units / year  $10 / order = 355.41 = 356 units $4.75 / unit  .20

TAC of ordering 347 units Annual Ordering Cost = $10* (6,000 / 347) = $172.91 Annual Inventory Carrying Cost = $5*.20* (347units / 2) = $173.50

Annual Product Cost = $5*6,000 units = $30,000 Total Cost = $30,346.41 TAC of ordering 1,000 units (you cannot order 356 units at a price of $4.75). Annual Ordering Cost = $10* (6,000 units / 1,000 units) = $60 Annual Inventory CarryingCost = $4.75*.20* (1000 units / 2) = $475

Annual Product Cost = $4.75*6,000 units = $28,500 Total Cost = $29,035 The optimal order quantity is 1,000 units. Average Inventory = (1,000 units / 2)+ 80 units = 580 units

 ddlt = (6 * 32 ) + (202 * 2 2 ) = 40.67units SS = 1.96*40.67 = 80.34 = 80 units 7-23 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

ROP = (20*6) + 80 = 200 units *All other variables remain the same. 25. After you reduce your order cost, as described in problem 24, the supplier in problem 13 changed its pricing policy to a standard $4.75 per unit, regardless of the order quantity. What would be the impact on all other variables?

EOQ =

2  6,000units / year  $10 / order = 355.41 = 356 units $4.75 / unit  .20

Optimal Order Quantity is 356 units Average Inventory = (356 units / 2)+ 80 units = 258 units

 ddlt = (6*32 ) + (202 *22 ) = 40.67units = 40.67 SS = 1.96*40.67= 79.71 = 80 units ROP = (20*6) + 81 = 200 units 26. You are the buyer for your university bookstore. One of the textbooks has a cost to you of $100 and you sell it to students for $140. Any copies of the book that you order and do not sell to students can be returned to the publisher for an average $80.credit. (Sometimes you can get full credit but sometimes a new edition is published so you get no credit). In one particular course, demand has averaged 400 books each semester, with a standard deviation of 40. What is your Target Service Level? What is your target order quantity for the course? C so = Unit selling price - Unit cost = $140 - $100 = $40 C os = Unit cost + Disposal Cost - Salvage Value = $100 + 0 - $80 = $20 7-24 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

TSL =

Cso = $40 / ($40 + $20) = .667 = 66.7% Cso + Cos

A 66.7% service level requires approximately 0.43 standard deviations. Order quantity = expected demand + SS = 400 + (.43*40)= 400 + 17.2 = 417.2 or 418 units 27. In the same situation as described in problem 26, a text costs $100 and sells for $200. In this case, however, you cannot salvage any value from copies that do not sell because a new edition is published every semester. Demand for this text averages 80 copies each semester with a standard deviation of 10 copies. How many should you order each semester?

C so = Unit selling price - Unit cost = $200 - $100 = $100 C os = Unit cost + Disposal Cost - Salvage Value = $100 + 0 - 0 = $100

TSL =

Cso = $100 / ($100 + $100) = 50% Cso + Cos

A 50% target service level does not require any safety stock. Order quantity = expected demand + SS = 80 + 0 = 80 28. Charles Cycles produces bicycles and tricycles. The setup cost when switching production from one to the other is $1,000. On average, retail customers order 150 tricycles per day (consider a 250 day year). The daily production rate for tricycles is 600 units. Unit cost of a tricycle is $60 and the company has determined inventory carrying cost to be 15 percent. What should the production order quantity be? The production order quantity is:

Chapter 07 – Managing Inventories

2(150)(250)($1,000) = 3, 333.33 units, round up to 3, 334 units.  150  .15($60)  1   600 

At a production rate of 600 units per day, this production quantity will require approximately 5.6 days to complete. 29. Bryson Carpet Mills produces a variety of different carpets. Changing from production of one carpet to another involves a setup cost of $1,000. One particular carpet cost $5/yard to produce.

Annual demand for this style is 120,000 yards. Bryson Mills produces carpet 300 days per year. The production process is most efficient when 4,000 yards/day are produced. Inventory carrying cost is estimated at 20 percent annually. What should be the production order quantity? Average daily demand is 120,000 / 300 / days =400 yards/day.

Qp =

2 *120,000 *1000 = 16,329.93 = 16,330 yards 400   .20 * 5 1   4,000 

The production order quantity should be 16,330 yards which would take 16,330 / 4,000 = 4.08 days.

30. Suppose Bryson develops a production process that is most efficient when 6,000 yards/day are produced at a cost of $4.50/yard. Everything else remains the same. How does this affect the calculation in problem 29?

Qp =

2 *120,000 *1000 = 16, 903.09 or 16, 904 yards. 400   .20 * 4.50 1   4,000 

16,904 / 6,000=2.82 days

31. After implementing the change described in problem 30, Bryson Carpet Mills now finds that it can reduce setup cost to $500. Does this further change the calculations of production order quantity? How?

Chapter 07 – Managing Inventories

Qp =

2 *120,000 * 500 = 11, 952.29 = 11, 953 yards. 400   .20 * 4.50 1   4,000 

Yes, the reduced setup cost changes the production order quantity by decreasing it to 11,993 yards, a decrease of 4,951 yards. 32. Steve Carter is CFO of a small temporary labor supplier. Steve is setting up an account to hold cash that the company needs to pay its monthly bills. Cash needs average $10,000 each month with a standard deviation of daily demand of $50. Steve estimates the company's opportunity cost of capital (the cost to hold cash for a year) at about 30 percent. Adding more cash by taking it from operating funds or short term loans takes 1 day and costs $50 to process required transactions. a. How often should Steve add money to the cash account? b. How much should he add to the account each time? c. How much extra cash should Steve hold on hand to provide at least a 95 percent chance that the company will never run out of cash? d. How much cash should be left in the account when Steve orders more cash? e. How much cash will the company hold on average? a & b. Recognize that each dollar held in cash equals one “unit” of inventory.

EOQ =

2 10,000units / month(12months / year)  $50 / order $1.0 / unit  .30

= $6324.55 N= D / Q = 12×10,000 / 6324.55 = 18.97ordersper year

Chapter 07 – Managing Inventories

365 / 18.97 = 19.2days between orders

c. How much extra cash should Steve hold on hand to provide at least a 95 percent chance that the company will never run out of cash?

 ddlt = (1* 502 ) = 50units SS = 1.65*50= 82.5 units d. How much cash should be left in the account when Steve orders more cash? ROP = 10000(12) / 365+ 82.5 = 411.27

e. How much cash will the company hold on average? Avg Inventory = 6324.55 / 2 + 82.5 = 3244.78

33. Suppose that Steve in Problem 32 above does not want to have to continuously monitor the company's cash account. He instead would like to do a monthly audit (every 30 days) and then order the appropriate amount of cash each time. If the June monthly audit shows $500 cash on hand, how much cash should Steve order in this review period? How much more safety stock is required to support the periodic review policy? Why is more needed? UP = 30 days + 1 day = 31 days

 ddup

(31* 502 ) = 278units

Q = (10000(12) / 365)×31+1.65(278)- 500 = 10150.48

Chapter 07 – Managing Inventories

The difference in safety stock is: 1.65 (278) – 1.65 (50) = 376.2 units. More units are required because the uncertainty period is much longer for the periodic review policy (UP = OI + t) than for the continuous review policy (UP = t). 34. Hartley Incorporated buys plastic resin by the ton and then packages and distributes it in smaller amounts to industrial users. The resin typically costs $50 per ton, and Hartley uses 80,000 tons each year. Placing an order for more resin costs $500 in allocated labor cost for purchasing personnel. Holding costs for the resin are estimated at 1 percent of the product value each month. Hartley operates 365 days a year. a) How much resin should Hartley order each time? b) What will be the average inventory and annual holding cost? c) Suppose that instead of having each replenishment order delivered all in one shipment, Hartley asks its resin supplier to deliver each order in equally sized shipments, one shipment per day, each shipment big enough to cover 2 days’ worth of demand. How will this affect Hartley's order quantity, average inventory, and annual holding costs? Hint: realize in this second scenario that Hartley’s inventory level will never reach Q.

2  80,000units / year  $500 / order = 3651.48 units $50 / unit  .12

EOQ =

Average inventory = 3651.48 / 2 = 1825.74

Annual holding cost = 1825.74 ($50)(.12) = $10,954.44 c.

d = (80000 / 365) = 219.18 units / day

p = (80000 / 365)(2days ) = 438.36 units / shipment

2*80,000*500 = 5163.98 units 219.18   50*.12 1   438.36000 

Chapter 07 – Managing Inventories

Maximum inventory = (Q / p)(p - d) ; Average inventory = (Q / p)(p - d) / 2\ = (5163.97 / 438.36)(437.36 - 219.18) / 2 = 1290.99

Annual holding cost = 1290.99 (50) (.12) = $7745.96 Inventory and holding costs are lowered because Hartley delays receipt of the shipments and therefore owns the inventory for less time. 35. Rachel is making T-shirts that she hopes to sell at the upcoming "War on War" concert. The Tshirts cost $6 each to produce, and she will price them at $20 each. She expects that she can donate any unsold T-shirts to a local charity for a tax write-off of $2 each. Based on her experience at past concerts, Rachel expects to sell 1,000 T-shirts, with a standard deviation of 100 shirts. a) How many Tshirts should Rachel make? b) What is the probability that she will run out of T-shirts to sell? a.

C so = $20 - $6 = $14;

C os = $6 - $2 = $4

TSL = 14 / (14 + 4) = .778

From Appendix A we see that a probability of .778 corresponds to a z of approximately .76. Q = 1000 + .76 (100) = 1076 T-shirts b. Probability of stock out is 1 - .778 = .222

36. Suppose that in problem 35 above, Rachel can spend $,1000 to buy a well-placed booth at the concert. Doing so would raise the expected sales of T-shirts from 1,000 to 1,200, and lower the standard deviation of demand from 100 to 50. a) Should she decide to pursue this option, how many T-shirts should Rachel make?

Chapter 07 – Managing Inventories

b) Should Rachel spend the money for the better placed booth? (You may not know exactly how to answer this question, but at least write down what you would need to know in order to compute an answer).

a. Q = 1200 + .76 (50) = 1238 shirts b. A simple view is that Rachel would likely sell an extra 162 shirts (1238 – 1076 = 162), for an added profit of $2,268 (162 × (20-6) = 2268). The net benefit of spending the extra $1,000 is therefore $2,268 - $1,000 = $1,268. To calculate the precise benefits we would need to be able to compute the expected profit from each scenario. 37. Thor Industries operates 10 warehouses around the country. Each facility operates independently, placing its own replenishment orders from the corporate manufacturing plant. To improve delivery lead time to customers, managers at Thor want to double the number of independent warehouse locations. Assuming that total demand and service levels do not change, what change should Thor expect to see in total system safety stock requirements? Inventoryrequirements = (20 / 10)1/2 = 1.4;or a 40% increase in total systemrequirements

38. McCain Inc. is considering a move toward completely on-line retailing. This would mean closing its 8 independent brick and mortar stores, and replacing them with a single fulfillment center. Currently, each store maintains 50 units of safety stock on average for each of the products it sells. a) Assuming demand is unchanged and McCain will maintain the same level of in-stock availability, how much safety stock will be needed on average for each product at the fulfillment center?

Chapter 07 – Managing Inventories

b) McCain would like to buy some robots for its new fulfillment center. If they are currently paying $200,000 per year in safety stock carrying cost, how much free capital will inventory savings from consolidation create? c) Should McCain expect proportionately to see more, less, or about the same savings in cycle stocks? Why? a.

Safety stock for eachproduct = 50(1 / 8)1/2 = 17.67;roundupto18units for eachproduct.

b. Savings = $ 200, 000 - $ 200, 000(18 / 50) = $ 128, 000 c. Should expect to see about the same proportionate level of savings in cycle stocks, because pooling of previously independent orders will produce savings also in accordance with a square root function 39. In a quest to provide same-day deliveries for most items, Megazon (an on-line retailer) has doubled the number of its independent fulfillment centers over the years. As a result of its improved delivery speed, Megazon's total demand has doubled over the same period. How much would you expect Megazon's total system inventories to have increased over this period? What assumptions did you have to make in order to develop an answer to this question?

Champion Electric Case – Teaching Note

Champion Electric has made a decision to be a full service supplier with high customer service. This means that they will have a lot of SKUs and perhaps more inventory than their competition in order that customer service is as high as possible.

A number of problems are apparent:

Chapter 07 – Managing Inventories

Management was upset with Bob about customer service, the number of people working in this area, and more recently, with the overall level of inventory. A few points to make about the case in general are: 1. New Products: When a new product is added, an attempt to buy an “economical" quantity is made without knowing much about demand. 2. The overall level of inventory is high yet customers complain about stockouts. Although the case suggests that there is some type of ABC analysis taking place (“We always have the high volume, more profitable items in stock”), they may need to revisit the criteria being used for that classification. 3. “Sometimes our system even shows we should have stock but we don't.” The company needs to work on inventory accuracy. Cycle counting and other methods for improving accuracy can be discussed.

Champion Electric Case Specific Questions 1. Why, in your opinion, is senior management so concerned about the “high” inventory levels at Champion Electric?

The high inventory levels are causing high asset investments and high costs to the company through inventory carrying costs. The alternative uses of the investment dollars are numerous, including: paying off company debts, investing in other assets, or paying a “special” dividend to stockholders. The high inventory carrying costs result in reduced profitability which also has negative impact on the stockholders. 2. What would you suggest to Barb as steps to take in addressing the concerns of President Campos?

Chapter 07 – Managing Inventories

Barb should revisit its classification of inventory. If it is using an ABC analysis, as the case suggests, perhaps it should consider criteria other than volume. Perhaps marketing and operations people could work together to develop criteria related to importance of items to customers as well as to the company. Additionally, something needs to be done to develop better accuracy in the inventory information system. Cycle counting may be one approach that would help in this process.

Tasty Treats Case – Teaching Note

Tasty Treats is a distributor of candy and snack products. The company carries over 5,000 items in inventory but has never had anyone knowledge of inventory management policies. Instead it has relied on rules of thumb and judgment to determine order quantities and safety stock levels. Bill Jones, COO and Jim Busfield, CEO have assigned Rachel Atkins, a student intern, to use her knowledge of inventory management to make recommendations to management. They specifically asked her to look at one product-Chocolate Chewies. Currently Tasty Treats sells an average of 100 cases per day on each of the 300 days it is open. The firm orders every 10 days because it takes 10 days to get Chocolate Chewies from the supplier. The firm also attempts to keep safety stock of 200 units. Rachel gathered the following information for her analysis of Chocolate Chewies: Product Cost: $25.00 per case Ordering Cost: $100 per order Inventory Carrying Cost: 15 percent Standard deviation of demand = 8 cases per day Standard deviation of lead time = 2 days

Chapter 07 – Managing Inventories

The sales representative for the supplier also informed Rachel that Tasty Treats could get a reduced price of $24.50 if it ordered at least 3,000 cases per order. Finally the sales staff informed Rachel that they thought a 99% service level was appropriate. Bill and Jim suggested she also consider a 95% service level. What recommendations should Rachel make in her presentation to Tasty Treats management? First, Rachel should inform Tasty Treats of the total acquisition cost of the current order policy being used for Chocolate Chewies. Ordering 1,000 cases each time results in average cycle stock of 1,000 / 2=500 cases. Therefore, annual inventory carrying cost is: 500 cases × $25.00 × .15 = $1,875.00. Since annual demand is 30,000 cases (100 per day × 300 days), the policy results in 30 orders per year (30,000 / 1,000) . Since each order costs $100, the total annual ordering cost is $3,000. The total

acquisition cost of the current approach is $4,875.00 (not including the cost of the 30,000 cases of product purchased). Then she should present the total acquisition cost of order policies determined by using the economic order quantity approach. The EOQ at the $25.00 price form the supplier is:

EOQ =

2(30,000)$100 = 1,264.91 cases = 1,265 cases $25.00(.15)

The total acquisition cost of this policy, not including the product cost is: (1,265cases / 2)($25.00)(.15) + (30,000 cases / 1,265)($100) = $2,371.88 + $2371.54 = $4,743.42 (Note:

the number of annual orders was not rounded). Therefore, ordering the EOQ amount at the $25.00 price would save Tasty Treats $131.58 per year. While this may seem to be a small amount of savings, if 7-35 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

similar results existed for all 5,000 products, the total; savings would be $657,500. Rachel should recommend that Tasty Treats use the EOQ methodology in determining order policies. However, she also needs to investigate whether Tasty Treats should take advantage of the supplier’s quantity discount. The EOQ at the discounted price of $24.50 is:

EOQ =

2(30,000)$100 = 1,277.75 cases = 1,278 cases . However, to receive the discounted price, $25.00(.15)

Tasty Treats would be required to order 3,000 cases each time. The total acquisition cost of ordering 3,000 cases each time, including the product cost, is: (3,000 cases / 2)($24.50)(.15) + (30,000 cases / 3,000)$100 + 30,000 cases (24.50) = $5,512.50 + $1,000 + $735,000 = $741,512.50

Ordering at the $25.00 price results in annual product cost of $750,000. When added to the Ordering cost and the inventory carrying cost determined above, the total acquisition cost of the policy is $754,743.42. Thus the firm would save a total of $13,230.92the annually by taking advantage of the supplier’s quantity discount on Chocolate Chewies. Rachel should recommend that Tasty Treats investigate the total acquisition costs of its order policies by also considering the impact of quantity discounts on total cost. Next, should investigate the cost of alternative safety stock policies. To do so, she should compute the standard deviation of demand during lead time for Chocolate Chewies = 10 days(8 cases2 ) + 100 cases2 2 days2 ) = 201.6 cases . One standard deviation of demand

during lead for Chocolate Chewies is more than the 200 cases that Tasty Treats has been using as its rule of thumb. Thus, Tasty Treats currently is providing less than and 85% service level. The sales staff recommendation of 99% would require 470 units of safety stock (201.6 × 2.33 standard deviations) with an associated inventory carrying cost of $1,745.63 (470 cases × $24.50 × .15). The 95% service 7-36 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

level would require 333 cases of safety stock with an associated cost of $1,223.78. While Rachel cannot recommend which policy Tasty Treats should adopt, she can recommend that this approach to evaluating safety stock policies be adopted.

Dexter’s Chicken – Teaching Note

This is a very real-world situation in the restaurant industry, which has been slow to adopt processes and technologies that provide product traceability. The case gives students an opportunity to think through the related investments for, and benefits from, greater visibility of inventory in the supply chain. While the analysis below focuses on the financial returns of reducing inventory due to better information in the supply chain, students should also discuss the “brand-enhancement” potential of providing customers better information about the quality and origin of products. A very funny video (Portlandia) at the site below gives an extreme scenario of customers who care intensely about the quality of the chicken (organic, chicken’s quality of life, etc.) that they are about to eat: https://www.youtube.com/watch?v=G__PVLB8Nm4

Questions:

1. Should Dexter go ahead with the traceability initiative? How much should he be willing to invest in technology and training to implement new processes? 2. What else can be done to reduce inventory costs at Dexter’s Chicken?

Analysis:

1. Should Dexter go ahead with the traceability initiative? How much should he be willing to invest in technology and training to implement new processes? 7-37 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

Cost savings needed to justify investment in traceability: The total cost of the investment includes the $1.5M for training and technology, plus an increase in cost for purchases from Disco Annual cost increase from Disco: $250M × .03 = $7.5M (though this might be negotiated downward) Dexter Investment payback needed (assumerequired3yearpayback) =$1.5M/3 = $0.5M Thus, Dexter needs at least $8M per year savings in safety stock and other savings (e.g., wastage) to cover the increased purchase cost while also paying back the required investment in 3 years or less. This assumes the maximum cost scenario projected by Dexter. Safety stock reduction required to generate required savings: Annual total safety stock carrying charge = $109.375M × .30 safety stock percentage of total inventory = $32.8M $8M savings = (32.8 − 8) / 32.8 = 75.6% of current SS costs, or a 25% reduction is needed

It should be reasonable to expect that better information will allow a 25% reduction in safety stock. They are probably not optimizing SS either, based on the observations below. In addition, Dexter’s should gain benefits in spoilage avoidance, better (more efficient) recalls, liability management, brand enhancement, etc. Other considerations: On paper, this looks like a good investment. However, it is useful to discuss the nature of the changes that would need to be implemented: Standardization – Providers of both food and non-food items in this industry do not regularly use standardized item identification numbers. To track items across providers and sources, Disco and Dexter’s will need to get suppliers to label all their items using a common numbering scheme. The U.S. common standard in this industry is “GS1” (global standards 1). See https://www.gs1us.org/ for more information Labeling, scanning, tracking – It’s useful to talk through the process steps required to provide traceability for a given item. Take chicken for example, a producer of chicken products would need to generate a bar code label for each case of chicken (whole chickens, parts, “nuggets”, etc.) that contains lot number, production date, location, etc. Each supplier and transport provider in the chain also needs an identification number for each site of operations (GS1 calls this a GLN – Global location number). The label is scanned at each movement of the case or transaction through distribution, and finally into the specific restaurant store. Get students to talk about the -

equipment needed: label printers, scanning equipment, etc. at every location;

the systems needed: databases maintained by each partner and shared to a centralized data management system (who will manage the centralized data for Dexter’s – usually a third party – see FoodLogIQ as an example); and 7-38 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 07 – Managing Inventories

training needed both equipment operation and data management.

If there is time, the instructor can use these topics to launch a discussion of evolving technologies that might improve these processes: RFID, new scanning technologies such as spectroscopy, and blockchain. 2. What else can be done to reduce inventory costs at Dexter’s Chicken? The above analysis focused on safety stock savings due to better (current and accurate) information in the supply chain. However, an examination of the case data suggests that Dexter’s is not optimizing its cycle stock either. We can use the concepts from this chapter to estimate cost savings from implementing more optimal ordering policies. Cycle Stock improvement: Estimate ordering costs resulting from purchasing budget: AOC = $75M × .35 = $26.25M AHC = $109.375M × .80 = $87.5M (cycle stock) TAC = $113.8M Dexter’s annual holding costs are out of balance with annual order costs. It seems to be ordering too large batches too infrequently. For an “average” item: AOC for average item = 26.25M/17500 = $1500

C0 for average item = $1500/20 orders per year for average item = $75 per order AHC for average item = $87.5M/17500 = $5000

$5000=10×.8×Q/2 Q for average item = $5000  2 / 10 / .8 = 1250 "units"

D for average item = orders per item per year*Q = 20X1250 = 25000 EOQ = (2  25000  75 / (10X.8))5 = 684.7 "units" TAC* = 75  25000 / 684.7 + 10  .8  684.7 / 2 = 2738.4 + 2738.8 = $5477.2

TAC for all items = $5477.2 × 17500 = $95.9M Optimizing orders (EOQ) could save $113.8 – $95.9 = $17.9M This savings would more than pay for the investments required to create a traceability system!

Chapter 08 - Lean Systems

Chapter 8 Lean Systems Suggested Answers to Discussion Questions 1. While Taichi Ohno was impressed by certain aspects of the Ford Production System, he was bothered by other aspects. These included: large, special purpose equipment, a focused specialized workforce, and an ever driving emphasis on cost efficiency. Why are these aspects inconsistent with lean? These elements do not support the achievement of the major objectives of Lean: •

Focused specialized workforce is a workforce that is dedicated; it is not flexible. Consequently, the workers cannot be moved around to where the capacity is needed.

•

Special purpose equipment, like the workforce, is dedicated and it is not flexible. Flexibility is at the heart of lean.

•

An ever-driving emphasis on cost efficiency means that you are willing to make trade-offs that may not be the best for the firm. For example, you may be willing to accept higher levels of scrap/rework as long as the overall costs are lowered. The goal is to reduce waste and variance, which ultimately will reduce costs (may not reduce costs in the short-term but it will in the long-term).

2. Figure 8-4 illustrates the analogy of a boat hitting rocks as the level of water falls. Why is water a good analogy for inventory? Is the sequence in which rocks are encountered a good way to prioritize inventory reduction activities? How might this prioritization scheme differ from one used in an accounting department? Like water protects the boat from the rocks (if there is enough inventory, then the boat can ride higher and go over the rocks), inventory protects the firm from the effects created by the seven forms of waste. To a certain extent, the order is important. Overproduction is the largest and 8-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 08 - Lean Systems

most important of the seven forms of waste. It is the most basic type of waste. Consequently, it is the type of waste that we should focus on first. Process waste, transportation waste, and waiting time are all forms of waste attributable to the processes. By the time we get to product waste, we deal with waste that is created by factors in addition to the process. 3. Why is achievement of the following goals critical to the success of lean systems? Give an example of how each area contributes to the success of a lean system. a. Setup time and cost reduction With setup reduction, we can move to producing order quantities in as small as units of one. This leads to reduced inventory, reduced lead time, and improved customer responsiveness. All of these help to reduce cost. b. A relatively stable shop load A relatively stable shop load allows the planners to schedule the system so as to reduce setups and to organize the schedule so as to best meet the demand rates. Uncertainty and rapid changes compromise our ability to effectively schedule production by disrupting it. c. Employee empowerment This notion is at the heart of the concept of quality at the source. Those who are closest to the problems are the employees and they should be given the authority to identify and correct these problems as soon as they see them. d. Statistical quality control Statistical Quality Control gives the employees the ability to determine if the process is under control (if not, then it must be brought under control), the source of the products (through Cause and Effect), and the relatively importance of the various possible root causes (thus allowing the employees to target and correct the most important problems first). 8-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 08 - Lean Systems

4. You work in the marketing department of a firm that sells mountain bicycles and related gear. Its manufacturing division has decided to wholeheartedly adopt the lean systems philosophy. Will this affect your ability to delight your customers? Make a list of the potential pluses and minuses of this lean systems decision.

Pluses Reduced lead times

Negatives Unable to meet large and unexpected changes in demand.

Better quality

If you are not in the schedule, then you have to wait until the next time you are scheduled.

Lower costs

Less amenable to customization/one-offs.

5. Discuss how lean systems might apply to a fast-food hamburger stand. How will it have to be modified to deal with daily demand variation? Pluses Reduced lead times Higher quality/fresher products Less inventory/less waste

Negatives Unable to deal with high demand periods (e.g., lunches and dinner). To deal with these periods, we can build component inventory (as Burger King and McDonalds do with their cooked hamburgers) or we can regulate the waiting lines to give the system enough time to prepare the food (as Wendy’s does).

6. Using the discussion of Lean Design, consider the design of an iPod competitor. Give examples of each of the following design wastes: •

Complexity – making the product too difficult to make or use.

•

Precision – the product requires precision in setting it and or in making adjustments to it.

Chapter 08 - Lean Systems

•

Immaturity – introducing new features that the customer may not want or even understand.

•

Danger – the product may expose the user to dangerous electrical waves or dangerous electrical shocks.

•

High Skill – the product demands skills that are beyond the capabilities of our system or those of our suppliers.

7. What would happen if you tried to introduce a new strategy based on radical innovation into a facility where the organization has adopted wholeheartedly the lean culture? This issue is discussed in greater detail in Chapter 17. What happens here is that we are dealing with the certainty and short lead times offered by Lean and the greater uncertainty (but also higher rewards) of innovation. In practice, when used together, it is found that lean tends to crowd out radical innovation. 8. How would a restaurant use the 5-S program? How would an operating room use this program? Both settings would greatly benefit from 5-S. Both could benefit from: •

Sort - Separating out the more commonly used items and removing the least used items.

•

Straighten – making sure that everything has a place and that it is always returned to it after use. The cutting knife goes back to the same place; so does the scalpel. This reduces search time.

•

Scrub – cleaning regularly to ensure order and to identify potential problems before they become severe. 8-4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 08 - Lean Systems

•

Systematize – making sure that every does the same task in the same way so that there is less human-induced variance.

•

Standardize – make the prior four steps into a comprehensive standard process that is subject to continuous improvement.

9. Under what conditions would you use a Kaizen Event? In order to get the students to understand the answer to this question, we first have to start by identifying the sources of waste (not the seven forms of waste but rather what creates them). With this perspective, we can identify four major sources of waste: •

Design – the design is “wrong” – i.e., difficult to build, costly, prone to break.

•

Measures – what we are measuring and what we need to do are not the same.

•

Customer – we are dealing with a set of customers that differ in terms of what they expect from the system. For example, we may be dealing with customers that continually change their orders.

•

Process – the process is not effective or efficient.

When the sources are laid out in this way, you can ask the students where kaizen events best apply and where they are least effective. The answer then becomes obvious – Kaizen events are most effective when dealing with process-generated waste. 10. Why should you NOT include setup times when calculating the TAKT times?

Setup time is a potential use of available time – just the same as production or rework. It is something that we can control. 11. What is the relationship between bottlenecks and TAKT Time? 8-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 08 - Lean Systems

Bottlenecks and TAKT times are linked – at the bottleneck, to meet the required TAKT time, we will have to add capacity (something that makes them less of a bottleneck). 12. One lean systems’ consultant has stated that “without standardization, there can be no improvement.” Why? Without standardization, you have too much variance in the process. You cannot tell what is due to the differences in processes versus what is due to poor equipment, bad training, poor specifications, or poor quality inputs. Without standardization, you effectively control and eliminate one form of variance – process variance. 13. Can lean systems enhance a worker's quality of life? Discuss how it might or might not. This question gets students to understand the trade-offs introduced by lean. On one hand, lean does improve the quality of employee’s life through: •

Empowerment and improved responsibility

•

Pride in doing a good job

•

Simplification – not having to compensate for problems created either by the system or by others (e.g., suppliers).

•

Less stress – less chance of being overloaded or rushed, which means that you can do a good job and not have to compromise quality (remember – when you are overloaded, the first thing that is compromised is quality).

•

Knowledge that problems, when uncovered, will be addressed through the means of continuous improvement.

Chapter 08 - Lean Systems

•

Knowledge that you will not be blamed when problems occur. Typically, in lean, we recognize the truthfulness of Juran’s Law – “when a problem occurs, 85% of the time, it is the system’s fault, 15 percent of the time, it is the person’s fault.” Against these “pluses” are some critical negatives:

•

Stress from knowing that when things go wrong and they involve your area, you are brought under an intense spotlight. If there is a problem, the andon system may flag your area – in which case, everyone comes and focuses on you and what you are doing. This can create a stressful environment – one in which you feel that everything you do is being checked and rechecked.

•

Repetitiveness – You must do the task the same way, day in and day out. Any deviation is not tolerated. If you can find a better way of doing things, you cannot simply introduce it by yourself; you have to demonstrate it to your superiors first.

•

The pressure of meeting the schedule. In lean, the system is output driven. If you have so many pieces to make for the day, you cannot finish until the quota is made.

•

High expectations where partial success is not accepted. In a true lean system, if you are given the task of reducing scrap by 80 percent, but yet you only achieve a 70 percent reduction, management will compliment you but they will also ask what they could have done to help you achieve the requested 80 percent reduction. The message to you is clear – 70 percent is good but 80 percent is what was requested.

14. Where would you most successfully apply lean systems principles, during the introductory or growth stages of the Product Life Cycle?

Chapter 08 - Lean Systems

Here you would focus not so much on the process but on the design (applying Lean Design principles) or on the features/components of the part (trying to standardize where and when possible). 15. Can a supply chain ever be too lean? What would happen to the supply chain if an unexpected disruption/interruption were to occur? How might you as a supply chain manager reduce the effects of such an unexpected disruption, while staying consistent with the Lean approach? The answer is yes – a supply chain can become too lean. It can become so lean that it becomes fragile. When this occurs, any unexpected variation (a breakdown in equipment or a problem with a supplier or a strike) has an immediate impact on the entire supply chain (because there is no slack in the form of inventory, lead time, or capacity) to protect the system. Here, you have to realize that lean does not require that there be no inventory, but rather the intelligent usage of slack. You can use slack (inventory) to protect yourself from problems in the supply chain. You can also rely on tactics such as backing up bottlenecks in the supply chain with qualified secondary suppliers but by redesigning the product to reduce your reliance on parts that are too prone to disruption. Finally, you can work on improving communications and information flows so that potential problems are quickly flagged and communicated back to you. 16. Imagine that your customer base is located in North America and your suppliers are located in China. Is it possible to implement lean supply chain management under such conditions? What are the challenges now facing the firm?

Chapter 08 - Lean Systems

It is possible but ultimately very difficult. The major problem facing lean is the presence of distance – it is distance that increases times and reduces responsiveness. In many cases, you may find that the benefits (reduced direct costs) created by going to China are more than offset by the increased in transportation costs or transit inventory (inventory that is in transit but owned by you). To give you an idea of these problems, consider the situation that faced Microsoft when it introduced the Xbox 360. They had enough manufacturing capacity but not enough shipping capacity to meet the large and somewhat unpredictable demand for their new game system (Microsoft took a strategic decision based on seeing what happened to Sony when it did not have enough capacity to meet the rollout demand for their new systems – the decision – to have enough capacity and to meet demand). As a result, Microsoft had to lease over 140 Boeing 747 jumbo jets to fly the units from China to North America – quite an expensive undertaking. 17. Return to the American Vinyl Products case of Chapter . Using the service waste taxonomy introduced in this chapter, what forms of service can you identify in this company’s interactions with its large customers? One way of addressing this question is to list the seven forms of waste and determine if they were present. Category of Waste

Present

Example

Overproduction

No evidence

Waiting

Present

Brad Allenby spent time waiting until his call was answered; hung up in anger.

Transportation

Present

Getting information to address customer inquiries 8-9

Chapter 08 - Lean Systems

Category of Waste

Present

Example from a central book Follow-up forms placed in a large basket for processing.

Processing

Present

Because everyone has to go through the same steps, some steps that are done for general inquiries are not required by the large customers.

Inventory

No evidence

Motion

Present

In resolving problems, it may up to 24 hours before a resolution is obtained.

Product Defects

Present

Calls in from large customers to deal with errors in orders.

The categories of waste can be used. 18. As noted in this Chapter, Lean systems have been successfully deployed in healthcare. Often, these implementations have resulted in the significantly improved patient care. How has Lean contributed to this improvement in patient care? These improvements in patient care come from two different sources: reduction in errors due to variances in the processes or requirements; and, having more time to devote to patients. The first is most evident when dealing with the operating rooms. Prior to Lean, it was not uncommon for every surgeon to specify their own operating tray (e.g., the number of sponges to be included, the type of instruments). The problem with this approach is that it was up to the head operating nurse to ensure that all the items were returned to the tray after the surgery. However, with the arrangements varying by surgeon, occasionally it occurred that the head 8-10 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 08 - Lean Systems

operating nurse forgot how many sponges were used, resulting in a sponge being left in the patient. This led to post-surgical complications. The second occurs due to the elimination of waste and unnecessary actions and steps. By eliminating these items, the nurses can now devote more to being with the patients and to improving their care. Good Guy Hospital Supply Case – Teaching Note The essential point of the “Good Guy Hospital Supply” is that the concepts of JIT / Lean can be applied to services to gain a competitive advantage as well as to manufacturing. The process did increase costs, but it also increased sales or throughput. It is doing this by reducing hospital costs. The stakeholders in the situation are the hospitals, the hospital purchasing departments, the patients, the physicians and medical staff and Good Guy. Purchasing at Midwestern State University – Teaching Note Overall, this fairly straightforward case is intended to show the students the extent to which lean principles and tools are applicable to service operations. It also helps to introduce the student to the process of understanding how effective lean is applied – a process that begins with the desired outcome and then moves forward to ensuring that the entire system is designed and managed to make the desired outcome(s) inevitable.

In introducing this case in class, the following structure is recommended: •

Lay out the symptoms facing Jane Polski.

•

Identify the desired outcomes

•

Assess the extent to which the current processes are meeting these desired outcomes

Chapter 08 - Lean Systems

•

List the various lean tools on the broad and assess the extent to which they are applicable.

•

Discuss how Jane might approach the problems facing the purchasing department.

Symptoms Facing the Purchasing Department •

Orders are often lost within the system.

•

The amount of time needed to place an order is not consistent (predictable)

•

Orders are often inaccurately entered.

•

Budget item for wrong orders (took over 10 percent of the total costs last year). o We could argue that these costs are really understating the total costs.

•

Loss of credibility in the purchasing group.

•

Inability to track orders place.

Desired Outcomes •

Ask the class what they see the desired outcomes for this department.

•

To identify the desired outcomes, we have to turn to the business model, as laid out in Chapter 2. o Critical customer – the individual departments – if we do not treat these departments well, they may decide to buy the orders themselves, thus reducing the need for our services. o The value proposition – the desired outcome could easily be placed within this element. o Capabilities – how we organize and manage the various processes, metrics, training and such 8-12

Chapter 08 - Lean Systems

•

Discussion should focus on the following traits o Accuracy of orders (this may mean that purchasing has to work with the customer o Lead time ▪

Short

▪

Predictable

o Traceability o Next have the class discuss which of these are Order Winners, Order Qualifiers, Order Losers o o o o o o

Attribute Accuracy Speed Predictability Traceability Cost (put this in for discussion)

OQ x

x x x x

OL x x x x

Assess the Current Process •

When we look at the current process, we find that it does poorly on these various dimensions

•

Go back to the symptoms and map them against the traits identified in the preceding section.

Applicability of the Lean Tools •

Now go to section in Chapter 8 (Table 8-3) that discusses the Lean Tools and discuss their applicability

Lean Tool Total Productive

Applicability Some

Example Apply to any computer systems to make sure that they 8-13

Chapter 08 - Lean Systems

Maintenance Group Technology

Some

Focused Factories TAKT

Some Some

Kanban Mixed model scheduling Setup reduction

Low Low

Statistical Process Control

High

Visual Control

High

Quality at the Source

High

Kaizen Events

High

Process Mapping

High

Poka-Yoke

High

5-S program

High

SimplificationStandardization

High

are working correctly. Organize the buyers into commodity groups where each buyer specializes in certain types of purchases. This allows them to become experts in these areas. Extensive of the preceding discussion. Document the processes and seek to balance flows against buyer capacities available

Assess how long it takes to prepare for a purchasing order and see what can be done to reduce this time Use these techniques to track the various elements of buying time (e.g., from the time that the order is placed until it is entered, from the time order is placed until the customer receives, the time from customer inquiry to response) to see if these elements and their distributions are under control. Organize systems to show loads by buyers and whether these loads are exceeding load by size of queues in front. Make each buyer responsible for the quality of the orders received. They are required to ensure that the orders are received and entered correctly and that all of the information is received. If a problem occurs, then they are held accountable. We could implement improvements through such events. There is strong evidence that there is no common process. We could map the processes as they currently exist to assess how effective and efficient they are. Identify issues that are creating problems and develop/implement mechanisms for ensuring that these issues are dealt with immediately. This program (especially the first stage) can be used to reduce the number of forms used. There is a lack of simplification and standardization – the symptom of which are high, variable lead times and relatively low accuracy.

Implementation • Discuss issues such as

Chapter 08 - Lean Systems

o How does Jane create awareness of the need for change (she could use Juran’s Universal Breakthrough Sequence) o How to sell the need for change to the buyers ▪

Should not be hard since the buyers often encounter frustrated customers; they are probability frustrated with the current approaches.

o Picking areas to focus on to show everyone that these new systems do work o Which tools to draw on first – likely candidates: ▪

Process mapping

▪

5-s program

▪

Simplification/Standardization

▪

Quality at the Source

▪

Kaizen Events

o How to change the metrics so that they are consistent with the new approach. Wrap-up •

Point out to the students that lean systems and principles can be applied to service operations.

•

Lean can be applied to almost any situation where there is a set of key customers, a desired outcome, a focus on process and a concern with waste.

Western Telephone Manufacturers Case – Teaching Note This is an interesting case that gets the student to recognize the challenge facing a manager trying to reorient a firm, especially one that is successful with the old approach. To deal with this case, it is useful to pursue the following line of thinking:

Chapter 08 - Lean Systems

How successful has WTM been with the lean approach – very. Why? It works; it is predictable; the time between the initiation of the changes and the resulting benefits is very short. What has happened at WTM to support the lean approach? The answer is that the firm and its management has encouraged the introduction and evolution of a “culture of lean.” This means that the employees are being socialized (taught) to accept the value of lean. In changing the focus from cost management through lean to leadership through innovation, WTM has to recognize that it is asking its employees to go from a system that works and that they have come to appreciate and believe to one that is ill-defined and highly risky. In addition, you are asking them to abandon everything that they have done in the past that has worked. Such a change is liable to generate a great deal of resentment and résistance. This leads to the issue of what would you do. The answer is to begin to recognize that the culture supporting lean will not support a culture of radical innovation. This means that you must first be prepared to discredit the current approach. It also means that you may have to separate the organization that does lean (great once the product has been design) and the organization that does radical (it cannot be limited by lean considerations).

Chapter 09 - Customer Service Management

Chapter 9 Customer Service Management Suggested Answers to Discussion Questions 1. Explain the critical differences between basic customer service, customer satisfaction, and customer success. Customer service, customer satisfaction, and customer success are three levels of accommodating customers. In the past operations managers tended to concentrate on providing customer service. Today, excellent customer service is considered to be the basic foundation of an organization’s operational commitment to customers. Operations managers now think more holistically, in terms of customer satisfaction and success. Customer satisfaction is a higher level commitment than customer service in that it addresses expectations customers have regarding a company’s performance. Customer success is an even higher level of commitment to customers in that it focuses on how a company can leverage its operations to enable customers to meet their objectives. 2. Consider some of your recent shopping experiences and discuss instances in which a store was out of stock of items you were planning to purchase. What did you do as a result of the stockout? Student answers will vary. Some will likely say that they simply bought different brands or substituted different products. Others may say they left the store and shopped elsewhere for their preferred items. A few may even mention extreme dissatisfaction and a decision not to return to the store that was out of stock. 3. Consider products you consume. Identify purchases you have made from firms with the following market orientations: Student answers may vary. Examples are : 9-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 - Customer Service Management

a. Make to stock: Cereal – no lead time, took it off the shelf at a grocery store. b. Make to order: Dell Computer – ordered options such as a security system, Microsoft, extended warranty; the order to delivery lead time about one week. c. Assemble to order: Subway sandwich – bread, turkey, cheese, and honey mustard; order to delivery lead time was about five minutes d. Engineer to order: My parent’s had a house made for our family – choices like the house layout, paint colors, room sizes; order to delivery lead time about nine months In each case, describe the components and your estimate of order-to-delivery lead time that you as the customer experienced. 4. Which market orientation would you consider for a standard product that has low, infrequent demand? What are the tradeoffs you would consider in making this decision? A standard product that has low, frequent demand would likely have a make to order market orientation. This is because if the product is make to stock, then there would be too much inventory for the infrequent demand. The product is standard and therefore should not be assemble or engineer to order. Therefore if you only make the product on the rare occasions that it is in demand, the company saves money on carrying and stocking costs. However, if lead time is too long in this situation, a customer may look for an alternative supplier. 5. How can a company use the gap model of customer satisfaction to improve its operations management processes? A company can use the gap model of customer satisfaction to improve its operations management processes. It can be used as the basis for research to determine which gaps exist in the company. Then action can be taken to eliminate those gaps.

Chapter 09 - Customer Service Management

6. Why don’t companies attempt to offer a commitment at the level of customer success with all of their customers? Customer success commitments are extremely time consuming and resource intensive. For example, while P&G collaborates with a few major customers, it doesn’t do so with all customers. Clearly, no company is likely to be able to implement such approaches with every potential customer. In fact, many customers may not desire such relationships with all (or any) suppliers. From a strategic point of view, then, a company must determine which level of commitment and relationship is appropriate for each customer segment. 7. What aspects of operations management can contribute to customer success? Every aspect of operations management can contribute to customer success. Manufacturing, procurement, and logistics must all be accomplished in ways that will enhance customers’ ability to meet their own objectives. Thus, effective, efficient performance of operations activities is critical to this approach. 8. The chapter offers one approach to customer management and relationship strategy based on sales volume and profitability. Can you think of other criteria that might be used to determine the most appropriate form of relationship? One criterion that might be used to determine the appropriate form of relationship is customer loyalty. If a customer has been loyal for many years, it may be in the supplier’s best interest to form a close relationship with that customer and therefore spend time and other resources on them knowing they are dependable. Another criterion might be potential sales. Some customers may currently be low volume customers but potentially might purchase much more if the relationship with the supplier were to be managed differently.

Chapter 09 - Customer Service Management

9. One of the observations made in this chapter focuses on the relentless series of changes continuously being introduced by Amazon. How would these changes affect your firm and decision-making within the firm, as it pertains to the customer? The key to dealing with this question is understanding that the actions of Amazon, in terms of such areas as product information, shipping, returns, customer information and such, affect your firm in two ways. Once these changes are introduced, your firm must quickly formulate and implement a response to the changes. The key here is that of speed. Failure to do so can cause your firm to lose customers. Second, these changes affect customer expectations. For example, once a customer is exposed to these actions, they can form both order qualifiers (what the customer expects from any retailer) and an order loser (if your firm fails to provide a similar service, then you can possibly lose the customer’s business). If Amazon offers two day delivery, then customers will expect your organization offer something similar. In terms of decision-making, we expect decision-making to emphasize speed of response – we do not have the time to deliberately think it through. It also emphasizes that the time span begins when the action is taken by Amazon and ends when you have implemented and delivered your response. Finally, when an action taken by Amazon becomes an order qualifier, then the need to justify a response based strictly on a detailed cost/benefit analysis is reduced, since the action has become a customer expectation. 10. In this chapter, we began with a discussion of Macy's and its omnichannel strategy. What are the possible implications of this strategy for the relationships between marketing and operations/supply chain management? The relationship between operations/supply chain and the key customer?

Chapter 09 - Customer Service Management

One of the first implications is that it requires a closer linkage between marketing and operations/supply chain management. This relationship has to be bi-directional with marketing informing operations/supply chain management of what the customer expects and what the firm has promised and with operations/supply chain management telling marketing what is possible now and in the future (as well as the investments being made). Ultimately, given that operations/supply chain management must deliver on the promises made by marketing and the firm, this means that operations/supply chain management has working more closely with the customer – it has to develop and maintain a strong sense of customer intimacy. 11. You are a manager for a firm that sells computer and technological equipment through your stories and various on-line sites. You recently have found out that Amazon is releasing a new line of products (through its AmazonBasics line) that are in direct competition with your products. What actions focusing on your customer would you consider introducing to counter Amazon (and why)? The answer to this question is to look at the business model concept introduced in Chapter 2. If Amazon introduces a line of products similar to your firm’s products, then you have to see what outcome is being emphasized (in the case of Amazon, it is often cost and an emphasis on standard products). Then, by using your knowledge of your key customers, you can begin to emphasize another critical outcome, such as sustainability or innovation. In other words, focus on areas where the Amazon product is weak and become dominant there.

Problem Solutions 1. Aldo Inc. was reviewing its quarterly performance in providing service to customers. An analysis of order and shipping data was prepared and is shown in the table below. How well did Aldo perform in unit, line, and order fill rate? 9-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 - Customer Service Management

Orders

Total

Total Complete

Received

Units

Order

Units

Order Lines

Orders Delivered

Ordered

Lines

Delivered

15,000

3,000

14,250

2,700

450

360

Unit fill rate: 14,250/15,000 = 95% Line fill rate: 2,700/3,000 = 90% Order fill rate: 360/450 = 80% 2. The following quarter, Aldo’s senior executive was interested in knowing whether performance had improved. The following table presents order and shipping data collected for the next quarter. How would you answer the senior executive? Orders

Total

Total Complete

Received

Units

Order

Units

Order Lines

Orders Delivered

Ordered

Lines

Delivered

18,000

3,200

17,200

2,950

500

425

Unit fill rate: 17,200/18,000 = 95.6% Line fill rate: 2,950/3,200 = 92.2% Order fill rate: 425/500 = 85% Performance has improved. The unit fill rate and the line fill rate have increased slightly and the order fill rate has increased by 5 percentage points. 3. Suppose a firm, in discussions with customers, learns that customers identify eight factors that they evaluate for every order they receive from suppliers. The firm then finds that its performance is 95 percent on six of these factors and 92 percent on the other two factors. What is the firm’s probable perfect-order performance? 9-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 - Customer Service Management

Perfect-order performance: 95%* 95%* 95%* 95% * 95% * 95%* 92% * 92% = 62.2% 4. In the problem above, suppose performance on two of the factors that had been 95 percent falls to 90 percent. What is the impact on perfect-order performance? Perfect-order performance: 90% * 90% * 95% * 95% * 95% * 95% * 92% * 92% = 55.8% The perfect-order performance decreased by 6.4 percentage points, a decrease of 10.2% in performance. 5. ABBA Inc. collected the following data concerning orders and shipments during the most recent year: Orders

Total

Total Complete

Received

Units

Order

Units

Order Lines

Orders Delivered

Ordered

Lines

Delivered

5,000,000

150,000

4,800,000

146,500

25,000

24,150

How well did ABBA perform in providing product to its customers? Unit fill rate: 4,800,000/5,000,000 = 96% Line fill rate: 146,500/150,000 = 97.6% Order fill rate: 24,150/25,000 = 96.6% 6. In addition to the information concerning product availability, ABBA collected the following data concerning customer service performance: Late delivery—6 percent Damage—1 percent Incorrect documentation—4 percent 9-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 09 - Customer Service Management

Assuming these are the critical attributes for perfect orders, how well did ABBA perform? With respect to these three factors, ABBA’s perfect-order performance is: 94%*99%*96% = 89.3%. Assuming that receiving all product is critical as well, this must be modified by the order fill rate, resulting in: 89.3% * 96.6% = 86.3% perfectorder performance. 7. Jones Company found the following results when analyzing its delivery performance.

Total Orders 1,245

Total Units Ordered 22,350

Total Order Lines 5,830

Total Units Delivered 18,750

Order Lines Delivered Complete 4,824

Complete Orders Delivered 898

Unit fill rate: 18,750/22,350 = 83.9% Line fill rate: 4,824/5,830 = 82.7% Order fill rate: 898/1,245 = 72.1% Overall, the performance is not very good. 8. Jones Company also found the following information about delivery to customers. Late deliveries were made for 8 percent of the orders. Early arrivals, which are unacceptable to customers, occurred for 2 percent of the orders. The company also experienced a 1.5 percent damage rate during delivery. It also had incorrect information on 3 percent of the invoices billed to customers. Based on this information, what was the approximate perfect-order performance at Jones Company? Here, the perfect order is 72.1% * 92% (late deliveries) * 98% (early deliveries) * 98.5% (damaged-free goods) * 97% (correct information) = 62.00% perfect-order performance.

Chapter 09 - Customer Service Management

9. The data below show a distributor's delivery performance for the month of March. Using these data, answer the following questions: 1. What is the order fill rate for March? 2. What is the line fill rate for March? 3. What is the unit fill rate for March?

10. Using the data from the problem above, suppose that the distributors customers do not want late deliveries, but they also do not want deliveries more than 2 days early. If you define "ontime" as being neither late nor more than 2 days early, what are the fill rates? 1. What is the order fill rate for March? 2. What is the line fill rate for March? 3. What is the unit fill rate for March? The table below shows calculations for lateness given the criteria established in problems 9 and 10. Sorting the data and counting the number of late deliveries for each order, line, and in total yields the following answers: Problem 9: 1. What is the order fill rate for March? 20% 2. What is the line fill rate for March? 38% 3. What is the unit fill rate for March? 84%

Problem 10: 1. What is the order fill rate for March? 0% 2. What is the line fill rate for March? 13% 3. What is the unit fill rate for March? 59%

Chapter 09 - Customer Service Management

Tiler Industries – Teaching Note Tiler Industries has lost a major sale to a long-time loyal customer. A competitor, Eastern Star, won the contract due to “…benefits, some tangible and some intangible, and supply chain approaches” provided by Eastern Star. The case recaps events leading up to the loss of the contract. The case provides an opportunity to recap the chapter discussion of the differences in customer service, customer satisfaction and customer success. It is apparent that Tiler has focused on tangible activities more oriented toward customer service. The company apparently has focused on its own concept of customer needs rather than attempting to truly understand customer expectations or, more importantly, customers’ real needs. Eastern Star seems to have more intimate understanding of customers’ real requirements-a customer success philosophy. This is the issue that should be most thoroughly discussed with respect to the case. Questions 1. What do you think are the intangible benefits Eastern Star provides to customers? What is the role of operations management in providing these benefits? The intangible benefits Eastern Star provides to customers are communication, dependability, ease of use of its products, and as well as an understanding of issues related to supply chain performance (from the customer’s perspective). Operations at Tiler needs more comprehensive understanding of these same issues. It seems that Tiler has historically looked at them primarily from its own perspective, primarily relying on input from sales and marketing to understand customer requirements. There is little knowledge of what happens further down the supply chain.

Chapter 09 - Customer Service Management

2. What changes in organization and/or planning would help Tiler respond to the challenges raised by Eastern Star? Tiler needs to develop more effective strategies for understanding benefits desired by customers. Perhaps more direct contact with customers, visits to customer facilities, and a “user group” would help develop this type of knowledge. Including its own suppliers might also help Tiler. Since Tiler’s ability to meet customer requirements depends on suppliers’ abilities as well, the more the suppliers understand about Tiler, the more likely they will be able to respond. Johnson Snacks – Teaching Note The data given in the case are summarized in the table below. It is good to put these data side by side to compare in a class discussion. Clearly, the grocery segment is the largest and most profitable retail segment that Johnson Snacks serves. Segment

Annual unit sales

Sales price

Annual revenue

Grocery

Number of retail locations 250

Annual costs

Annual profit

$3,570,000

Percent of revenue 74%

2,100,000

$1.70

Drug

140

365,000

Mass Merchant

400,000

Profit margin

Deliveries per week

Vehicle type

$340,000

Percent of profit 85%

$3,230,000

10%

Standard

$1.90

$693,500

14%

$652,000

$41,500

10%

Standard

$1.40

$560,000

12%

$542,000

$18,000

Extended

1. Categorization using the framework in Figure 9-4.

Revenues Grocery

Chapter 09 - Customer Service Management

Profit

2. How should Johnson Snacks respond to the letter from Discount 2 You?

The instructor can ask students how important it is to comply with the letter’s requests. Discount 2 You is a “high cost to serve” customer, as it requests special handling (stickers) and frequent deliveries. It is useful to ask students, “on what other information does this decision depend?” If the mass merchant segment truly offers the greatest growth opportunity (not a given), then one could ask whether Johnson Snacks will be able to develop the logistics capabilities needed to lower costs in ways that make this segment profitable (assuming Discount 2 You is representative of the segment. If there are plenty of growth opportunities in the other segments, then Johnson would be well advised to negotiate strongly with Discount 2 You and be willing to lose this customer. Global Glass Glitches – Teaching Note As you might have surmised, this is a “real world” experience had by one of the authors. Before discussion student responses to the case questions, it is helpful to consider the complexity of this seemingly simple shipment. First consider the number of parties involved: • • • • • • • • • •

Swink Elias, the house sitter Michell, the villa owner Bar Sport manager UPS Texas, the origin of shipment UPS International UPS Italy Italian Customs Brokerage in Italy handling shipment Swink’s Bank 9-13

Chapter 09 - Customer Service Management

•

Italian Bank of the Bar Sport manager

Second, the shipment was made more difficult by the fact that Swink and his group were moving locations about every 5 days. This put more pressure on UPS hitting a promised delivery window. Questions: 1. What are the weaknesses of UPS’s customer service operations? How could they be improved?

The instructor might find it useful to refer to the customer service hierarchy presented in chapter 9 (basic, satisfaction, success) and ask the students to consider which level of service UPS seems to be aspiring to in this segment of their business. The following questions might be useful in driving student discussion: What elements of service seem does UPS seem to be prioritizing (lead time, reliability, information)? How could UPS have better managed Swink’s expectations? Which “gaps” from the customer satisfaction model are most apparent in this case? -

Knowledge gap – UPS did not understand that Swink was moving every five days and therefore on time delivery was critical

Performance gap – UPS did not hit their promised delivery date

Communications gap – UPS did a terrible job communicating the complete status and tracking of the shipment

Satisfaction gap – Swink was clearly not satisfied (paid a lot of money and hassle for nothing)

Factors that prevented seamless execution of the delivery: •

UPS employees with limited knowledge, training, and access to information 9-14

Chapter 09 - Customer Service Management

•

• • •

Multiple, independent business units under the UPS umbrella that each have different incentives and access to information. No real incentive or system to work together other than through typical business transactions. Changing regulations and taxes that must be considered Friction/difficulty in making currency exchanges Language translation difficulties

Limitations in customer service: • • • •

Impenetrable automated gate-keepers, sometimes speaking a different language UPS employees agreeing to terms that they can’t actually deliver Delays between events in the delivery process and communications to the customer Communications from different parties with cryptic information, e.g., “lack of documentation”. • No single advocate for the customer – each entity only cares about their part of the process. 2. What could Swink have done to better manage the process?

In hindsight, Swink made two important errors. First, he depended too much on the judgement of both Elias (the house sitter) and the manager at Bar Sport. Both parties were well-intentioned and did their best to help, but neither party was experienced enough to know what kinds of questions to ask. Swink should have called the UPS Texas store at the time that Elias scheduled the shipment to make sure the documentation was complete and that the glasses were properly valued (Elias indicated a value of $200 dollars for the glasses, which precipitated the 70 euro VAT). Second, Swink should have communicated more fully with his helpers. After agreeing with UPS to return the glasses to sender, Swink should have immediately told the Bar Sport manager of this decision, so that he would have refused to receive the package and not paid the VAT. Correcting both of these errors would likely not have prevented all of the problems with the delivery, but they might have saved Swink some money. 3. What does this story reveal about the state of global logistics? What factors create challenges for customer service excellence?

Chapter 09 - Customer Service Management

While “globalization” has dramatically increased over the past few decades, this story highlights the complexity and frictions that remain in global logistical systems. Numerous organizational, logistical, regulatory, and financial requirements and constraints make even relatively simple transactions quite difficult. Tracking and complying with all the documentation requirements and physical movements of a package is a daunting task, involving many different hand-offs across cooperating parties. As this story illustrates, the customer’s needs can easily get lost in the process. It can be difficult and expensive to provide the kind of customer service and advocacy required to solve even fairly simple problems. In order to minimize expense and complexity, companies like UPS automate much of the communications with customers and sharply delineate responsibilities among each of the parties (in this case no less that four different and independent business organizations). Unfortunately, these structures can provide lousy service experiences like this one. A simple alternative would be to assign a “customer advocate” (probably from UPS international) for customers like Swink who are having trouble navigating the different organizations involved. None of the UPS representatives seemed willing to take on this role. Instead, they expected Swink to contact and negotiate with all the various parties. A broader alternative would be to design and implement a highly integrated global logistics organization, staffed with well-trained customer service representatives who are easy to contact. The cost to implement this approach would be massive, perhaps not really justified for small customers in the parcel delivery space. More integrated and well-staffed logistics organizations do exist in the B2B world, where customer orders are large enough to justify such investments. 9-16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

Chapter 10 Sourcing and Supply Management Suggested Answers to Discussion Questions 1. Can you think of an organization that has benefited by extending social responsibility to its supply chain? What about one whose supply chain practices have hurt its reputation? Several organizations provide annual rankings of companies for various aspects of corporate social responsibility. For example, Corporate Knights (http://www.corporateknights.com/reports-landing-page/) provides a list of the 100 most sustainable companies in the world, Newsweek provides Green Rankings (http://www.newsweek.com/top-10-global-companies-green-rankings-2017-18), and Reputation Institute (https://www.reputationinstitute.com/) ranks companies based on corporate social responsibility. These lists can be a source of current examples of high and low performers. For example, L’Oreal which was ranked 1 on the 2017 Newsweek Global Green Ranking (http://www.newsweek.com/top-500-globalcompanies-green-rankings-2017-18) puts a high priority on social and environmental responsibility when selecting suppliers (https://www.loreal.com/suppliers/ourevaluation-criteria). 2. Consider the purchase of a new mobile phone. How would you determine the total cost of ownership? What are the costs that you might incur before the purchase, during the purchase, and after the purchase? When evaluating the total cost of ownership of a new mobile phone consider the costs that occur before, during, and after the purchase. Before the purchase, you must consider the time required to do research and evaluate the different phone and service plan options. During the purchase, you must consider the purchase price of 10-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

the phone (which may be hidden as part of the contract price), the phone’s features, the service plan, as well as the size and reliability of the network coverage. The length and type of service plan must be considered since it affects cost and flexibility. After the purchase, issues such as the reliability of the phone, the durability of the phone, the consistency of network coverage, and the length of time before the phone becomes obsolete affect the total costs. 3. The top management team at your company is considering outsourcing the supply management function. Do you support this idea? Why, or why not? Some types of supply management activities may be good candidates for outsourcing. Those activities that would benefit from specialized expertise or knowledge or can be done at a lower total cost by a supplier are potential candidates for outsourcing. Before outsourcing, evaluate potential suppliers to determine their capabilities and performance. For example, purchasing from a new country might be best done by a using a global trading company that has knowledge of suppliers and business practices in that country. Some companies outsource spend analysis and market research activities. Other strategic activities such as managing a major commodity that provides a competitive advantage would be important to retain within the company. 4. Many universities have outsourced operations of residence halls. Do you think this is a good idea? Why or why not? A university’s core competency is education not operating residence halls. Outsourcing would allow the university to focus on its core competency. If a qualified supplier were selected, it could obtain economies of scale by using furniture, fixture, 10-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

and maintenance systems for number of universities in which it operates. Suppliers can use their knowledge from managing residence halls from a number of college and universities to improve processes and develop best practices. A detailed analysis should be done following the steps in Figure 10.1. 5. How would you do a spend analysis if you were the supply manager for a large state university? What are likely to be the most important spend categories (excluding dining services and residence life)? A large state university has many different types of purchases. The first step would be to identify who in the university is making purchases. For example, it may be that each College purchases the computers for their faculty. The accounting system would provide information about who is purchasing what. After this information has been gathered, you can determine which purchases could be standardized and combined. For example, by standardizing computer purchases across the university, quantity discounts are likely. For universities, a large portion of spend is likely to be on software and computer systems. Classroom and office furniture are also likely to be high spend categories. 6. For an organization that you are familiar with, provide an example of each of the four categories of purchases shown in Figure 10-4. What sourcing strategy would you use for each? Why? The four categories are: 1) non-critical, which are low value, low risk items, 2) bottleneck, which are low value but high risk items, 3) leverage, which are high value but low risk items and 4) strategic, which are high value and high risk items. One example would be the purchases by an airline such as Delta. Non-critical items would 10-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

include the cups and napkins that are used for food service on the plane. The company might use vendor-managed inventory for these items. Bottleneck items would include spare parts that are needed for repair of an aircraft. The company may decide to use two suppliers to make sure that parts are always available. Leverage items would include the uniforms that the crew wears. The company might use a single national or global supplier to keep costs low. The airplane engines are essential high cost items that affect safety, reliability, and operating costs. The company would develop strategic partnerships with the key engine suppliers. 7. Marriott and Hilton corporations have hotels around the world. What type of purchases should be local, national/regional, or global? Why? To maintain consistent standards and gain leverage, hotel chains try to source many key items from a single global source. For example, pillows, bedding, and clock radios would be purchased globally. Fresh food, flowers and produce are items that are often purchased locally. Meat is often sourced nationally. Cultural differences and laws and regulations must be considered when making sourcing decisions. 8. Why don’t companies seek full partnerships with all of their suppliers? It is time-consuming to develop and maintain full partnerships with suppliers. Full partnerships require cross-functional relationships among people in the buyer’s and the supplier’s organizations, extensive sharing of information, and sharing of risks and rewards. The buyer and supplier must develop mutual trust and interdependence. Buyers and suppliers do not have the resources to develop extensive relationships with all of the companies that they do business with. Instead, they must

Chapter 10 - Sourcing and Supply Management

focus those resources on the supply chain partners who are most critical for their organizations’ success. 9. When evaluating a supplier’s financial stability, what are some key indicators to consider? Why? One of the greatest concerns is that the supplier will go out of business and will not be able to supply the product creating a supply chain disruption. Cash flow is one indicator that the supplier may stop operating. Liquidity ratios such as the quick ratio (cash + receivables)/(current liability) can indicate financial problems. If the supplier’s inventory turnover (cost of goods sold/inventory) is too low, the supplier also may have cash flow problems. The ability to take on debt if needed to expand also is another important financial performance indicator. The debt to equity ratios (total liabilities/equity) and current debt to equity (current liabilities/equity) indicate levels of debt. If debt ratios are too high, the supplier may not be able to take on additional debt or to pay its lenders. Profitability ratios also are important. Net profit margin (profit after taxes/total assets) and return on assets (profit after taxes/total assets) indicate how well the supplier is performing. It is important for long-term stability that a supplier be profitable and retain in business. However, if profitability is too high the supplier’s prices may be too high. 10. What are the costs and challenges involved with switching suppliers? The first step when switching suppliers is to find a qualified supplier who is willing to do business with the company. The supply manager must search for suppliers and then evaluate their capabilities to see if they are able to meet the buyer’s needs. Supplier evaluation may include an analysis of the supplier’s financial performance. 10-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

For strategic suppliers, a visit to the supplier’s operations will include an assessment of equipment, processes, employee skills, training, and morale, quality systems and performance, supply management processes, engineering and technical capabilities, and logistics systems. Product testing may be required to make the final decision that the new supplier is qualified. To agree upon the terms of the contract, competitive bidding, e-auctions, or negotiation are needed. Then the buyer must determine how to phase out the existing supplier and start the new supplier. The buyer must develop processes for communicating, managing the transactions with, and evaluating ongoing performance with the new supplier. 11. In what situations should a company work with a poor performing supplier to improve its performance? Why? Working will suppliers to improve performance requires resources and may not always be successful. Thus, the company must consider the costs and benefits of supplier development. In some cases, there may be no qualified alternative suppliers so supplier development is required to improve quality, reduce costs, or reduce risk. In other cases, the company may decide to work with a supplier to create a new viable supplier. This often happens if a company only has one qualified supplier and wants to create a more competitive environment, sales are increasing and the current supplier cannot meet future needs, or the company is expanding into a new region of the world and needs local suppliers. 12. Digital technologies are rapidly changing sourcing and supply management. What are the potential benefits and drawbacks to the adoption of digital technologies in supply management? 10-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

Students may have a wide range of different perspectives. Robotic process automation, smart contracts, and machine learning will automate routine processes such as procure to pay, contract compliance, and spend analysis. This reduce errors, increase speed, and reduce costs. As transactional processes become automated, supply management professionals will be able to focus on more strategic activities. Technologies such a Blockchain as well as sensors and IoT will increase visibility and transparency in the supply chain reducing risk. Many digital technologies are at the early stages of development. It will be difficult to determine which technologies to adopt for what situations. The skills needed in supply management will change and employees will need training and development to be successful using new tools. Problem Solutions 1. The supply manager at a dishwasher manufacturer is assessing the company should purchase the pump from a supplier or assemble the pump in-house. Forecasts suggest that 15,000 pumps are needed per year. The annual fixed costs to assemble the pumps are$120,000 per year. The variable costs per unit to assemble the pump are $25/unit. The pumps can be purchased for $30/unit. Does the cost analysis support insourcing or outsourcing pump assembly? Total Cost insource= (Variable Costs × Volume + Fixed Costs) = (($25/unit × 15,000 units/year) + $120,000) = $495,000/year Total Cost outsource = (Price × Volume ) = ($30/unit × 15,000 units/year) = $450,000/year The cost is lower to outsource the pumps than to insource the pumps. 2. An online retailer must decide if it should insource or outsource its website maintenance. The company estimates that 4,000 hours per year will be needed to maintain its website. To 10-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

insource maintenance requires $25,000 in fixed costs per year and $27/hour in variable costs. Quotes from suppliers show that website maintenance can be outsourced for $35 per hour. Does the cost analysis support insourcing or outsourcing website maintenance? Total Cost insource= (Variable Costs × Volume + Fixed Costs) = (($27/unit × 4,000 hours/year) + $25,000) = $133,000/year Total Cost outsource = (Price × Volume) = ($35/unit × 4,000 units/year) = $140,000/year The cost is lower to insource website maintenance than to outsource website maintenance. 3. A furniture manufacturer is assessing if it should make or buy the wooden frames for upholstered dining room chairs. The forecast is for 100,000 chairs to be produced per year. The fixed costs per year to make the frames are $150,000 and the variable costs are $5/frame. The supplier’s bid is $8/frame. Does the cost analysis support insourcing or outsourcing the chair frames? Total Cost insource= (Variable Costs × Volume + Fixed Costs) = (($5/unit × 100,000 hours/year) + $150,000) = $650,000/year Total Cost outsource = (Price × Volume) = ($ 8/unit × 100,000 units/year) = $800,000/year The cost is lower to insource the chair frames than to outsource the chair frames. 4. A construction equipment manufacturer is considering outsourcing assembly of dashboard components. Strategically the company is focusing on design and final equipment assembly. The company expects to make 75,000 units next year. The total variable costs to assemble the dashboard components is $270/unit including both direct labor and direct materials. The fixed costs associated with the assembly process are $500,000 per year. A supplier has quoted a delivered price of $280/unit for up to 80,000 units per year. What are the total costs to insource 10-8 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

and to buy the assembly from the supplier? Considering cost and strategic factors, should dashboard assembly be insourced or outsourced to the supplier? Why? Total Cost insource= (Variable Costs × Volume + Fixed Costs) = (($270/unit × 75,000 units/year + $500,000) = $20,750,000/year Total Cost outsource = (Price × Volume) = ($280/unit x 75,000 units/year) = $21,000,000/year Although the cost is slightly higher ($250,000) to outsource the assembly, the strategic focus on design and final product assembly suggests that outsourcing is the best decision in this case. The company must consider the ability of the supplier to provide the quality and delivery needed as well as any challenges that may be encountered in working with the supplier. 5. WatchNU is a company that designs and manufacturers drones for military use. The supply manager is getting ready to renegotiate the contract with the security service provider that it uses for its offices and manufacturing plant. Three suppliers responded to the RFP for security services for the next three years. The current security services provider, SecureIT quoted $990,000 per year. Two suppliers that have not been used by WatchNU in the past quoted $890,000 and $965,000 respectively. The supply manager is also analyzing the costs associated with insourcing security services rather than using a supplier as a way to reduce costs and provide greater control over security. The salary and benefits for a full-time security services manager is estimated to be $100,000. Other fixed costs are estimated to be $30,000/year. Three security guards are needed 24 hours/day, 365 days per year. The salary and benefits for the security guards is $30/hour. What are the costs to insource the security services? Do you recommend insourcing or outsourcing the security services? Why? 10-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

The variable costs in this case are: 3 guards × $30/hour × 24 hours/day × 365 days/year = $788,400 per year. The fixed costs are: $100,000 + $30,000 = $130,000. The total costs are $788,400 + $130,000 = $918,400 The cost to insource is higher than one supplier’s quotation but lower than the other two suppliers. However, price alone should not be the deciding factor. Because security services are not WatchNU’s core competency and there appear to be qualified suppliers, the security services should be outsourced. Before making the final decision, the new suppliers’ capabilities should be carefully evaluated to ensure that they can provide the quality of service needed. 6. The Big Apple Pizza Company, a manufacturer and distributor of frozen food products, is introducing a new frozen Chicago-style pizza. The new sauce for this pizza is a unique, special recipe and it resulted in very positive taste test ratings in market research studies. The supply manager is trying to decide if the company should make or buy this sauce. The current forecast is for 120,000 total gallons of the sauce to be used over the estimated three-year life of the product. The first year, 30,000 gallons are forecast with 45,000 gallons each in years two and three. Currently, Big Apple purchases all of the sauce used in its products, ready-made, from a single source, Top Tomato. The supplier’s production plant is located 320 miles from Big Apple’s production plant, and weekly, truckload deliveries are currently used. The company buys approximately 600,000 gallons of sauce per year from Top Tomato. The sauce supplier has provided high quality, low-cost standard pizza sauces to Big Apple and other pizza makers for over five years. The current sauce supplier has quoted a delivered price of $2.85/gallon for 10-10 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

the sauce if a three-year contract is used. Conformance to quality standards for Top Tomato’s sauce has been 99 percent and on-time delivery has been 95 percent. Big Apple’s manufacturing manager has stated that a facility and sauce-making equipment are needed at an investment of $60,000 because the company does not make any sauces. The manufacturing manager stated that he had been considering laying off several workers because of lower demand for frozen potpies, so he was in favor of making the sauce. The following direct costs have been estimated for making the sauce. Typically, overhead costs for Big Apple’s production facility are allocated to products at a rate of 200 percent of direct labor. Direct labor

$ 0.25/gallon

Direct materials

$ 2.00/gallon

Apply the eight steps for the insourcing/outsourcing decision. Should Big Apple Pizza make or buy the sauce? Why? Step 1. Assess Fit with the Firm’s Core Competencies. Big Apple does not currently make sauce so this does not appear to be a current core competency of the company. Is saucemaking intended to be a future core competency, most likely not? Are there economies of scale to be gained from sauce production that a supplier will realize because they produce sauce for a wide range of customers? The fact that the sauce is unique suggests that there may be some risk of losing intellectual property if the sauce is outsourced but this may be mitigated by signing a non-disclosure agreement with the supplier. Step 1 favors outsourcing. Step 2. Evaluate the Suitability for Outsourcing. The recipe for the sauce is proprietary. However, the process to make sauce is mature and uses a known technology. The 10-11 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

company is already purchasing sauce from a high quality supplier. Step 2 favors outsourcing. Step 3. Evaluate the Reasons for Outsourcing. Once the new pizza enters the market, Big Apple’s competitors will be able to copy the sauce. Thus, the investment in sauce making equipment and time spend ramping up on process that is new to Big Apple may not be worth it because of the short time frame of the advantage. Working with an experienced sauce supplier may enable the company to more quickly enter the market with a higher volume and thus gain market share. Step 3 favors outsourcing. Step 4. Assess All Relevant Quantitative Costs. Year Cost to Buy Forecast (gallons/year) Total Price ($2.85/gallon)

30,000 $85,500

45,000 $128,250

Cost to Make Direct Labor ($.25/gallon) Direct Materials ($2.00/gallon) Total Direct Costs Equipment Depreciation Other Overhead Costs Total Operations Cost

$7,500 $60,000 $67,500 $20,000 $15,000 $102,500

$11,250 $11,250 $90,000 $90,000 $101,250 $101,250 $20,000 $20,000 $22,500 $22,500 $143,750 $143,750

7. Your company has used competitive bidding to select a supplier for janitorial services. Three suppliers returned acceptable bids within the allotted period. Based on these ratings from the supplier assessment, which supplier appears to be the best? Why? How would the final selection decision be made? Multiple each supplier’s rating in each category by the weight. Sum the score for each supplier. Category

Weight

Supplier A

Supplier B

Supplier C

Chapter 10 - Sourcing and Supply Management

Quality

Rating

Score

Rating

Score

Rating

Score

40%

1.2

1.6

25%

0.5

0.75

0.25

20%

0.4

0.6

15%

0.6

0.75

systems Financial stability Management experience Price

Total 2.7 3.15 Weighted Score All ratings on a five-point scale with 1 = poor, 5 = excellent.

3.2

Based on the weighted scores, Supplier C appears to be the best because it has the highest score of 3.2. However, the weighted score for Supply B is very close at 3.15. Judgment should be used to decide between Supplier B and Supplier C. 8. As the buyer for the city of Perrysburg, you are evaluating a supplier for garbage cans to be used in the city’s parks. Three suppliers returned acceptable bids within the allotted period. Based on these ratings from the supplier assessment, which supplier appears to be the best? Why? How would the final selection decision be made? Multiply each supplier’s rating in each category by the weight. Sum the score for each supplier. Category

Design

Weight

10%

Supplier

Rating

Score

Rating

Score

Rating

Score

0.4

0.3

0.2

Chapter 10 - Sourcing and Supply Management

Delivery

30%

0.6

0.9

1.5

Warranty

20%

0.2

0.4

Price

40%

1.2

1.6

Total 3.2 3.4 weighted score All scores are based on a five-point scale with 1 = poor, 5 = excellent.

3.7

The weighted score is the highest for Supplier C suggesting that they may be the best supplier to choose. However, judgment should be used to make the final decision. 9. Simply Chocolate, a retailer selling gourmet candy, has decided to expand its market by adding online sales. The supply and marketing managers must select a company to develop a website. Based on an initial screening, the team has narrowed the list to four potential suppliers. Based on these ratings which supplier appears to be the best? Why? How would the final selection decision be made? Multiple each supplier’s rating in each category by the weight. Sum the score for each supplier.

Company

Number of

Weight

Web-

Cool-

Major

Tex

Web

Designs

Mkt

Rating

Score

Rating

Score

Rating

Score

Rating

Score

45%

1.35

0.45

1.8

2.25

30%

0.9

1.5

1.20

15%

0.6

0.75

0.45

0.15

10%

0.4

0.5

0.3

0.10

sites developed Technical expertise Responsive -ness Price Total

3.25

2.6

4.05

3.70

Chapter 10 - Sourcing and Supply Management

Score

All ratings on a five-point scale with 1 = poor, 5 = excellent. D. Designs has the highest overall rating at 4.05 suggesting that they may be the best supplier to select. However, judgment should be used to make the final decision. 10. The senior buyer at How Does Your Garden Grow Inc needs to select a supplier for plastic patio chairs for a one-year contract. The chairs will be shipped to the company’s distribution center in Toledo Ohio. Three potential suppliers have been identified and the data were gathered. Develop a weighted-point model. Based on this model, which supplier should be selected? What other factors should be considered? Company

ABC Molding

Perfection Plastics

I-Products

Annual sales

$ 9 million

$ 80 million

$ 30 million

Plant location

Erie, PA

Oakland, CA

St. Louis, MO

Purchase price per

$9.50

$11.39

$11.25

300 ppm

60 ppm

160 ppm

99.5%

90%

94%

1 day

5 days

2 days

unit* Quality (defective parts per million) Delivery (% on Time) Transportation Time

Chapter 10 - Sourcing and Supply Management

Supplier Assessment Scores Perfection ABC Molding Category

Weight Rating Score

Plastics

I-Products

Rating Score

Quality performance and systems

50%

2.5

1.5

10%

0.3

0.5

0.3

20%

0.2

0.6

20%

0.4

Management capabilities and attitudes * Delivery performance Purchase price Total weighted score

3.3

3.6

2.8

*All scores on a five-point scale with 1 = poor, 5 = excellent Perfection Plastics has the highest weighted score of 3.6. So, it may be the best supplier to use. It is the largest company so it may have more resources to grow and expand if needed. One concern is the location of the company in Oakland CA. The company must hold more inventory because of the long transportation lead time of five days and the less reliable delivery performance (late 10% of the time). What are the costs of holding the extra inventory? How often will the company’s team need to visit the supplier? Travel will increase costs. The variable costs are the direct labor and direct materials. Assume that the $60,000 in equipment will be allocated over the three-year life of the sauce so $20,000 per year in depreciation costs will be incurred. Other overhead costs are not directly estimated but 10-16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

are allocated based on 200% of the direct labor costs. For example, for year 1, the other overhead costs are $7,500 × 2 = $15,000/year. The total operations costs to make the sauce are the total direct costs + equipment depreciation + other overhead costs. It is more expensive to make the sauce rather than to buy the sauce so Step 4 favors buying the sauce. Step 5. Assess All Qualitative Factors. The current supplier Top Tomato appears to be a quality producer who should be capable of making the sauce. Can the supplier be trusted with the new sauce recipe? If the sauce production is not brought in-house by Big Apple, some workers in the pot pie area may be laid-off. Step 6. Review the Capabilities of Current Suppliers. The company currently buys 600,000 gallons of sauce from Top Tomato. Does the supplier have the capacity to produce the additional 30,000 to 45,000 gallons of sauce per year? Are the supplier’s processes designed to produce high-volume, standard sauces rather than low-volume gourmet sauces? Will the quality remain high with the new sauce? Step 7. Make and Implement a Decision. Based on the limited information provided in the case, it appears that the best decision is to outsource the sauce to the current supplier Top Tomato. Additional information on Top Tomato’s capacity and ability to keep the new sauce recipe secret should be evaluated before making the final insourcing/outsourcing decision. Step 8. Monitor the Decision and Revise It as Necessary. Insourcing/outsourcing analysis does not end with the start of production or a purchase. Compare the actual results of the decision against estimates and identify potential problems. This information may indicate a need for corrective action such as terminating or reassigning the contract. 10-17 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

Strategic Sourcing at Best Banks – Teaching Note 1. Using the framework in Figure 10.3, how would you categorize information technology, temporary personnel, and advertising as spend categories for the bank? Why? Information technology is the bank’s largest spend category. In addition, information technology is most likely critical to the bank’s core operations. Karen may want to examine this category is finer detail. The software provider the bank’s core operations is a strategic partner and should be managed as such. However, desktop computers that are used in the office are leverage items that could be managed by consolidating the volume to a single supplier. Temporary personal service is also a leverage purchase with high value and low risk. Savings may be obtained if the spend is consolidated. Although advertising spending is a relatively low level for the bank, it is strategic because it will affect the bank’s image and reputation. 2. What recommendations do you have with respect to sourcing temporary personnel? Why? What challenges is Karen likely to encounter? Karen should consider consolidating spend to one or two temporary personnel agencies to gain cost savings. Depending upon the location of the bank branches, national temporary agencies may not be available. In addition, the banks may resist changing to a different temporary agency. If they have trained personnel they have been using there will be training costs to switch to a new agency. Because of the importance of customer relationships, the customers may also be unhappy if the bank employees who they have built a relationship with are no longer at the bank.

Chapter 10 - Sourcing and Supply Management

3. Should the supply management department be involved in purchasing of the print advertising and promotional materials? Why or why not? What should supply management’s role be? Supply management should be involved in selecting and evaluating advertising agencies and printers. Although marketing can best evaluate the agencies’ creative capabilities, supply management can evaluate the supplier’s financial health and transactions processes. Supply management should work with marketing to develop a set of criteria that will be used to evaluate potential agencies and to develop the request for proposals. Together marketing and supply management should select the suppliers to use. Supply management, because of negotiating expertise, should lead the negotiating team. They should also work with marketing to determine how to evaluate the supplier’s ongoing performance. Trail Frames Chassis – Insourcing/Outsourcing Decision – Teaching Note Step 1. Assess Fit with the Firm’s Core Competencies. TFC's extensive experience with motor home users and knowledge of new technological advances is the source of its competitive advantage. It is generally recognized that no one in the industry can match TFC's design and marketing knowledge base. The technology that TFC has developed for the low end market is unique and currently provides a competitive advantage. Step 1 favors insourcing. Step 2. Evaluate the Suitability for Outsourcing. The technology used for the low end pushers is new. This is expected to be a growing market. Step 2 favors insourcing. Step 3. Evaluate the Reasons for Outsourcing. In the past, TFC has been able to complete designs within 30 days. With its increased demand and its current resources, TFC is 10-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

taking longer to complete designs. The time required to complete designs is important to customers. Step 3 favors outsourcing. Step 4. Assess All Relevant Quantitative Costs. Computer-Images quoted a price per chassis of $225 with a required minimum of 1,000 chasses per year. After the first year, the contract can be cancelled by either party with 45 days’ notice. The cost to design a chassis in-house is $490. The set-up costs are $300,000 for outsourcing and $200,000 for insourcing. Given that the cost difference per chassis is $265, the savings in one year of $265,000 assuming 1,000 designs more than offsets the difference in set-up cost. It is more expensive to design the chassis rather than to outsource so Step 4 favors outsourcing. Step 5. Assess All Qualitative Factors. Loss of the knowledge and proprietary technology is a concern with outsourcing. For TFC this is an especially important issue because their core competency is in design. Computer-Images insists on a training period of 6 months in which the designers of TFC would teach Computer-Images designers about the critical design tasks encountered in the motor home market. Computer –Images would be able to capture the knowledge of the designers and potentially share this with competitors in the future. Step 6. Review the Capabilities of Current Suppliers. Not much information is provided about Computer-Images so it is not clear if they are able to accomplish what they proclaim. TFC has not worked with this supplier before. Step 7. Make and Implement a Decision. Although the costs are lower with outsourcing, the loss of design capabilities and technical expertise that is a core competency is a great risk for TFC. Instead, they should invest in the technology and hire engineers to retain the design expertise in house. 10-20 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

Dining Services Sourcing at Midwest University: Teaching Note 1. Using the limited information in the case, develop and apply a weighted point model using a rating scale of 1 to 5. Table 1: Weighted Point Model Dining Services Sourcing Factors

Food Quality & Safety Cost Variety of healthy items Sustainability focus Total Weighted Score

Weights

FSI Rating

FSI Score

Collegiate Collegiate Dining Dining Rating Score 3 1.2

40%

1.2

30% 20%

4 3

1.2 .6

2 5

10%

3.4

Falcon Foods Rating 5

Falcon Foods Score 2

.6 1

1 4

.3 .8

3.5

Based on the information in the case the suppliers should be rated using a scale of 1 to 5 with 1- poor and 5 = excellent. The actual student ratings may differ slightly based on judgement. FSI: Initially the food quality and variety were excellent but over time performance has declined so a rating of 3 on each of these items seems reasonable. This supplier is the lowest cost, however annual cost increases would result in a score of 4. FSI is focused on minimizing waste and has worked with the university so a 4 seems like a reasonable rating. Collegiate Dining: References suggest that the food quality is good so use a rating of 3, and variety is excellent so use a rating of 5. The cost is higher than FSI and escalation is not tied to an index so may be higher than inflation so a 2 seems reasonable. While a goal, there is no evidence of sustainability practices so use a rating of 2. 10-21 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

Falcon Foods: Quality appears to be excellent so use a rating of 5. Variety appears to be very good but may be limited by the local sourcing strategy so use a 4. Cost is very high so a rating of 1 is reasonable. Sustainability is used when sourcing, it is not clear what other sustainable practices are used so assign a rating of 4. 2. What other benefits and risks do you see with each supplier? FSI: The decline in FSI’s performance is a concern and a risk. It is important to understand why performance declined. For example, it may because of FSI’s large size, Midwest is not an important customer. If FSI is selected, further declines in performance are possible. The long-term relationship with FSI is a benefit. The organizations know how to work together and should have systems in place. The continuation of the contract should be seamless without any type of disruption. Collegiate Dining: The regional focus and experience of Collegiate means that they should understand the needs of Midwest U. and what is required to meet those needs so there is a low risk of disruption. Further, Midwest U. is likely to be an important customer so Collegiate may be responsive to its needs. Falcon Foods: The owner should have a strong sense of loyalty to Midwest U. The lack of experience in running a large- scale dining operation is a major concern with Falcon Foods. They may not have a capability to successfully meet the 24/7 dining requirements of the university. The small scale and local focus may prevent Falcon Foods from being able to contain costs. 3. Which supplier do you recommend and why? Based on the weighted scoring model, Falcon Foods (3.5) and FSI (3.4) appear to be the good choices. However, the model did not include supply chain risk. Falcon Foods may 10-22 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 10 - Sourcing and Supply Management

not be able to scale-up to meet the needs of Midwest U. which would be a serious problem. Based on judgement, select FSI for the dining operations but work closely with FSI to ensure quality does not decline further. A 3-year rather than 5-year contract may provide more motivation for FSI to maintain its performance. However, to develop Falcon Foods’ capabilities and to see if they may be viable in the future use the company for special university events in which attendees covered the cost of their meals.

Chapter 11 - Logistics Management

Chapter 11 Logistics Management Suggested Answers to Discussion Questions 1. Think about a recent online order that you made. Did it have all of the components of a “perfect order”? Why or why not? If there was a problem with the order, which logistics activities most likely contributed to the problem? Why? There are seven components of the perfect order: 1) right product at the right time, 2) correctly processed, complete, undamaged shipment, 3) shipped using the method the customer wants, 4) used an advanced shipping notification, 5) tracked by the customer, 6) delivered on-time and undamaged, and 7) correctly billed. Depending upon the problem, it many have been caused by one or more of the six logistics activities: 1) order processing, 2) inventory management, 3) transportation management, 4) distribution and fulfillment management, 5) materials handling and packaging, or 6) network design. For example, if the wrong product was received, it may have been caused by an error in order processing, a wrong label causing it to be incorrectly picked, incorrect placement in inventory, human error in picking, or incorrect packaging.

2. What is the role of government in transportation? Do you believe economic deregulation is positive or negative for the overall economy? What about social regulations? In some situations, governments own and provide transportation services. In other situations, governments regulate private industry, which provide transportation services. Governmental concern regarding transportation addresses both economic regulation and safety regulation. Economic deregulation has positive benefits for the overall economy because deregulation has created opportunities for rethinking traditional practices and 11-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

for introducing new logistical solutions aimed at reducing costs, improving customer service, and increasing transportation productivity. There are multiple perspectives to the social regulation discourse. Safety regulations are clearly for the benefit of society at large, as ensuring the roads are safe for the general population is always a good idea. However, many firms argue that some safety regulations - like the hours of service (HOS) limitations - constrain profits and have the potential to make the overall supply chain a little less efficient to operate. 3. What is transportation consolidation? How do consolidation strategies take advantage of the basic economic characteristics of transportation? Transportation consolidation consists of combining small orders or shipments into one larger shipment to take advantage of transportation economies. Consolidation strategies take advantage of the economies of scale because when combining the small orders into one large order or shipment, the cost per unit of weight decreases because the size of the shipment is increasing. If more small orders or shipments are combined then some of those orders could be going to a further destination than others which therefore takes advantage of the economies of distance. As the distance moved increases, the cost per unit of distance decreases. 4. Which mode of transportation would you use for the following products? Why? This question allows students to think about the tradeoffs among the modes in terms of service characteristics and cost. Student answers may differ based on their assumptions. a. Steel being shipped from Korea to Los Angeles. Most likely, rail for steel because it’s a heavy bulk commodity and rail is less expensive than truck. Truck may be necessary because of its ability to pick up and deliver to almost all locations. 11-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

b. Oil from Alaska going to refineries in California. Most likely, pipeline as much as possible because oil is in liquid form and pipe is very efficient. Water shipment by oil tanker may also be considered where possible. c. Roses from Texas bound for New York. Most students will agree on air because it is the quickest form of travel and roses are perishable. Some may argue that truck is fast enough and much less expensive. d. Cars being shipped from Detroit to dealerships in Los Angeles. The distance from Detroit to LA is over 2,000 miles. Given the weight of a car, the distance traveled, and the fact that many cars are likely being shipped to LA at the same time, rail would likely be used. For shorter distances and smaller markets which might only need a few cars, trucks area also used to ship new cars. e. Laundry detergent being shipped from a plant in Lima OH to DC in Detroit. The distance from Lima OH to Detroit MI is less than 150 miles. Truck is the best option given the relatively short distance, nature of the product which is packaged and shipped on pallets, and the convenience of door to door shipping. 5. Why do you think so many firms are concerned about logistics issues when they move into new global markets? The primary concern regarding logistics in most global markets relates to transportation and most significantly shipping infrastructure within the borders of some international countries. In particular, the transportation infrastructure can be less developed than in the U.S, making planning more challenging. Poor transportation infrastructure can lead to delays as well as the potential for damaged products. 6. What types of logistics capabilities are needed to address “last mile” delivery issues? 11-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

Delivery time and efficiency are challenges when delivering products directly to consumers. To reduce delivery time, companies use more, smaller distribution centers (DCs) so products are located close to customers, but this increases overall inventory costs. The DCs pick and package products for delivery to individual customers. Managing delivery costs is a challenge. UPS, FedEx, and the US Postal Service have regularly scheduled routes to residences so many companies utilize these parcel service providers for last-mile deliveries. Delivery by independent drivers on-demand such as Amazon DPS, Amazon Flex, and crowdsourced solutions such as UberFreight are also alternatives to reduce costs. In the future, technology such as robots, drones, and selfdriving vehicles are likely to reduce last mile delivery costs. 7. What are the two types of trade-offs that are of concern to logistics managers? Provide examples of each type of trade-off, beyond those given in the text. The two types of trade-offs are the cost-to-service trade-off and the cost-to-cost tradeoff. A cost-to-service trade-off occurs because when service levels increase, typically so do costs. The cost-to-cost tradeoff occurs when increasing the cost of one logistics activity reduces the cost of another activity. An example of a cost-to-service tradeoff is using a more expensive transportation mode to provide faster delivery to customers. An example of a cost-to-cost tradeoff occurs by increasing the cost of packaging to decrease the cost of damage to products. 8. Based on the information contained within this chapter, what are the critical linkages between the logistics management system and other functions such as operations and supply management? Logistics managers must work closely with operations and supply managers to ensure 11-4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

that the inbound flow of materials into the firm meets the firm’s requirements for its own operations. Logistics managers also have responsibility for flows of information, products, and materials among a firm’s different plants and facilities. Logistics managers must also work with marketing and sales personnel, to make sure that logistics service meets customer expectations and requirements. 9. What factors are to be considered when deciding if logistics should be outsourced to a 3PL? It is important to consider the strategic importance of logistics and the logistics capabilities needed when deciding to insource or outsource logistics. Because logistics is a core competency for 3PLs, they are likely to invest in technology and develop superior logistics capabilities that may improve customer service, lower costs, or reduce supply chain risks. Further, for smaller companies, 3PLs can lowers costs by creating economies of scale by serving other customers. 10. Think about the increasing importance of environmental sustainability and the likelihood that regulations designed to protect the environment are becoming increasingly strict. What do you think the impacts of these changes will be on logistics management? Logistics management has a major role in improving environmental sustainability. Logistics is a very energy-intensive activity in the choice of transportation mode, in packaging use, and in warehousing. In transportation, using more fuel-efficient vehicles, switching to fuel such as compressed natural gas or electric vehicles that have lower CO2 emissions than diesel fuel, and routing changes can improve sustainability. Companies must consider the amount of energy their warehouses use and how many warehouses they have. Companies should also be attentive to use of excessive packaging materials as 11-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

well as deal with packaging waste. Many companies have changed their packaging design to reduce the amount of materials or to increase recycled content. 11. Which digital technologies will have greatest effect on logistics? Why? Students may have several different perspectives on this question and may address different types of digital technologies. In the short term, digital distributed ledgers using Blockchain may reduce delays and transaction fees with global shipping documents processing. Augmented reality is also being used to increase productivity and reduce errors in DCs for example in order picking and vehicle loading. Drones are being used for effective inventory management within warehouses. Robotics and automation are increasing pick/package efficiency. Sensors embedded in shipments and IoT will likely improve quality, safety, and customer satisfaction. In the long term, autonomous vehicles may change the nature of employment and capacity in the trucking industry. 12. Why has the importance of logistics management been growing over the past few decades? In recent years companies have realized the importance that logistics plays in growing revenue and developing competitive advantage. Customers want flexibility in how they order, receive, and return their products meaning that logistics must develop new capabilities. While it has always been necessary to move, store, and handle products, logistics is now recognized for its critical strategic consequences. By its very nature, logistics is an integrating activity. Logistics managers must work closely with suppliers and procurement managers to ensure that the inbound flow of materials into the firm is accomplished in a manner that meets the firm’s requirements for its own operations. Logistics managers also have responsibility for flows of information, products, and materials among a firm’s different plants and facilities. Finally, logistics managers must 11-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

work with marketing and sales personnel, as well as with customers, to ensure that customer requirements are satisfied. Integrating these activities allows a firm to compete effectively in two dimensions: by providing service to customers and by efficiently managing its costs. 13. Why should logistics managers be concerned about such geopolitical events as the war between Russia and the Ukraine? Given the global and interconnected nature of today’s supply chains, geopolitical instabilities such as the one presented by the recent war between Russia and Ukraine serve as a reminder of the ongoing challenges that logistics managers face to quickly react when plans created do not (or cannot) be deployed as scheduled. Challenges from being cut off from established supply sources, the destabilization of supplier and customer networks, the need to quickly redeploy assets and capacity, are just a few of the issues that students are expected to discuss as a part of their response to this question.

Problem Solutions 1. Suppose Jones Company has orders from three customers located in the same market area. One order has a total weight of 4,000 pounds, the second weighs 8,000 pounds, and the third weighs 14,000 pounds. The transportation carrier quotes a freight rate of $20.00 per hundredweight (or cwt.) for direct shipment to the customer for shipments weighing 1,000 to 4,999 pounds, $18.00 per cwt. for orders weighing 5,000 to 9,999 pounds, and $16.00 for shipments weighing between 10,000 and 15,000 pounds. Alternatively, the carrier’s rate for shipments weighing more than 20,000 pounds is $13.50 per cwt. However, if the orders are combined into one shipment, the carrier will charge $200 for each stop it is required to make. Should Jones consolidate the three shipments? 11-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

1. $20* (4, 000 / 100) = $20* 40 hundredweight = $800 2. $18* (8, 000 / 100) = $18* 80 hundredweight = $1, 440 3. $16* (14, 000 / 100) = $16*140 hundredweight = $2, 240 Total = $4,480 Combined = $13.50* (26000 / 100) = $13.50* 260 hundredweight = $3, 510.

Since the carrier has to make three stops, costing an additional $600, the consolidated shipment has a total cost of $4,110 which results in savings of $370. 2. Suppose you have three shipments to make. One shipment has a weight of 3,000 pounds, the second weighs 7,000 pounds, and the third weighs 14,000 pounds. The transportation rates are: $18.00 / cwt . for shipments of 1,000-5,000 pounds, $16.00 / cwt . for 5,000-10,000 pounds, and $14.00 / cwt . for shipments over 10,000 pounds. For consolidated shipments, there is a charge of $200.00 per stop. How much will you save if you choose to consolidate the shipments rather than ship each individually? The three individual shipments will cost: (3, 000 pounds /100)($18) + (7, 000 pounds /100)($16) + (14, 000 pounds /100)($14) = $540 +$1,120 + $1, 960 = $3, 620.

The consolidated shipment will cost: (24, 000 pounds /100)($14) + 3($200) = $3, 360 + $600 = $3, 960.

In this situation, consolidation costs $340 more than three individual shipments. Thus, there will be no savings. 3. A trucking company publishes the following rates:

Chapter 11 - Logistics Management

Shipment Weight

Cost per 100 Pounds

Less than 500 lbs. 500–999 lbs. 1,000–4,999 lbs.

$20.00 $18.00 $15.50

5,000–9,999 lbs. 10,000 lbs. or more

$14.00 $13.00

Suppose you have 10 shipments to make, each of which weighs 800 pounds. The carrier offers to consolidate them into one shipment of 8,000 pounds but will charge an additional $300 (total) to do so. Should you agree to this offer? Single = $18* (800 / 100) = $144

$144 * 10 shipments = $1,440 Combined = $14* (8, 000 / 100) + $300 = $1, 420

The consolidated shipment offer is the best choice. The company would save $20 by combining all 10 shipments into one. 4. Using the rates in problem 8, suppose you have eight shipments of 900 pounds each that the carrier will consolidate into one shipment, for an additional charge of $200 (total). Should you agree to this? Single = $18* (900 / 100) = $162

$162 * 8 shipments = $1,296 Combined = $14* (7200 / 100) + $200 = $1, 208

The consolidated shipment offer is the best choice. The company would save $88 by combining all eight shipments into one. 5. You are shipping 200 diamonds to a customer located 2,000 miles away. The average value of the diamonds is $1,500. You can ship via air for $500 and the diamonds will arrive in 11-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

two days or you can ship via a specialty ground carrier for $200 and the diamonds will arrive in six days. You figure your inventory carrying cost is 25 percent. Your customer will immediately transfer funds to your bank account on receipt of the shipment. What is your total cost if you use the ground carrier? The air carrier? What other considerations are involved besides the cost? Air = ((2 / 365)* 200* $1, 500* 25%) + $500 = $910.96 Ground = ((6 / 365)* 200* $1, 500* 25%) + $200 = $1, 432.88

Other considerations involved besides cost is the availability of these modes of transportation, customer desire for rapid delivery, and their dependability. If the customer wants the diamonds delivered as soon as possible and to ensure their safety, air is probably the best option. Although there are chances of delays, air transportation will probably deliver the diamonds more quickly with less handling and chances of damaging these expensive items. 6. Richard's Sporting Goods needs to fill an online order for a gross (144) of hockey sticks. The manager is considering shipping the order by truck to the customer in Wisconsin, at a carrier charge of $75. The delivery will take five days and the order is paid on delivery (Richard's doesn't get paid until the sticks are received). The hockey sticks are valued at $50 for each stick and Richard's uses a 25 percent annual inventory carrying charge. a. What will be the total shipping and transit inventory cost of the shipment. Total cost = In - transit inventory holding cost + Carrier cost = ((5 / 365)* $7, 200* 25%) + $75

= $99.66

Chapter 11 - Logistics Management

b. If the shipment could be delivered in only 2 days at a cost of $100, should the manager do it? How much money would be saved or lost? Total cost = In-transit inventory holding cost + Carrier cost = ((2 / 365)* $7200* .25) + $100 = $109.86

The 2-day shipment is more expensive than the 5-day shipment. If the manager chose this option, the company would lose $10.20. 7. A company needs to ship 500 men’s suits valued at $600 each to its distribution center. Annual inventory carrying costs are 20 percent. Shipment by truck would take 8 days at a cost of $500. Shipment by air would take 2 days at a cost of $2,000. If cost is the most important factor, which transportation mode should be used? Why? Total cost = In-transit inventory holding cost + Carrier cost Total cost by Truck = ((8 / 365)* 500* $600* 2) + $500 = $1, 815.07

Total cost by Air = ((2 / 365)*500*$600*.2)+ $2,000 = $2, 32.77 If cost is the most important fact, then truck should be used because it is lower cost. 8. The following table provides shipping rates for packages using UPS next day air or ground service options. The rates vary according to both the weight of the package and the distance of the shipment (larger numbered zones are farther away). Note that the zone number also indicates the number of days required to deliver a package using ground service. For example, it would take three days and cost $7.40 to send a 10-pound package to zone 3 using ground service. a. Suppose you have a package weighing 15 pounds that needs to be shipped to zone 5. The value of the material is $10,000 and the annual inventory holding rate is 40 percent of the

Chapter 11 - Logistics Management

product value. Which transportation mode (air or ground) minimizes the total shipping and transit inventory cost? Total cost = In-transit inventory holding cost + Carrier cost Air = ((1 / 365)* $10, 000* 40%) + $68.25 = $79.21 Ground = ((5 / 365)* $10, 000* 40%) + $11.15 = $65.94

Ground transportation minimizes the total shipping and transit inventory cost by $13.27. b. How high would the inventory holding rate have to be in order to justify next day air service? By setting the two total cost functions equal to one another and solving for × (the carrying cost %) you have: (((1 / 365)* $10, 000* x) + $68.25) = (((5 / 365)* $10, 000* x) + $11.15)

Hence × = 52.1% The inventory holding rate would have to be at least 53% to justify next day air service. Table of Shipping Rates Next Day Service Weight 1 Lbs. 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1 $ 16.25 $ 17.25 $ 19.00 $ 20.00 $ 21.25 $ 22.00 $ 22.75 $ 23.75 $ 24.50 $ 25.25 $ 26.25 $ 27.00 $ 27.75 $ 28.50 $ 29.50

Domestic Zones 2 3 $ 19.25 $ 22.75 $ 20.75 $ 25.50 $ 21.75 $ 28.25 $ 22.75 $ 31.00 $ 24.25 $ 33.50 $ 25.25 $ 36.00 $ 27.00 $ 38.50 $ 28.25 $ 41.00 $ 29.75 $ 43.75 $ 31.00 $ 46.25 $ 32.50 $ 48.75 $ 33.50 $ 51.25 $ 34.75 $ 53.75 $ 36.00 $ 55.75 $ 37.50 $ 58.00

4 $ 24.75 $ 27.75 $ 30.50 $ 33.50 $ 36.25 $ 39.00 $ 42.00 $ 44.75 $ 47.50 $ 50.25 $ 52.75 $ 55.50 $ 58.00 $ 60.50 $ 63.00

5 $ 27.00 $ 30.25 $ 33.50 $ 36.50 $ 39.50 $ 42.75 $ 46.00 $ 49.25 $ 52.50 $ 55.25 $ 58.00 $ 60.75 $ 63.25 $ 65.75 $ 68.25

6 $ 28.25 $ 31.25 $ 34.75 $ 37.75 $ 40.75 $ 44.00 $ 47.00 $ 50.25 $ 53.75 $ 56.75 $ 60.00 $ 63.00 $ 65.75 $ 68.50 $ 70.75

7 $ 29.00 $ 32.00 $ 35.50 $ 38.50 $ 41.75 $ 45.00 $ 48.25 $ 51.25 $ 54.50 $ 57.75 $ 60.75 $ 63.75 $ 66.50 $ 69.25 $ 72.00

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Ground Service Weight 1 Lbs. 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1 $ 4.75 $ 4.85 $ 5.00 $ 5.15 $ 5.40 $ 5.55 $ 5.75 $ 6.00 $ 6.20 $ 6.40 $ 6.60 $ 6.80 $ 7.00 $ 7.15 $ 7.35

Domestic Zones Transit Time in Days 2 3 $ 4.90 $ 5.25 $ 5.15 $ 5.65 $ 5.40 $ 6.00 $ 5.60 $ 6.30 $ 5.80 $ 6.60 $ 6.00 $ 6.75 $ 6.15 $ 6.90 $ 6.35 $ 7.10 $ 6.55 $ 7.25 $ 6.70 $ 7.40 $ 6.90 $ 7.55 $ 7.10 $ 7.70 $ 7.35 $ 7.85 $ 7.55 $ 8.00 $ 7.80 $ 8.15

4 $ 5.35 $ 5.80 $ 6.25 $ 6.60 $ 6.95 $ 7.20 $ 7.45 $ 7.60 $ 7.80 $ 8.00 $ 8.25 $ 8.45 $ 8.65 $ 8.85 $ 9.05

5 $ 5.65 $ 6.25 $ 6.70 $ 7.10 $ 7.40 $ 7.65 $ 7.95 $ 8.25 $ 8.45 $ 8.80 $ 9.20 $ 9.60 $ 10.05 $ 10.60 $ 11.15

6 $ 5.70 $ 6.40 $ 6.90 $ 7.30 $ 7.75 $ 8.05 $ 8.35 $ 8.75 $ 9.25 $ 9.90 $ 10.60 $ 11.35 $ 12.05 $ 12.75 $ 13.45

7 $ 5.85 $ 6.80 $ 7.55 $ 8.05 $ 8.55 $ 8.85 $ 9.25 $ 9.90 $ 10.55 $ 11.25 $ 12.05 $ 12.95 $ 13.80 $ 14.65 $ 15.55

9. Use the table in problem 8 to answer the following question. A transportation manager must ship orders of materials weighing three pounds each to destinations in each of the seven zones listed in the table. The daily inventory holding rate is $7.50 per day for all orders. The manager has decided to use next day air service for all shipments. Would you agree that this is the right course of action? Why, or why not?

Chapter 11 - Logistics Management

Zone (days to deliver) Additional cost to air ship

$14.00

$8.85

$7.25

$1.75

-$3.20

-$9.65

-$17.05

$7.50

$15.00

$22.50

$30.00

$37.50

$45.00

Additional inventory cost to ground ship

No, I would not agree with this course of action. Ground is less expensive for zones 1-4, air for the remainder. 10. Using the rate schedule in the table in problem 8, determine whether or not economies of scale (weight) and economies of distance exist. Hint: assume that distance from each zone to the next farthest zone is approximately constant across all zones. The following charts show plots of the data. The data in the tables were taken from an actual UPS price web site. Economies of distance are clearly evident in the air-ship pricing schedule. Shipping costs increase at a decreasing rate with increasing distance, for all shipment weights. Economies of scale are not as apparent for air shipping. Surprisingly, the prices schedule suggests diseconomies of distance (and perhaps scale) for the ground ship service. This may be because the incremental distance from one zone to the next is not constant for ground transport, whereas it is more likely to be constant for air shipments (“as the crow flies”). It could also be that economies do in fact exist for ground transport, but they are not reflected in the prices that UPS offers. Hence, UPS would find the longer hauls of heavier products very profitable.

Air ship econom ies of distance Air ship econom ies of scale

$80.00 $80.00 $70.00 $60.00 $50.00

$60.00 $40.00 $20.00 $1

$40.00 $30.00 $20.00 $10.00 $1 2 3 4 5 6 7 8 9

1 11 1 1 1 15

Chapter 11 - Logistics Management

Ground ship economies of distance

Ground ship econom ies of scale

$20.00

$15.00

$10.00

$5.00

11. Dansville Cabinets is considering a new warehouse to serve its major markets. Find the center-of-gravity using the following information: Market X Coordinate Y Coordinate Demand North

200 truckloads

East

100 truckloads

South

500 truckloads

West

50 truckloads

X* = ((45* 200) + (85*100) + (45* 500) + (10* 50)) / (200 + 100 + 500 + 50) = = 40, 500 / 850 = 47.647

Y* = ((80* 200) + (45*100) + (10* 500) + (45* 50)) / (200 + 100 + 500 + 50) = = 27, 750 / 850 = 32.647 12. Creative Crafts needed to determine where to locate a new warehouse to serve its retail stores in Ohio. Find the center of gravity location using the following information. Retail Location

X Coordinate

Y Coordinate

Shipments/year

395

385

Chapter 11 - Logistics Management

Retail Location

X Coordinate

Y Coordinate

Shipments/year

290

210

435

Determine the weighted × and y coordinates by multiplying each coordinate by the shipping amount. For example, for location A, Weighted × = 10 × 395 = 3,950 and Weighted y = 18 × 395 = 7,110. Then, sum all of the weighted × values, sum all the weighted y values, and sum the shipments. Retail

Location

Coordinate

Weighted X

Y Coordinate

Weighted Y

Shipments/year

3,950

7,110

395

9,625

1,925

385

10,150

13,050

290

10,500

2,100

210

23,925

7,110

435

SUM

58,150

39,410

1,715

Determine the location of × and y coordinates by dividing the sums by the sum of the shipments per year. X = 58,150 / 1, 715 = 33.9

Y = 39, 410 / 1, 715 = 23

13. A manufacturing company wants to locate its new plant to facilitate shipping from its suppliers. Using the information below, determine the location using the center of gravity. 11-16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

Supplier Location

X Coordinate

Y Coordinate

Shipments/year

1000

200

1700

350

1500

Determine the weighted × and Y coordinates by multiplying each coordinate by the shipping amount. For example, for Supplier 1, Weighted × = 8 × 1000 = 8,0000 and weighted Y = 68 × 1000 = 68,000. Then, sum all of the weighted × values, sum all the weighted y values, and sum the shipments. Supplier

Weighted X

Y Coordinate

Weighted Y

Shipments/year

Location

Coordinate

8,000

68,000

1,000

5,200

1,000

200

73,100

93,500

1,700

22,400

7,350

350

118,500

109,500

1,500

SUM

227,200

279,350

4,750

Determine the location x and y coordinates by dividing the sums by the sum of the shipments per year.

Chapter 11 - Logistics Management

X = 227, 200 / 4, 750 = 47.8 Y = 279, 350 / 4, 750 = 58.8 14. Determine the center-of gravity location for a company that wants to serve customers located in Chicago, Detroit, Indianapolis, and Cincinnati. To do this, you can find the X and Y coordinates by looking at the longitude and latitude for each city. Estimate demand for each city by simply looking up the population of each. The table shows approximate values for the latitude, longitude and population of the four cities. The data were obtained from Google maps and from recent Census Bureau population statistics. Student answers may vary slightly depending upon their source of information and the extent of rounding they use. Market

X Coordinate

Y Coordinate

Demand

Chicago

41.85

87.65

2,850,000

Detroit

42.33

83.05

912,100

Indianapolis

39.77

86.15

798,300

Cincinnati

39.14

84.48

333,300

X* = ((41.85* 2, 850, 000) + (42.33* 912,100) + (39.77 * 798, 300) + (39.14* 333, 300)) / (2, 850, 000 + 912,100 +798, 300 + 333, 300) = 41.41

Y* = ((87.65* 2, 850, 000) + (83.05* 912,100) + (86.15* 798, 300) + (84.48* 333, 300)) / (2, 850, 000 + 912,100 +798, 300 + 333, 300) = 86.33

Chapter 11 - Logistics Management

Entering these coordinates into a latitude/longitude lookup website (such as Google Maps provides) shows this location as being in Northwest Indiana, slightly east of Valparaiso, Indiana. Regardless of the specific data used by students, their calculated location should be somewhat the same. It should also not be a surprise that the location is much closer to Chicago than any of the other cities, given Chicago’s much larger size than the other three. 15. Atlas Corporation is considering a distribution center which will serve three primary market areas: Dallas, Texas; Atlanta, Georgia; and, St. Louis, Missouri. Atlas has determined that the latitude, longitude and populations of the three metropolitan areas are: Metropolitan Area

Approx. Latitude

Approx. Longitude

Approx. Population

Atlanta

33.75

-84.39

5.4 million

Dallas

32.80

-96.77

6.5 million

St. Louis

38.62

-90.20

2.8 million

Using the center of gravity method, determine the latitude and longitude of the best location for the distribution center. Use Google Maps or some other resource to plot the location. Then suggest other factors to recommend a location for the distribution center. Latitude=

33.75(5.4) + 32.80(6.5) + 38.62(2.8) 503.561 = = 34.26 5.4 + 6.5 + 2.8 14.7

Longitude =

- 84.39(5.4) + (- 96.77)(6.5) + (- 90.20)(2.8) - 1337.271 = = - 90.97 5.4 + 6.5 + 2.8 14.7

Plotting these coordinates shows a location in Arkansas which is approximately 75 miles Southeast of Little Rock, Arkansas and approximately the same distance Southwest of 11-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

Memphis, Tennessee. If students also take into consideration the fact that Memphis is point where several interstate highways intersect, they may suggest that Memphis would be the most appropriate location for the distribution center.

Spartan Plastics-Teaching Note Elise Lovejoy, the new logistics coordinator at Spartan Plastics was looking at issue of how to get increasing shipping costs under control. Currently, the firm was servicing three major customers by shipping daily to each with separate LTL shipments. Elsie had asked for proposals from carriers regarding alternatives that might be less costly, Specifically, she received two proposals which she though were logical options to consider. Questions 1. What are the cost implications of each delivery option? The first option to look at in detail is the current option using three separate LTL shipments to the individual customer locations St. Louis - Lansing : Distance = 487 miles. Rate = $.05 / cwt. / mile Weight = 10, 000 pounds.

Daily cost = 487 ×10, 000 / 100× $.05 = $2, 435.00 St. Louis - Detroit : Distance = 552 miles. Rate = $.05 / cwt. / mile Weight = 10, 000 pounds.

Daily cost = 552×10, 000 / 100× $.05 = $2, 760.00 St. Louis - Toledo : Distance = 499 miles. Rate = $.05 / cwt. / mile Weight = 10, 000 pounds.

Daily cost = 499×10, 000 / 100× $.05 = $2, 495.00 Total Daily Cost = $7,690.00 The daily cost of the proposal from Consolidated Shipping LLC would consolidate the three shipments into one 30,000 pound truckload. The carrier would then use a “milk11-20 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

run” approach in which the truck would stop first at the Lansing assembly plant, then continue on to Detroit, and finish in Toledo. The carrier’s charge for the milk-run approach would be based on distance only with a charge of $6.00 per truck mile, plus a stop-off charge of $250/stop, including the final stop in Toledo. Total distance = 487 miles (St Louis-Lansing) + 88 miles (Lansing-Detroit) + 65 miles (Detroit-Toledo) = 640 miles Total daily cost = (640 miles × $6.00 / mile ) + ($250 / stop × 3 stops ) = $3, 840.00 + $750.00 = $4, 590.00

The second proposal came from Amalgamated Integrated Services (AIS) who could provide both transportation and cross-docking capability. AIS proposed to handle deliveries to the various automotive plants by consolidating the shipments into a full truckload in St. Louis. This full truckload would then travel from St. Louis to Ypsilanti, MI, where the shipment would then be broken down into cross-docked for delivery to the appropriate assembly plants (again handled by AIS). AIS established a cost of$6.00 per mile to the cross-dock facility, and then a flat cost per delivery to each assembly plant from Ypsilanti of $500. Total distance = 521 miles (St. Louis-Ypsilanti). Total daily cost = (521 miles × $6.00 / mile ) + ($500× 3 deliveries ) = $3,126 + $1, 500 = $4, 626

2. What are the qualitative and service characteristics of each delivery option? The existing delivery option has a significant service benefit for customers. Each customer could arrange with Spartan to have its requirements delivered within the same time window. For example, it is likely that all three of the plants would desire their 11-21 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 11 - Logistics Management

product to arrive early each morning, perhaps as the first shift of work was beginning. The three individual shipments facilitate this. The alternative proposed by Consolidated Shipping likely means that the Toledo plant could not receive its shipment until sometime in the afternoon. Also, with one truck serving all three plants, disruption on any one leg of the trip (flat tire, for example) could impact delivery to all the subsequent plants. The proposal from AIS allows each plant to receive its delivery within the same time window. There is, however, some risk that a disruption on the leg from St. Louis to Ypsilanti would affect all three plants. 3. Based on your analysis, what would you recommend? Based on its substantially higher cost, the current delivery option likely cannot continue. The proposal from AIS is slightly more costly than the proposal from Consolidated Shipping and is much more likely to be acceptable to all customers. Thus, most students will recommend that this proposal be accepted. However, all three of the options should be discussed with customers for their feedback before a final decision is made. Lear Corporation Case – Teaching Note In general, this is a simple case to use for illustrating logistics’ role in a successful lean system. To begin, it is useful to start by providing the class with some information about Lear Corporation. This information can be provided in one of several ways. It can be provided by assigning the class an assignment of learning as much as they from the Internet about the Lear Corporation. Or, the professor may simply want to tell the students the following: • •

Lear is a tier one supplier who is a full service supplier. That is, they do not simply provide components. Rather, they generate value through the fabrication, assembly, and timely delivery of completed assemblies (e.g., seats, car interiors). Lear is a lean supplier. This means that they must produce their seats as they are needed. 11-22

Chapter 11 - Logistics Management

• Lear is driven by a pull scheduling system. • Managing the smooth and predictable flow of products from Lear to the plant is critical. With these elements, we can begin to address the two questions posted in the case. 1. What elements define value for the customers of the Romulus plant? It is useful to

think in terms of the framework discussed in Chapter 2 of the text. Here, we begin by listing the various elements of value – quality (OQ), cost (OW), on-time delivery (OQ) and flexibility – especially responsiveness (OW). We can now understand the rationale for the way that the Romulus plant is organized. This is a plant designed to make cost reduction and responsiveness inevitable. 2. Discuss the role of logistics.

Logistics plays an important role in the development and management of the Romulus plant. For Romulus to work as planned, the following design issues must be satisfied: •

Detailed product information must be broadcast in real time to the Romulus plant from the Dodge plant. This information must describe the exact type of seat that is needed. This broadcast of information takes place when the vehicle enters the framing stage. At this time, the exact product/seat configuration is known (there is no forecasting error). This information is broadcast in real time, which means that the information systems of Lear and Dodge must be linked and be able to communicate with each other. It is important to note that once this information is broadcasted, Lear Romulus has a time window of some 5 hours. Since Warren is about 40 minutes away (we may have to add more time to account for weather and traffic – remember, Romulus is just outside of Detroit and Detroit has more than its fair share of heavy snow days).

Chapter 11 - Logistics Management

•

For Romulus to succeed, it must store in a warehouse enough raw materials (fabric, steel frames, seat hardware) to support whatever delivery timeframe they have to work with. There is no need for a warehouse of finished goods (remember, we are building everything to order, so having a finished goods of seats does not make sense given the great deal of product variability). All inventory, once it begins, is essentially either in transit (in the case of finished seats moving from the Romulus plant to the Dodge plant) or Work-in-Process. There is another form of warehouse inventory that must be recognized – a form of cross-dock inventory that exists at the end of the production line. Here, we have to place the finished goods into reverse order so that when these seats are loaded into the trailers, they are so organized so that the seats needed first are located at the end of the trailer (so that they are unloaded first).

•

Given the location and the need for point-to-point delivery, the mode of transportation selected must be truck since it offers the transportation traits (speed, flexibility, point-to-point delivery) demanded by the customers.

Chapter 12 - Demand Planning: Forecasting and Demand Management

Chapter 12 Demand Planning: Forecasting and Demand Management Suggested Answers to Discussion Questions 1. Think of four instances in your life when you confronted sellers’ demand management practices. As a value-conscious customer, do you think that each of the four sellers served you well? Demand management is a proactive approach in which managers attempt to influence the pattern or consistency of demand usually through pricing and promotions. For example, grocery stores run weekly specials on meat and bakery items. As a customer, you may buy something that you might not ordinarily buy when it is on sale; for example, steak rather than hamburger. You may also buy more of the items that you would normally buy; for example, two loaves of bread rather than one. Movie theaters use matinee prices to shift attendance to earlier in the day. Hotels, airlines, and cruise ships use pricing to entice travelers to travel at non-peak times. Clothing stores often use a buy-one, get one 50 percent off to increase your purchases; so instead of one t-shirt you buy two. 2. Your boss wants you to explain the term exponential smoothing. How do you reply? Exponential smoothing considers all past demand in the forecasting model. Rather than giving equal weights to past demand as is done in simple moving averages, it applies an exponentially smaller weight to each demand that is further back in time. 3. Someone in your organization suspects a causal relationship between statistics on corrugated board shipments reported in BusinessWeek and your company’s shipments using the boxes. How would you test this assertion? If you were to verify the relationship, how could you use it in your business? 12-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 - Demand Planning: Forecasting and Demand Management

A causal model such as regression analysis can be used to test if the statistics on corrugated board shipments are related to actual shipments. Data would be gathered on actual shipments and the BusinessWeek statistics for the same time period. Regression analysis could then be used to develop a model predicting shipments. 4. In what way is an exponential smoothing model really a moving average model? Exponential smoothing considers all past demand in the forecasting model. It applies an exponentially smaller weight to each demand that is further back in time. A smoothing constant called alpha that varies between 0 and 1 weights the current demand and (1 – alpha) is the weight used for the last period’s forecast error that was calculated using past demand. 5. Your boss has less training than you have in business statistics. She asks you to explain the logic of the least squares regression method for determining a trend line. What would you tell her? The least squares regression determines a line that minimizes the distance from each of the data points. Thus, this line provides the best fit considering all of the data. 6. Your firm is considering reducing staff and your forecasting department has been mentioned as a prime candidate for this treatment. Outline a brief memo to defend the value of your department’s services to the firm. How could you quantify your claims? Forecasting is an important input into an organization’s planning process. Long term forecasts are used to make key strategic decisions such as investing in new technology, adding or reducing capacity such as building or closing facilities, and designing the overall supply chain. In the intermediate term, forecasting is used for sales and operations planning, and determining what products to offer. In the short term, forecasting can be used to manage inventory, schedule resources, and determine how much to buy from suppliers and when delivery is 12-2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 - Demand Planning: Forecasting and Demand Management

needed. Although all forecasts have some error, to operate without forecasts can lead to poor operations and supply chain decisions that can increase costs and decrease customer satisfaction. Gather data showing how forecasting has contributed to the planning process and what the costs would have been if forecasting had not been done. 7. Assume that you are the regional operations manager responsible for 27 Burger Queen restaurants. What types of demand forecast models do you think you would need for your short-term planning? What decisions would each forecast support? Identify the users of each forecast. It would be important to forecast hourly and daily sales at each location. This information would be used to determine staffing schedules. The managers at each location would then use these data to determine their location’s staffing plan. It would also be important to forecast daily usage of key ingredients such as hamburger patties and buns (should be highly correlated), French fries, and soft drinks. This information would be used by company’s materials planners and suppliers to determine how much inventory to stock, when replenishment orders are needed, and how much should be ordered each time. 8. As the regional manager of 27 Burger Queens, you are thinking about expanding the number of outlets in your area. What types of forecasts would you want to create in order to support your decision? You would want to forecast the sales at the outlets in your region. Does the growth in sales indicate the new outlets should be added? 9. What arguments would you use in order to justify tightening the limits used on a tracking signal control chart? How about for loosening the limits?

Chapter 12 - Demand Planning: Forecasting and Demand Management

The tracking signal is essentially a comparison of forecast bias (sum of errors, rather than MFE) to forecast accuracy (MAD) over n periods. By tracking this metric over successive periods of time, managers can observe whether undesirable trends or highly biased errors are occurring. Tracking signal control limits are typically set somewhere between +/-3 and +/- 8. A smaller limit gives a more sensitive indicator, and would probably be used for high volume or high revenue items. A wider limit could be used for low volume or low revenue items. 10. Describe the likely effects of the following business trends on demand forecasting processes. How would you modify your firm’s demand management or demand forecasting processes in response to these trends? a.

Fast-to-market product design. Forecasts should be more accurate than when a longer design time is needed because fewer environmental changes will occur. As the timeframe increases, forecasting becomes more difficult because many things can change. The timeframes for forecasts must be shortened to reflect the shorter product lifecycles.

Division of many markets into isolated niches. Forecasting will become more difficult and less accurate. More forecasts will be needed to cover the fragmented markets. Forecasts at an aggregate level are more accurate than when forecasting at a more specific level. Demand management is likely to be even more important to influence demand in niche markets.

The Internet. The availability of information should help forecasts to be more accurate. However, fast sharing of information may also quickly change customer demand. Forecasts may need to be updated more frequently to reflect new information. 12-4

Chapter 12 - Demand Planning: Forecasting and Demand Management

More powerful and cheaper computers and forecasting software packages. This should make it easier and less costly to develop forecasts. Fewer forecasting specialists may be required because the software is easier to use but users must make sure that they are making good assumptions as they develop the models.

Problem Solutions 1. Assume you are forecasting with an exponential smoothing model using  = 0.6. How much weight is placed on the most recent actual demand? How much weight is given to the demand one time period older than the most recent data? How much weight is given to data from two periods in the past?

F t+1 =α d t + (1 - α) F t F t =α d t-1 + (1 - α) F t-1 F t-1 =α d t-2 + (1 - α) F t-2 Thus, F t+1 =α d t + (1 - α)(α d t-1 + (1 - α)( α d t-2 + (1 - α) F t-2)) F t+1 =0.6 d t + (1 - 0.6)(0.6d t-1 + (1 - 0.6)( 0.6 d t-2 + (1 - 0.6) F t-2)) The weight put on one time period older than the most recent period is (1-0.6) × 0.6 = 0.24. Two periods older is (1−0.6)(1−0.6) × 0.6 = 0.096 2. Given the series of demand data below Period: Demand:

1 40

2 33

3 56

4 43

5 23

6 45

7 38

8 40

9 29

10 40

a. Calculate the forecasts for periods 7 through 11 using moving average models with n=2, n=4, and n=6. Week 7 8 9 10 11

n=2 (23 + 45)/2 =34 (45+38)/2 = 41.5 (38 + 40)/2 =39 (40 + 29)/2 =34.5 (29 + 40)/2 = 34.5

n=4 (56+43+23+45)/4 =41.8 (43+23+45+38)/4 = 37.3 (23 +45+38+40)/4 =36.5 (45+38+40+29)/4 = 38 (38+40+29+40)/4 = 36.8

n=6 (40+33+56+43+23+45)/6 =40 (33+56+43+23+45+38)/6 =39.7 (56+43+23+45+38+40)/6 =40.8 (43+23+45+38+40+29)/6 =36.3 (23+45+38+40+29+40)/6 = 35.8

b. Calculate the Bias and MAD for each set of forecasts. Which moving average model is best? n=2 12-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 - Demand Planning: Forecasting and Demand Management

Week

Demand Forecast

Error = Demand Forecast 34 38-34 = 4 41.5 40-41.5 = -1.5 39 29 – 39 = -10 34.5 40 – 34.5 = 5.5 MFE = sum -2 of error

Absolute value of error

7 8 9 10

38 40 29 40

4 1.5 10 5.5 MAD = average of absolute value of error = 5.25

n=4 Week

Demand Forecast

Absolute value of error

7 8 9 10

38 40 29 40

3.8 2.7 7.5 2 MAD = average of absolute value of error = 4

n=6 Week

Demand Forecast

Absolute value of error

7 8 9 10

38 40 29 40

2 0.3 11.8 3.7 MAD = average of absolute value of error = 4.45

Error = Demand Forecast 41.8 38-41.8 = -3.8 37.3 40 – 37.3 = 2.7 36.5 29 – 36.5 = -7.5 38 40 – 38 = 2 MFE = sum -6.6 of error Error = Demand Forecast 40 38-40 = -2 39.7 40 – 39.7 = 0.3 40.8 29 – 40.8 = -11.8 36.3 40 – 36.3 = 3.7 MFE = sum -9.8 of error

The 4-week moving average has the lowest MAD and thus has the best overall performance. However, the forecast tends to overestimate the actual demand. 3. If last period’s forecast was 27 and the demand was 30, what was the forecast error? What would be the forecast for the next period using an exponential smoothing model with alpha = 0.5? Forecast error is actual demand – the forecast. 30−27 = 3 which is the forecast error. F t+1 =α d t + (1 - α) F t = 0.5 × 30 + (1-0.5) × 27 = 28.5 or 29 rounded up 4. Use the Excel spreadsheet that accompanies this chapter to evaluate different forecasting models using the ice cream sales data. Try the following parameters for the moving average and simple exponential smoothing models; n=1, 4, 8; alpha = 0.1, 0.5, 0.9. Which parameters yield the best forecasting model for the periods under evaluation? 12-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 12 - Demand Planning: Forecasting and Demand Management

Use n = 1, 4, and 8 for the moving average forecasts and alpha = 0.1, 0.5, and 0.9 for the exponential smoothing forecasts. The results show that a forecast that is more responsive to the actual demand has the lowest forecast error. Considering the MFE and MAD, the simple moving average with one period and the exponential smoothing model with alpha = 0.9 have the lowest MAD and MFE. Moving Average Forecast Day Demand

n=1

Error

Abs. Error

M T W Th F S Su M T W Th F S Su M T W Th F S Su M T W Th F S Su M

123.6 134.9 160.0 140.4 187.9 195.0 171.8 145.9 130.0 145.0 147.2 214.2 190.0 202.1 159.0 178.7 160.0 181.5 212.7 249.4 242.9 170.0 194.7 204.6 226.1 281.7 350.0 284.5 200.3

145.9 130.0 145.0 147.2 214.2 190.0 202.1 159.0 178.7 160.0 181.5 212.7 249.4 242.9 170.0 194.7 204.6 226.1 281.7 350.0 284.5

-15.9 15.0 2.2 67.0 -24.2 12.1 -43.1 19.7 -18.7 21.5 31.2 36.7 -6.5 -72.9 24.7 9.9 21.5 55.6 68.3 -65.5 -84.2

15.9 15.0 2.2 67.0 24.2 12.1 43.1 19.7 18.7 21.5 31.2 36.7 6.5 72.9 24.7 9.9 21.5 55.6 68.3 65.5 84.2

175.2 160.7 148.2 142.0 159.1 174.1 188.4 191.3 182.5 174.9 169.8 183.2 200.9 221.6 218.8 214.3 203.1 198.9 226.8 265.6 285.6

T W Th F

150.0 198.4 220.6 280.0

200.3 150.0 198.4 220.6

-50.3 48.4 22.2 59.4

50.3 48.4 22.2 59.4

279.1 246.2 208.3 192.3

n=4

Error

-45.2 -15.7 -1.0 72.2 30.9 28.0 -29.4 -12.6 -22.5 6.6 42.9 66.2 42.0 -51.6 -24.1 -9.7 23.1 82.9 123.2 18.9 -85.3 129.1 -47.8 12.3 87.7

Abs. Error

n=8

Error

Abs. Error

45.2 15.7 1.0 72.2 30.9 28.0 29.4 12.6 22.5 6.6 42.9 66.2 42.0 51.6 24.1 9.7 23.1 82.9 123.2 18.9 85.3

157.4 158.2 159.5 157.9 167.1 167.4 168.3 166.7 170.8 174.5 179.1 187.3 191.7 198.3 194.3 198.8 202.0 210.3 222.8 239.9 244.3

-27.4 -13.2 -12.3 56.3 22.9 34.7 -9.3 12.0 -10.8 7.0 33.6 62.2 51.2 -28.3 0.4 5.9 24.1 71.5 127.2 44.6 -44.0

27.4 13.2 12.3 56.3 22.9 34.7 9.3 12.0 10.8 7.0 33.6 62.2 51.2 28.3 0.4 5.9 24.1 71.5 127.2 44.6 44.0

129.1 47.8 12.3 87.7

239.0 236.5 237.0 239.0

-89.0 -38.1 -16.4 41.0

89.0 38.1 16.4 41.0

Chapter 12 - Demand Planning: Forecasting and Demand Management

340.7

280.0

60.7

212.3

128.5

245.7

95.0

310.0

340.7

-30.7

30.7

259.9

50.1

253.1

56.9

6.1 MFE

36.6 MAD

12.6 MFE

47.7 MAD

17.0 MFE

38.3 MAD

Chapter 12 - Demand Planning: Forecasting and Demand Management

Exponential Smoothing Forecast Day Demand

Alpha

Error

Abs. Error

Alpha

Error

Abs. Error

30.9 0.5 2.0 68.0 9.8 17.0 34.7 2.4 17.5 12.7 37.6 55.5 21.2 62.3 6.4 6.7 24.8 68.0 102.3 14.4 91.4 96.0 0.4 22.4 70.6 96.0

123.6 123.6 133.8 157.4 142.1 183.3 193.8 174.0 148.7 131.9 143.7 146.8 207.5 191.7 201.1 163.2 177.2 161.7 179.5 209.4 245.4 243.2 177.3 193.0 203.4 223.8 275.9 342.6 290.3 209.3 155.9 194.2 218.0 273.8

-18.7 13.1 3.5 67.4 -17.5 10.4 -42.1 15.5 -17.2 19.8 33.2 40.0 -2.5 -73.2 17.4 11.6 22.7 57.9 74.1 -58.1 -90.0 -59.3 42.5 26.4 62.0 66.9

18.7 13.1 3.5 67.4 17.5 10.4 42.1 15.5 17.2 19.8 33.2 40.0 2.5 73.2 17.4 11.6 22.7 57.9 74.1 58.1 90.0 59.3 42.5 26.4 62.0 66.9

17.3

334.0

-24.0

24.0

10.4 MFE

36.6 MAD

6.7 MFE

36.5 MAD

Error

Abs. Error

Alpha

0.1

0.5

0.9

-30.9 -0.5 2.0 68.0 9.8 17.0 -34.7 2.4 -17.5 12.7 37.6 55.5 21.2 -62.3 -6.4 6.7 24.8 68.0 102.3 -14.4 -91.4 -96.0 0.4 22.4 70.6 96.0

M T W Th F S Su M T W Th F S Su M T W Th F S Su M T W Th F S Su M T W Th F S

123.6 134.9 160.0 140.4 187.9 195.0 171.8 145.9 130.0 145.0 147.2 214.2 190.0 202.1 159.0 178.7 160.0 181.5 212.7 249.4 242.9 170.0 194.7 204.6 226.1 281.7 350.0 284.5 200.3 150.0 198.4 220.6 280.0 340.7

123.6 123.6 124.8 128.3 129.5 135.3 141.3 144.4 144.5 143.1 143.3 143.7 150.7 154.6 159.4 159.3 161.3 161.2 163.2 168.1 176.3 182.9 181.6 182.9 185.1 189.2 198.5 213.6 220.7 218.7 211.8 210.5 211.5 218.3

-14.5 2.0 3.9 70.6 39.3 47.5 -0.4 19.4 -1.3 20.3 49.6 81.3 66.6 -12.9 13.1 21.7 41.0 92.5 151.5 70.9 -20.4 -68.7 -13.4 10.1 68.5 122.4

14.5 2.0 3.9 70.6 39.3 47.5 0.4 19.4 1.3 20.3 49.6 81.3 66.6 12.9 13.1 21.7 41.0 92.5 151.5 70.9 20.4 68.7 13.4 10.1 68.5 122.4

123.6 123.6 129.3 144.6 142.5 165.2 180.1 176.0 160.9 145.5 145.2 146.2 180.2 185.1 193.7 176.3 177.5 168.8 175.1 193.9 221.7 232.3 201.1 197.9 201.3 213.7 247.7 298.9 291.7 246.0 198.0 198.2 209.4 244.7

310.0

230.6

79.4

292.7

34.8 MFE

44.5 MAD

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

5. You have become concerned about the amount of copier paper used in your office after repeatedly running out of supplies. Your assistant keeps track of the number of reams (packages of 500 sheets) for 24 weeks: Week 1 2 3 4 5 6 7 8 9 10 11 12 Reams of paper 232 263 271 248 235 261 207 243 237 293 243 260 Week 13 14 15 16 17 18 19 20 21 22 23 24 Reams of paper 253 270 230 253 238 272 222 243 289 238 262 234 a. Compare the effectiveness of two-week, four-week, and six-week moving averages. Which should you use to forecast copier paper use during the next week? An example of how to do the calculations are shown below for week 7. Week 7

n=2 (235 + 261)/2 = 248

n=4 (271+248+235+261)/4 = 253.8

Week

Demand

Error

232

263

271

248

235

261

207

248

-41

243

234

237

225

293

243

2-Week

Absolute

4 -week

n=6 (232+263+271+248+235+261)/6 = 251.7

Error

Absolute

6-week

Error

Absolute

253.8

-46.8

46.8

251.7

-44.7

44.7

237.8

5.3

247.5

-4.5

4.5

236.5

0.5

244.2

-7.2

7.2

240

237.0

56.0

238.5

54.5

265

-22

245.0

-2.0

2.0

246.0

-3.0

3.0

260

268

-8

254.0

6.0

247.3

12.7

253

251.5

1.5

258.3

-5.3

5.3

247.2

5.8

270

256.5

13.5

262.3

7.8

254.8

15.2

230

261.5

-31.5

31.5

256.5

-26.5

26.5

259.3

-29.3

29.3

253

250

253.3

-0.3

0.3

258.2

-5.2

5.2

238

241.5

-3.5

3.5

251.5

-13.5

13.5

251.5

-13.5

13.5

272

245.5

26.5

247.8

24.3

250.7

21.3

222

255

-33

248.3

-26.3

26.3

252.7

-30.7

30.7

243

247

-4

246.3

-3.3

3.3

247.5

-4.5

4.5

289

232.5

56.5

243.8

45.3

243.0

46.0

253.5 254.3

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

238

266

-28

256.5

-18.5

18.5

252.8

-14.8

14.8

262

263.5

-1.5

1.5

248.0

14.0

250.3

11.7

234

250

-16

258.0

-24.0

24.0

254.3

-20.3

20.3

-0.8

20.2

-0.4

18.1

-0.6

19.2

MFE

MAD

MFE

MAD

MFE

MAD

I would recommend using the 4-week moving average because it has the lowest MAD. It also has the highest level of bias, in that the forecast tends to overestimate the demand. In this situation, it would be better to over forecast than to under forecast. b. Compare the performance of the simple exponential smoothing model with smoothing constants of 0.01, 0.05, and 0.25. Assume a forecast for Week 1 of 230 reams. Which constant worked best? The alpha of 0.25 resulted in the lowest MFE value of 76.5. Although the MAD of 18 is not the lowest, it is very close to the lowest value. Thus, 0.25 is the best choice for the alpha value. An example of the calculations for alpha = 0.05: F t+1 =α d t + (1 - α) F t F 2 = 0.05(d1) + (1-0.05)F1 = 0.05(232) + (0.95)(230) = 230.1 Week

Reams of paper

232

263

271

248

235

261

207

243

237

293

243

260

253

alpha 0.01 230 230.0 230.3 230.7 230.9 230.9 231.2 231.0 231.1 231.2 231.8 231.9 232.2

Error 2 33.0 40.7 17.3 4.1 30.1 -24.2 12.0 5.9 61.8 11.2 28.1 20.8

Abs Error 2 33.0 40.7 17.3 4.1 30.1 24.2 12.0 5.9 61.8 11.2 28.1 20.8

alpha 0.05 230 230.1 231.7 233.7 234.4 234.4 235.7 234.3 234.7 234.8 237.7 238.0 239.1

Error 2 32.9 39.3 14.3 0.6 26.6 -28.7 8.7 2.3 58.2 5.3 22.0 13.9

Abs Error 2 32.9 39.3 14.3 0.6 26.6 28.7 8.7 2.3 58.2 5.3 22.0 13.9

alpha 0.25 230 230.5 238.6 246.7 247.0 244.0 248.3 238.0 239.3 238.7 252.3 250.0 252.5

Error 2 32.5 32.4 1.3 -12.0 17.0 -41.3 5.0 -2.3 54.3 -9.3 10.0 0.5

Abs Error 2 32.5 32.4 1.3 12.0 17.0 41.3 5.0 2.3 54.3 9.3 10.0 0.5

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

270

230

253

238

272

222

243

289

238

262

234

232.4 232.8 232.8 233.0 233.1 233.5 233.4 233.5 234.1 234.1 234.4

37.6 -2.8 20.2 5.0 38.9 -11.5 9.6 55.5 3.9 27.9 -0.4 16.7

37.6 2.8 20.2 5.0 38.9 11.5 9.6 55.5 3.9 27.9 0.4 21.0

239.8 241.3 240.7 241.3 241.1 242.6 241.6 241.7 244.1 243.8 244.7

30.2 -11.3 12.3 -3.3 30.9 -20.6 1.4 47.3 -6.1 18.2 -10.7 9.4

30.2 11.3 12.3 3.3 30.9 20.6 1.4 47.3 6.1 18.2 10.7 18.4

252.6 257.0 250.3 251.0 247.8 253.9 245.9 245.2 256.2 251.7 254.3

17.4 -27.0 2.7 -13.0 24.2 -31.9 -2.9 43.8 -18.2 10.3 -20.3 0.2

17.4 27.0 2.7 13.0 24.2 31.9 2.9 43.8 18.2 10.3 20.3 18.6

6. Assume that you are the production manager for Fast Current Kayaks of Washington State. One of the products that you make and sell is the “Fast Current” sea touring kayak paddle). You are responsible for ensuring that there is enough production capacity to meet demands (given the very high markup on the paddles). Year Year 1

Year 2

Year 3

Year 4

Quarter Demand Year Q1 18 Year 5 Q2 19 Q3 18 Q4 17 Q1 19 Year 6 Q2 21 Q3 18 Q4 19 Q1 20 Year 7 Q2 24 Q3 28 Q4 32 Q1 30 Year 8 Q2 31 Q3 34 Q4 40

Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Demand 42 38 59 58 60 61 62 62 64 65 66 68 69 68 67 68

Given the data shown above, beginning in Quarter 1 of year 2, use a moving average based on four quarters to predict the demand in each quarter. 12-12 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Using the same data, forecast demand using exponential smoothing. You are given an initial forecast for year 1, quarter 1 of 17. When generating your forecasts, assume that the smoothing coefficient is 0.10.

Which of the forecasting procedures performed the best? Why? Hint: Plot the demand data to better understand what is going on in the data.

Comparing the 4-quarter moving average to the exponential smoothing model with an alpha value of 0.1 shows that the 4-quarter moving average has a lower MFE (125) and lower MAD (4.6) and thus is the better forecast. The plot of the demand data shows a large change in demand from Q2 (38) to Q3(59) in year 5. Because the exponential smoothing model incorporates all previous demand this has an impact on the model’s performance. The moving average model does not incorporate all past demand in its forecast and thus recovers more quickly from the change in the demand pattern.

4-quarter

Absolute

0.1

Absolute

Moving

Value

Exp.

Value

Error

Smoothing

Year

Quarter

Demand

Year 1

17.1

18.0

1.0

18.3

2.7

18.8

-0.8

0.8

18.8

0.2

19.3

0.7

19.5

4.5

20.3

7.8

22.8

9.2

26.0

4.0

28.5

2.5

30.3

3.7

31.8

8.2

Year 2

Year 3

Year 4

Average

Error

17.4 17.6 17.9 17.9 18 18.2 18.8 19.7 20.9 21.8 22.7 23.8

Error

1.6 3.4 0.1 1.1 2.0 5.8 9.2 12.3 9.1 9.2 11.3 16.2

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Year 5

Year 6

Year 7

Year 8

33.8

8.2

36.8

1.2

38.5

20.5

44.8

13.2

49.3

10.7

53.8

7.2

59.5

2.5

60.3

1.7

61.3

2.7

62.3

2.7

63.3

2.7

64.3

3.7

65.8

3.2

67.0

1.0

67.8

-0.8

0.8

68.0

0.0

4.5

MFE

MAD

25.4 27.1 28.2 31.3 34 36.6 39 41.3 43.4 45.5 47.5 49.4 51.3 53.1 54.6 55.8

16.6 10.9 30.8 26.7 26.0 24.4 23.0 20.7 20.6 19.5 18.5 18.6 17.7 14.9 12.4 12.2 14.1 MFE

16.6 10.9 30.8 26.7 26.0 24.4 23.0 20.7 20.6 19.5 18.5 18.6 17.7 14.9 12.4 12.2 14.1 MAD

Fast Current Kayaks 80 70 60 50 Dem and 40 30 20 10 0 0

Quarter

7. Using α= 0.5 and the data below, compute exponential smoothing forecasts for periods 2 through 8.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Period: Forecast: Actual demand:

1 10 12

F2 = 10 + .5(12-10) = 11 F3 = 11 + .5(15-11) = 13 F4 = 13 + .5(11-13) = 12 F5 = 12 + .5(13-12) = 12.5 F6 = 12.5 + .5(11-12.5) = 11.75 F7 = 11.75 + .5(11-11.75) = 11.38 F8 = 11.38 + .5(10-11.38) = 10.69 8. The owner of an on-line video rental service has recorded the following rentals each week:

Week Rentals:

2 3 4 5 6 7 8 1202 1503 1444 1254 1609 1499 1689 1555

a. Use a three-week moving average to forecast sales for each of the weeks 4 through 9. b. Use a four-week moving average to forecast sales for each of the weeks 5 through 9. c. Compare the forecasts created by these two methods using mean absolute deviation. Which forecasting method would you recommend? a. F4 = (1202 + 1503 + 1444)/3 = 1383

F5 = (1503 + 1444 + 1254)/3 = 1400.33 F6 = (1444 + 1254 + 1609)/3 = 1435.67 F7 = (1254 + 1609 + 1499)/3 = 1454 F8 = (1609 + 1499 + 1689)/3 = 1599 F9 = (1499 + 1689 + 1555)/3 = 1581 b. F5 = (1202 + 1503 + 1444 + 1254)/4 = 1350.75 F6 = (1503 + 1444 + 1254 + 1609)/4 = 1452.5 F7 = (1444 + 1254 + 1609 + 1499)/4 = 1451.5 F8 = (1254 + 1609 + 1499 + 1689)/4 = 1512.75 F9 = (1609 + 1499 + 1689 + 1555)/4 = 1588 c. MAD for three-week moving average = (|1609 - 1400.33| + |1499 – 1435.67| + |1689 – 1454| + |1555 – 1599|) / 4 = 137.75 MAD for four-week moving average = (|1609 – 1350.75| + |1499 – 1452.5| + |1689 – 1451.5| + |1555 – 1512.75|) / 4 = 146.125

The three-week moving average provides better forecasts according to MAD 9. A ski repair shop at a resort in Colorado sells replacement poles each season. The shop needs to develop a forecast of next season’s sales so that they can place an order for poles with their supplier well in advance of the beginning of the season. Sales data for the past five years are shown below. Compare the forecasts given by the following models. 12-15 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Year: Sales (units):

1 375

2 395

3 360

4 400

5 380

Develop forecasts using: a. A 5 year moving average. b. A weighted moving average model with weights of 0.1, 0.1, 0.2, 0.3, and 0.3 for years 1 through 5 respectively. c. An exponential smoothing model with year 1 forecast of 380 and α= 0.2. a. F6 = (375 + 395 + 360 + 400 + 380) / 5 = 382 b. F6 = 375(0.1) + 395(0.1) + 360(0.2) + 400(0.3) + 380(0.3) = 383 c. F2 = 380 + .2(375-380) = 379 F3 = 379 + .2(395-379) = 382.2 F4 = 382.2 + .2(360-382.2) = 377.76 F5 = 377.76 + .2(400-377.76) = 382.21 F6 = 382.21 + .2(380-382.21) = 381.77 10. The following data show the number of laptop computers sold each month at a retail store:

Month January February March April May June July August September October November December

Unit Sales 200 230 225 240 210 180 160 310 320 270 250 300

a. Assuming the estimated trend from May to June was -4 and the forecast for June was 190, use trend-adjusted exponential smoothing with α= 0.3 and β=0.2 to forecast sales for each of the seven following months: July, August, September, October, November, December, and January. b. Use regression for the data from January to June to create a forecast for each month from July to the following January. c. Compare the two sets of forecasts generated in parts a and b. Which forecast model produces a better MFE? MAD?

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

a. Month January February March April May June July August September October November December

1 2 3 4 5 6 7 8 9 10 11 12 13

Unit Sales 200 230 225 240 210 180 160 July 310 Aug 320 Sept 270 Oct 250 Nov 300 Dec Jan

0.3

0.2

187.00 175.68 211.8152 246.0009 259.3709 263.3676 280.3632

-4.6 -5.944 2.47184 8.814618 9.725685 8.579891 10.26304

190

FIT err abs err 182.40 -22.40 22.4 169.74 140.26 140.264 214.29 105.71 105.713 254.82 15.18 15.18445 269.10 -19.10 19.09657 271.95 28.05 28.05251 290.63 41.28623 55.11842 MFE MAD

b. Using Excel Regression Function a=-4.1429 and b=228.67 July = -4.1429*7 + 228.67 = 199.67 August = -4.1429*8 + 228.67 = 195.53 Sept = 191.38 Oct. = 187.24 Nov. = 183.09 Dec. = 178.96 Jan. = 174.81 -4.1429 Regress fcst 199.6697 195.5268 191.3839 187.241 183.0981 178.9552 174.8123

228.67 err -39.6697 114.4732 128.6161 82.759 66.9019 121.0448

-4

abs err 39.6697 114.4732 128.6161 82.759 66.9019 121.0448

79.02088 92.24412 MFE MAD c. Both the MFE and the MAD for the trend adjusted exponential smoothing model used to forecast are lower, and therefore better. 11. Using the data from the problem 10: 12-17 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

a. Using the average demand for the year as the base, compute a seasonal index for each month. b. Use regression to estimate the deseasonalized demand in each of the given months. Using these base values, compute a seasonal index for each month. c. Are the seasonal indices computed in parts a and b the same or different? Why? d. Using the seasonal indices you computed in part b above, also assume a constant trend of +8 units per month and a forecast for December of 320 units. Compute a seasonally adjusted forecast for January, February, March, April, and May of the next year. a. Avg demand Month January February March April May June July August September October November December

1 2 3 4 5 6 7 8 9 10 11 12

241.25 Unit Sales F 200 230 225 240 210 180 160 310 320 270 250 300

Seasonal Index 0.829015544 0.953367876 0.932642487 0.994818653 0.870466321 0.74611399 0.663212435 1.284974093 1.32642487 1.119170984 1.03626943 320 1.243523316

For example, seasonal index for January = 200/241.25 = .829 b. Using Regression Function in Excel: a=7.95 and b = 189.54 b 7.95

a 189.54

F from regression 197.49 205.44 213.39 221.34 229.29 237.24 245.19 253.14

SI 1.01271 1.119548 1.054407 1.084305 0.915871 0.758725 0.652555 1.224619 12-18

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

261.09 269.04 276.99 284.94

1.225631 1.003568 0.90256 1.052853

c. The seasonal indices are different – regression model includes a trend in the estimates of base demands used to compute seasonal indices. d. Use regression based seasonal indices and regression to forecast next five months

P11 Avg demand Month January February March April May June July August September October November December Jan Feb March April May

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

241.25 Unit Sales F 200 230 225 240 210 180 160 310 320 270 250 300

Seasonal Index 0.829015544 0.953367876 0.932642487 0.994818653 0.870466321 0.74611399 0.663212435 1.284974093 1.32642487 1.119170984 1.03626943 320 1.243523316

b 7.95

a 189.54

F from regression 197.49 205.44 213.39 221.34 229.29 237.24 245.19 253.14 261.09 269.04 276.99 284.94 292.89 300.84 308.79 316.74 324.69

SI 1.01271 1.119548 1.054407 1.084305 0.915871 0.758725 0.652555 1.224619 1.225631 1.003568 0.90256 1.052853 1.01271 1.119548 1.054407 1.084305 0.915871

Seasonalized Fcst

296.6124867 336.8049065 325.5904682 343.4426674 297.3740678

12. Monthly usage data for pallets used in a distribution center are given below:

Year January February March April May June

1 1484 1394 1552 1796 2060 2214

2 1482 1400 1548 1864 2198 2446

3 1792 1586 1770 2110 2408 2652

4 1902 1722 1876 2218 2548 2844

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

July August September October November December

2330 2432 2416 2262 1942 1566

2580 2698 2682 2592 2132 1802

2606 2872 2946 2906 2340 2046

2972 3110 3208 3200 2806 2418

a. Calculate the monthly usage index for each month

Year January February March April May June July August September October November December

1 1484 1394 1552 1796 2060 2214 2330 2432 2416 2262 1942 1566

2 1482 1400 1548 1864 2198 2446 2580 2698 2682 2592 2132 1802

3 1792 1586 1770 2110 2408 2652 2606 2872 2946 2906 2340 2046

Grand average:

4 1902 1722 1876 2218 2548 2844 2972 3110 3208 3200 2806 2418

Avg 1665 1525.5 1686.5 1997 2303.5 2539 2622 2778 2813 2740 2305 1958

SI 0.741855 0.679699 0.751434 0.88978 1.026344 1.131273 1.168254 1.237761 1.253356 1.22083 1.027012 0.872403

2244.375

Grand average = average sales across all 48 months SI for January = Average usage for January across the 4 years / Grand average b. Use simple linear regression to forecast total usage of pallets for year 5 c. Forecast the seasonally adjusted usage for pallets for each month in year 5 From regression model

Forecast for 5

1726.218

21.14926183

January February March April May June July August

Month num 49 50 51 52 53 54 55 56

F (from regression) 2762.53 2783.68 2804.83 2825.98 2847.13 2868.28 2889.43 2910.58

SI 0.741855 0.679699 0.751434 0.88978 1.026344 1.131273 1.168254 1.237761

Forecast = F*SI 2049.4 1892.1 2107.6 2514.5 2922.1 3244.8 3375.6 3602.6

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

September October November December

57 58 59 60 total year 5

2931.73 2952.88 2974.02 2995.17

1.253356 1.22083 1.027012 0.872403

3674.5 3605.0 3054.4 2613.0

34546.23

13. Given the data shown below, use =.2 and β =.4 to create trend enhanced smoothing based

forecasts for periods 7, 8, and 9. Assume that FIT1 = 22 and T1 = 7.83. Period:

Demand:

Example of the calculations are shown for FIT2 , FIT3, and FIT4. The FIT for the remaining periods is shown in the table. F2 = FIT1 + 0.2(d1 – FIT1) = 22 + 0.20 (19-22) = 21.4 T2 = T1 + .4(F2 – FIT1) = 7.83+0.4(21.4 - 22) = 7.6 FIT2 = F2 + T2 = 21.4 + 7.6 = 29 F3 = FIT2 + 0.2(d2 – FIT2) = 29 + 0.20 (33-29) = 29.8 T3 = T2 + .4(F3 – FIT2) = 7.6 +0.4(29.8 - 29) = 7.9 FIT3 = F3 + T3 = 29.8 + 7.9 = 37.7 F4 = FIT3 + 0.2(d3 – FIT3) = 37.7 + 0.20 (37-37.7) = 37.6 T4 = T3 + .4(F4 – FIT3) = 7.9 +0.4(37.6 – 37.7) = 7.9 FIT4 = F4 + T4 = 37.6 + 7.9 = 45.5 alpha Period 1 2 3 4 5 6 7

0.2 Demand 19 33 37 49 52 60

beta 1 2 3 4 5 6

0.4 F

21.4 29.8 37.6 46.2 53.9 61.5

7.8 7.6 7.9 7.9 8.1 7.9 7.8

FIT 22.0 29.0 37.7 45.5 54.3 61.8 69.3

Error -3.0 4.0 -0.7 3.5 -2.3 -1.8

AbsValue Error 3.0 4.0 0.7 3.5 2.3 1.8

-0.05 MFE

2.6 MAD

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

14. Repeat problem 13 using =.4 and β =.8. Which model gives a better approximation of the demand pattern for periods 1 through 6? The forecast for each period with the new values of =.4 and β =.8 are shown in the table. The result suggest that the first values of =.2 and β =.4 provide a more accurate forecast based on the lower MFE and MAD.

alpha Period 1 2 3 4 5 6 7

0.4 Demand 19 33 37 49 52 60

beta 1 2 3 4 5 6

0.8 F

20.8 29.8 37.8 47.2 54.6 61.4

7.8 6.9 8.6 8.1 9.1 7.7 7.0

FIT 22.0 27.7 38.4 46.0 56.3 62.3 68.4

Error -3.0 5.3 -1.4 3.0 -4.3 -2.3

AbsValue Error 3.0 5.3 1.4 3.0 4.3 2.3

-0.45 MFE

3.2 MAD

15. Calculate the slope and intercept for the data in the question 1 using simple linear regression. You may want to use an Excel spreadsheet to check your answer. t =n

 td − nt  d t =1 t =n

 t2 − nt

,a = dt − bt ,

t =1

b = [1012-(6)(3.5)(41.7))]/[(91-(6)(3.5)2 ]= 7.8 a = [41.7-(7.8)(3.5)] = 14.3

Total Average

Period

Demand

t*dt

1 2 3 4 5 6

19 33 37 49 52 60

19 66 111 196 260 360

1 4 9 16 25 36

1012

3.5

41.7 12-22

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

16. Wamaco Corporation uses the same simple exponential smoothing forecasting model for all of its products. The model has yielded the following weekly forecasts: Week: Product 1 forecast: Product 1 sales: Product 2 forecast: Product 2 sales:

1 12 10 102 100

2 10.6 11 100.6 104

3 10.9 13 103 105

4 12.4 14 104.4 105

5 13.5 12 104.8 110

6 12.5 10 108.4 106

a. What value of  is Wamaco Corp using in its forecasting model? Ft = F t-1 + α(d t-1 – F t-1) rearrange to solve for α. Ft - F t-1 = α(d t-1 – F t-1), thus α = (Ft - F t-1)/ (d t-1 – F t-1) Product 1: α = (F2 - F 1)/ (d 1 – F 1) = (10.6-12)/(10-12) = 0.7 Product 2 : α = (F2 - F 1)/ (d 1 – F 1) = (100.6-102)/(100-102) = 0.7 b. Calculate the forecast for period 7 for product 1 and product 2. Forecast for period 7 F 7 = α d 6 + (1- α) F 6 Product 1: 0.7 (10) + (1-.7)(12.6) = 10.8 Product 2: 0.7 (106) + (1-.7) (108.4) = 106.7 c. Using the first six periods of data, calculate the Bias (MFE), MAD, MPE, and MAPE. Does the forecasting model provide about the same bias and accuracy for both products? What would you recommend? The bias (MFE) and MAD are slightly lower for Product 1 than for Product 2. However, the MAPE shows that the forecast error for Product 1 as a percent of demand is much greater than it is for Product 2. The forecast for Product 1 should be reviewed to determine if the MAPE can be reduced. Product 1 Week Forecast Sales Error 1 12 10 -2 2 10.6 11 0.4 3 10.9 13 2.1 4 12.4 14 1.6 5 13.5 12 -1.5 6 12.5 10 -2.5 -.32 MFE

% Error -20.0% 3.6% 16.2% 11.4% -12.5% -25.0% -4.4% MPE

Abs. Value Error 2 0.4 2.1 1.6 1.5 2.5 1.7 MAD

% Abs Error 20.0% 3.6% 16.2% 11.4% 12.5% 25.0% 14.8% MAPE

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Product 2 % Week Forecast Sales Error Error 1 102 100 -2 -2.0% 2 100.6 104 3.4 3.3% 3 103 105 2 1.9% 4 104.4 105 0.6 0.6% 5 104.8 110 5.2 4.7% 6 108.4 106 -2.4 -2.3% 1.13 1.0% MFE MPE

Abs. Value Error 2 3.4 2 0.6 5.2 2.4 2.6 MAD

% Abs Error 2.0% 3.3% 1.9% 0.6% 4.7% 2.3% 2.5% MAPE

17. Many supply managers use a monthly reported survey result known as the purchasing managers' index (PMI) as a leading indicator to forecast future sales for their businesses. Suppose that the PMI and your business sales data for the last 10 months are the following: Month PMI Sales (1000s)

1 42.1 121

2 43.0 123

3 41.0 125

4 38.2 120

5 40.2 118

6 44.1 118

7 45.8 122

8 49.0 127

9 48.7 135

10 52.0 136

a. Construct a causal regression model using PMI as the causal variable. How well

does your model fit the data? The R2 shows that 65 percent of the variance in sales is explained by the PMI. Sales (1000s) = 1.182 (PMI) + 71.99 R² = 0.65 b. Suppose that the PMI is truly a leading indicator. That is, the PMI value in one period influences sales in the following period. Construct a new regression model using this information. Is the new model better or worse than the model you made for part a? This new model is better because it explains 91 percent of the variance in sales. To create the new regression model, the PMI in one period influences the sales in the next period. So the PMI in period 1, 42.1 influences the sales in period 2, 123 and so forth. PMI Sales (1000s)

42.1 123

43.0 125

41.0 120

38.2 118

40.2 118

44.1 122

45.8 127

49.0 135

48.7 136

52.0

Sales (1000s) = 1.73 (PMI) × + 49.65 R² = 0.91 c. Pick the best model from parts a and b, and create a forecast if the PMI is 47.3. 12-24 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Sales (1000s) = 1.73(47.3) + 49.65 = 131.3 18. Assume that the following demands vary according a four period seasonal cycle. Month 1 Demand 20

2 30

3 40

4 20

5 50

6 70

7 95

8 50

a. Compute the seasonal indexes using the average demand in each cycle as the base Base from Seasonal 2-cycle Cycle Index Average Month Demand Average Demand/Base Index 1 2 3 4 5 6 7 8

20 30 40 20 50 70 95 50

27.5 27.5 27.5 27.5 66.3 66.3 66.3 66.3

0.73 1.09 1.45 0.73 0.75 1.06 1.43 0.75

0.74 1.07 1.44 0.74

b. Compute the seasonal indexes using regression estimates as the base Base = 7.8 (month) + 11.8 Seasonal 2-cycle Base from Index Average Month Demand Regression Demand/Base Index 1 2 3 4 5 6 7 8

20 30 40 20 50 70 95 50

19.6 27.4 35.2 43 50.8 58.6 66.4 74.2

1.02 1.09 1.14 0.47 0.98 1.19 1.43 0.67

1.00 1.14 1.28 0.57

c. How do the answers for parts a and b differ? How would you explain the difference? There is a clear trend in the data. When estimating the base using the average demand for the two cycles, this assumes that demand is stable for four periods, then makes a stepchange to the next period. This is not the underlying pattern of the actual data. Thus, the 12-25 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

seasonal indices developed when the base is estimated from regression should be a better reflection of the underlying data. 19. Use the Excel spreadsheet that accompanies this Supplement to evaluate different forecasting models using the ice cream sales data. a. Which model, time series regression, causal regression using temperature, or trend enhanced exponential smoothing, gives better forecast accuracy? Report all bias and accuracy metrics. The results show that the temperature regression provides the best forecast of ice cream demand. This model performs better than the other two models on MFE (bias), MAD and MAPE.

MFE MAD MAPE

Time Series Regression Y = 4.086b+128.85 -2.6 40.7 18.6 %

Temperature Regression Y =4.562b-165.68 -0.6 36.4 16.2 %

Trend Adjusted Exponential Smoothing Alpha = .9, beta = .1 1.5 42.5 19.3 %

b. What combination of parameters for the trend enhanced smoothing model gives the best results? Using the Solver tool in Excel to minimize MFE, MAD, and MAPE, the best alpha is 1 and the best gamma is 0. The MFE is 1.1, the MAD is39.6, and the MAPE is 18 percent with these parameters. c. Calculate seasonally adjusted forecasts, first using the average demand as the base, then using the time series regression forecasts as the base, then using the causal regression forecasts as the base. Which model is better? Why? The results show that using the base from the time series regression results in the lower values of MFE, MAD, and MAPE.

MFE MAD MAPE

Base from Temperature Regression -13.9 59.3 27.9

Base from Time Series Regression -5.3 21.0 9.9

20. Given the data shown below, use α = .1 and β = .2 to create a trend enhanced smoothing based forecast for period 6. Assume that FIT1 = 20 and T1 = 3. Period Demand

1 25

2 23

3 26

4 28

5 35 12-26

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

F2 = FIT1 + (d1 – FIT1) = 20 + 0.1 (25-20) = 20.5 T2 = T1 + β(F2 – FIT1) = 3+0.2(20.5 - 20) = 3.1 FIT2 = F2 + T2 = 20.5 + 3.1 = 23.6 F3 = FIT2 + (d2 – FIT2) = 23.6 + 0.1 (23-23.6) = 23.5 T3 = T2 + β(F3 – FIT2) = 3.1+0.2(23.5 – 23.6) = 3.1 FIT3 = F3 + T3 = 23.5 + 3.1 = 26.6 F4 = FIT3 + (d3 – FIT3) = 26.6 + 0.1 (26-26.6) = 26.5 T4 = T3 + β(F4 – FIT3) = 3.1+0.2(26.5 – 26.6) = 3.1 FIT4 = F4 + T4 = 26.5 + 3.1 = 29.6 F5 = FIT4 + (d4 – FIT4) = 29.6 + 0.1 (28-29.6) = 29.4 T5 = T4 + β(F5 – FIT4) = 3.1+0.2(29.4 – 29.6) = 3.1 FIT5 = F5 + T5 = 29.4 + 3.1 = 32.5 F6 = FIT5 + (d5 – FIT5) = 32.5 + 0.1 (35-32.5) = 32.8 T6 = T5 + β(F6 – FIT5) = 3.1+0.2(32.8 – 32.5) = 3.2 FIT6 = F6 + T6 = 32.8 + 3.2 = 36.0 21. Re-solve problem 20 above using a simple exponential smoothing model with =.8, and with a 2-period moving average model. Which model is best? Trend enhanced model: Alpha Period 1 2 3 4 5

0.1 Beta Demand Forecast 25 20 23 23.6 26 26.6 28 29.6 35 32.5

0.2 Error 5 -0.6 -0.6 -1.6 2.5 0.9 MFE

AbsValue

Error 5 0.6 0.6 1.6 2.5 2.1 MAD

Simple exponential smoothing model: F2 =  D1 + (1 - ) F1 = .8 (25) + (1 - .8) (20) = 24

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Alpha Period 1 2 3 4 5

0.8 Demand Forecast 25 20 23 24 26 23.2 28 25.4 35 27.5

AbsValue

Error 5 -1 2.8 2.6 7.5 3.4 MFE

Error 5 1 2.8 2.6 7.5 3.8 MAD

2 period moving average model: F3 = (D2 + D1) / 2 = (23 + 26) / 2 = 24.5 Alpha Period 1 2 3 4 5

0.8 Demand Forecast 25 23 26 24 28 24.5 35 27

AbsValue

Error

2.0 3.5 8.0 4.5 MFE

2.0 3.5 8.0 4.5 MAD

Trend enhanced exponential smoothing model yields the lowest error. 22. Given the data in the table below: a. Compute the forecast for period 12 using a causal regression model and assuming that oil price for period 12 is 65. b. Create a graph of the gasoline sales and oil price data and include a line representing the regression model. In which period is gasoline sales least well predicted by oil price? What is the amount of this error? Period Gasoline sales Oil price

1 100 82

2 150 60

3 130 80

4 150 71

5 180 57

6 200 45

7 120 88

8 130 77

9 140 63

10 180 43

11 200 55

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Y = 280.48 -1.94X R2 = 79.2% F12 = 280.48 – 1.95 (65) = 153.73

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Period 1 2 3 4 5 6 7 8 9 10 11

Oil Gasoline Forecast Error price sales 82 100 121.4 -21.4 60 150 164.08 -14.08 80 130 125.28 4.72 71 150 142.74 7.26 57 180 169.9 10.1 45 200 193.18 6.82 88 120 109.76 10.24 77 130 131.1 -1.1 63 140 158.26 -18.26 43 180 197.06 -17.06 55 200 173.78 26.22

Largest error is in period 11. Case - Rachel’s Breakfast Café – Teaching Note

Day Monday Tuesday Wednesday Thursday Friday Saturday Monday Tuesday

Probability of Rain (%) 5-day forecast 10 20 30 50 80 90 60 70

Probability of Rain (%) 2-day forecast 40 30 10 40 80 90 30 30

Total Sales 5520 4320 4212 4987 5545 6023 4590 4733

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Wednesday Thursday Friday Saturday Monday Tuesday Wednesday Thursday Friday Saturday Monday Tuesday Wednesday Thursday Friday Saturday

90 100 100 20 10 10 10 50 20 60 20 15 20 20 10 60

30 50 100 70 10 10 10 50 70 60 20 15 50 20 80 70

4923 4687 5988 6132 5324 4526 5232 5684 5911 6328 4932 5235 5862 4862 6100 6255

Questions: 1. Develop forecasts using regressions of sales on each of the series of rain forecasts respectively. Calculate the MFE (bias), MAD, and MAPE for the two forecasting models. Which rain forecast seems to be better at predicting Rachel’s daily sales, the five-day forecast or the twoday forecast? The tables and plots below indicate that the 2-day forecast provides better predictions of Rachel’s daily sales. This is to be expected. Nearer term forecasts are usually more accurate (i.e., two-day forecast is better than five-day forecast). If rain actually does affect sales, then a better prediction of rain would provide a better prediction of sales.

2-day forecast

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Closed on Sundays Rachel's Breakfast Café Probability of Rain (%) 2-day Day forecast Monday 40 Tuesday 30 Wednesday 10 Thursday 40 Friday 80 Saturday 90 Monday 30 Tuesday 30 Wednesday 30 Thursday 50 Friday 100 Saturday 70 Monday 10 Tuesday 10 Wednesday 10 Thursday 50 Friday 70 Saturday 60 Monday 20 Tuesday 15 Wednesday 50

Total Sales 5520 4320 4212 4987 5545 6023 4590 4733 4923 4687 5988 6132 5324 4526 5232 5684 5911 6328 4932 5235 5862

17.73

4542.8

day regess fcst 5252 5074.7 4720.1 5252 5961.2 6138.5 5074.7 5074.7 5074.7 5429.3 6315.8 5783.9 4720.1 4720.1 4720.1 5429.3 5783.9 5606.6 4897.4 4808.75 5429.3

err 268 -754.7 -508.1 -265 -416.2 -115.5 -484.7 -341.7 -151.7 -742.3 -327.8 348.1 603.9 -194.1 511.9 254.7 127.1 721.4 34.6 426.25 432.7

abs err 268 754.7 508.1 265 416.2 115.5 484.7 341.7 151.7 742.3 327.8 348.1 603.9 194.1 511.9 254.7 127.1 721.4 34.6 426.25 432.7

ape 4.86% 17.47% 12.06% 5.31% 7.51% 1.92% 10.56% 7.22% 3.08% 15.84% 5.47% 5.68% 11.34% 4.29% 9.78% 4.48% 2.15% 11.40% 0.70% 8.14% 7.38%

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Thursday Friday Saturday

20 80 70

4862 6100 6255

4897.4 5961.2 5783.9

-35.4 138.8 471.1

35.4 138.8 471.1

0.73% 2.28% 7.53%

0.05625 361.4895833 MFE (bias) MAD

6.97% MAPE

5-day forecast

Rachel's Breakfast Café Probability of Rain (%) 5-day Day forecast Monday 10 Tuesday 20 Wednesday 30 Thursday 50 Friday 80 Saturday 90 Monday 60 Tuesday 70 Wednesday 90 Thursday 100 Friday 100 Saturday 20 Monday 10

Total Sales 5520 4320 4212 4987 5545 6023 4590 4733 4923 4687 5988 6132 5324

1.7638

5255.4

day regess fcst 4720.1 4897.4 5074.7 5429.3 5961.2 6138.5 5606.6 5783.9 6138.5 6315.8 6315.8 4897.4 4720.1

err 799.9 -577.4 -862.7 -442.3 -416.2 -115.5 -1016.6 -1050.9 -1215.5 -1628.8 -327.8 1234.6 603.9

abs err 799.9 577.4 862.7 442.3 416.2 115.5 1016.6 1050.9 1215.5 1628.8 327.8 1234.6 603.9

ape 14.49% 13.37% 20.48% 8.87% 7.51% 1.92% 22.15% 22.20% 24.69% 34.75% 5.47% 20.13% 11.34%

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

Tuesday Wednesday Thursday Friday Saturday Monday Tuesday Wednesday Thursday Friday Saturday

10 10 50 20 60 20 15 20 20 10 60

4526 5232 5684 5911 6328 4932 5235 5862 4862 6100 6255

4720.1 4720.1 5429.3 4897.4 5606.6 4897.4 4808.75 4897.4 4897.4 4720.1 5606.6

-194.1 511.9 254.7 1013.6 721.4 34.6 426.25 964.6 -35.4 1379.9 648.4

194.1 511.9 254.7 1013.6 721.4 34.6 426.25 964.6 35.4 1379.9 648.4

4.29% 9.78% 4.48% 17.15% 11.40% 0.70% 8.14% 16.46% 0.73% 22.62% 10.37%

29.60625 686.5395833 13.06% MFE (bias) MAD MAPE 2. How can Rachel make use of the rain forecasts to improve her forecasts of total sales each day? What other changes to her business would she need to make in order to capitalize on this information? She can use the five-day forecast to improve her forecasting of demand and needed supplies, and place orders in the same manner as she currently does. However, if she wants to take advantage of the better forecast quality of the two-day forecast, she would need to work with her supplier to see if a two-day delivery lead time is possible. 3. How are order lead time and forecasting accuracy related to each other in this case? This is a good simple example of how supply lead time dictates the time horizon for forecasting. Rachel must forecast at least as far in advance as the supply lead time dictates. If we can reduce lead time, we can reduce the planning horizon, and most probably improve forecast accuracy. 4. Plot and visually inspect the sales data. What other suggestions would you give Rachel for improving her sales forecasts? What type of time series model would be appropriate? Why? If we plot the data over time, as shown below, it becomes clear that there is strong seasonality in the sales. Rachel could improve her forecasts tremendously by incorporating a seasonal factor into the model.

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

C&F Apparel, Inc. Case – Teaching Note This short case is designed to reinforce the students’ understanding of the constraints on demand planning, and the choices available to supply chain operations managers that may affect their overall planning effectiveness. Zara is a well know example of a company that chooses extra capacity, close supply relationships, and fast lead times over a more traditional strategy based on anticipation and pre-positioned inventories. The questions below provide a frame for discussing the trade-offs of this approach. 1. What are the advantages and disadvantages of Zara's methods? Zara is a retailer that sells directly to customers. Thus, Zara has direct point of sale information from its stores. Using sales managers and actual store data, Zara is able to update its forecast during the selling season, something that is critical for a company selling trendy fashions. Domestic sourcing allows Zara to replenish orders in 2 to 3 weeks. This short time period for forecasting means that forecasts are likely to be more accurate. During a selling season, new orders can be placed based on the updated forecasts using actual sales data. 2. Would these methods work at a company like C&F?

Chapter 01 - Introduction to Managing Operations Across the Supply Chain

One disadvantage that C&F faces is that it does not have its own retail stores but instead sells to retailers and thus does not have direct access to point-of-sale data. In addition, low-cost country sourcing means that lead times are 2 to 3 months while the entire selling season lasts only 15 weeks. C&F must place its orders based solely on initial forecasts since it does not have time to place and receive additional orders during the selling season. The longer lead time and lack of point-of-sales data means that C&F’s forecasts may not be very accurate. Domestic sourcing works well for Zara because as a Spanish company, domestic suppliers have lower labor rates than the US. Domestic sourcing of apparel in the US can be cost prohibitive. 3. What advice would you give to Bill Smith? As mentioned in the case, sometimes the forecasts are accurate and other times they are not. Some of C&F’s products may be standard items in basic colors whose demand many not vary that much from year to year. If Bill can identify these items based on historical data, they can continue to be sourced from low-cost countries. Other items may be more fashion–oriented and difficult to forecast. For these items, Bill may want to consider sourcing in countries such as Mexico or Central America that may have shorter lead times. Bill should also identify the company’s major retail customers and partner with these companies using CFPR to improve the quality of the forecasts.

Chapter 13 - Sales and Operations Planning

Chapter 13 Sales and Operations Planning Suggested Answers to Discussion Questions 1. What is the value of the S&OP process to an organization? Why should it be a dynamic process rather than a one-time annual event? A fundamental problem facing every organization is the proper balancing of its ability to provide the exact quantity of products and services at the exact time customers demand them. Compounding the problem in many organizations is the fact that executives from the sales and marketing functions often fail to discuss their plans with executives in the operations functions of the organization. Likewise, executives in the operations functions frequently fail to provide sales and marketing executives with information concerning their constraints in ability to supply. The inevitable result of these failures is a mismatch between the organization’s sales plan and its operations plan. S&OP solves these problems. S&OP should be considered a dynamic process, not a one-time event. In the real world it would be an extremely rare situation in which a company established an aggregate production plan at the beginning of a year and simply followed it blindly for the next six or twelve months. Most firms that have incorporated S&OP as a part of their overall management process hold monthly or, at least quarterly, review meetings. Also, conditions in operations may change. Unexpected machine breakdowns, employee strikes, or any other of many possibilities might occur which would drastically change the aggregate production plan. Many companies incorporate rolling planning horizons, meaning that they re-plan each period (month or quarter), for a given number of periods into the future. This approach requires updates to the S&OP sales plan and aggregate production plan as these conditions develop. 13-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

2. Explain in your own words the typical differences in objectives for production managers and sales managers. Student answers to this question will vary, but Table 13-1 in the text provides a summary of these differences in objectives. Typically sales managers prefer aggregate forecasts, many product variations, rapid response, high service, and desire to maximize revenue. Production managers desire detailed forecasts, few product variations, long production runs, stable schedules, and want to maximize output/minimize costs 3. Do you think chase strategies might be more appropriate in some industries than in others? Give some examples and explain why. Almost all service business must chase demand as they do not have the luxury of producing and then storing in inventory. On the other hand, chasing demand in many parts of the steel industry (integrated mills in particular) would be very difficult as the furnaces for melting iron ore cannot be started and stopped at will. 4. What are the key cost advantages of level production strategy over a chase strategy? Of a chase strategy over a level production strategy? Chase Strategy: the production rate is varied such that it matches the demand rate period-byperiod – this plan is beneficial primarily when inventory holding costs are high Level Strategy: the production rate is kept relatively constant from period to period – this strategy is beneficial when hiring and firing costs are high and to some degree when overtime costs are high 5. Suppose your firm is using a level production planning approach to manage a seasonal demand. Your production manager is evaluated on lowest production cost but the

Chapter 13 - Sales and Operations Planning

logistics manager is evaluated on the amount of inventory the firm holds. Explain the issues. When demand is seasonal and a level aggregate plan is used, there will be a tendency to need to build inventory during the low-demand part of the year so that inventory can be used for the peak demand. This will likely keep production cost at a minimum, satisfying the production manager, but the logistics manager will be penalized due to the high inventory levels. 6. Explain why the following is not necessarily a true statement: “If a company is chasing demand, then it is overinvesting in balance-sheet assets since inventories will be high.” Chasing demand should actually keep inventory low, as the attempt is to produce at the rate of demand. While safety stock may be maintained, inventory overall is far less than in a level plan. However, other asset investments may have to be very high. Facilities, equipment, etc., will have to be available to produce enough to match demand in the time period that has the highest demand. 7. If most aggregate production planning problems include assumptions and ignore many needs of the company that are difficult to quantify, then what is the benefit of the process? The benefit of the process is that it plans a production schedule that meets demand but incurs the least amount of costs. Many different plans can be made so that everyone can see the effects of things like overtime, hiring/firing, level production, and subcontracting. This way all of the managers can agree on the planning schedule by looking at many different options and seeing what is the best fit and the least costly decision. 8. In most companies that are considered to be successful users of the S&OP process, the resulting plans and commitments are treated, essentially, as “quasi-contracts.” That is, 13-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

the agreement reached between the various parties cannot be unilaterally broken or changed by any party. To change the schedule requirements participation of all the parties. They must agree to the changes before they can be implemented. What are the implications of a position as it pertains to how the firm and its functional areas deal with changes? This is a critical issue. First, before discussing the answer, lets understand what we mean by a “quasi-contract.” A contract is one where the various parties agree to the terms and the parties recognize that they cannot unilaterally change the terms of the contract. If we don’t term the various plans as quasi-contracts, then the parties can change the terms. This means that marketing can change the order due dates and order quantities without input from operations and supply chain management. This means that operations will have difficulty in planning and executing because the requirements are potentially always changing. This leads to a phenomenon known as “system nervousness.” However, this does not mean that the system is not open to change – it is. However, what is now required are agreements over when is changed and when. This is the basis of time fencing. What this means is that for marketing to change the plans, it must first get input from operations and supply chain management and agreement from these groups to the change. 9. In one of this chapter’s “Get Real” stories, you read about the experiences of Nintendo in planning production of its Switch system. If you were on the aggregate planning team for the Switch, would you plan for average demand or for peak demand, and why? When dealing with a product such as the Switch, the key to success is to have the product available when it is demanded. For the Switch, this means that the planners have to anticipate and plan for the peak demand. Otherwise, if the demand is there but the product is missing, the 13-4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

supplier runs the real risk of having the buyer pick a product from a competitor (e.g., Xbox One or PS/4) that is available. Now, at this stage, one thing that can be explored is that of how software can be used to deal with this problem. That is, if you are scheduling production of the Switch and you are worried about stockouts, one thing that you do is to see if there is a unique software title that is associated with your product. That product can cause consumers to be willing to wait for your product. Problem Solutions 1. For the Sodas Galore problem discussed in the chapter, assume that employees negotiate an increase in the regular production wage rate to $24.00 per hour and $36.00 per hour for overtime. Rework all aspects of the problem using the new wage rates. New Labor cost per case: 160 hours * $24/hour = $3,840 = $3,840/4,000 cases = $.96 per case Level Production Plan Beginning inventory = 5,000; Beginning workers = 8 Month Demand

Regular Production

Overtime Ending Workers Hire Fire or Inventory* Required layoff Subcontract (4,000 Production cases/worker) Jan. 24,000 40,000 0 21,000 10 2 0 Feb. 32,000 40,000 0 29,000 10 0 0 March 32,000 40,000 0 37,000 10 0 0 April 48,000 40,000 0 29,000 10 0 0 May 60,000 40,000 0 9,000 10 0 0 June 44,000 40,000 0 5,000 10 0 0 Total 240,000 240,000 0 130,000 2 0 Total Level Plan Cost = Regular Production Cost + Inventory Cost + Hiring/Firing Cost Total Cost = ($.96*240,000 cases) + ($0.30*130,000 cases) + ($1,000*2 hires) Total Cost = $271,400 13-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

Chase Production Plan Adjust Workforce Size Beginning inventory = 5,000; Beginning workers = 8 Month Demand

Regular Productio n

Overtime or Subcontract Production

Ending Inventory

Workers Required (4,000 cases/worker) 6 8 8 12 15 11

Hire

Jan. 24,000 24,000 0 5000 0 Feb. 32,000 32,000 0 5000 2 March 32,000 32,000 0 5000 0 April 48,000 48,000 0 5000 4 May 60,000 60,000 0 5000 3 June 44,000 44,000 0 5000 0 Total 240,000 240,000 0 30,000 9 Total Cost = Regular Production Cost + Inventory Cost + Hiring/Firing Cost Total Cost = ($.96*240,000 cases) + ($0.30*30,000cases) + ($1,000*9 hires) + ($1,500*6 fires/layoff) Total Cost = $257,400 Overtime or Subcontract Beginning inventory = 5,000; Beginning workers = 8 Month Demand Regular Producti on

Overtime or Subcontract Production

Ending Inventory

Workers Required (4,000 cases/worker) 6 6 6 6 6 6

Hire

Fire layoff

Jan. 24,000 24,000 0 5000 0 2 Feb. 32,000 24,000 8,000 5000 0 0 March 32,000 24,000 8,000 5000 0 0 April 48,000 24,000 24,000 5000 0 0 May 60,000 24,000 36,000 5000 0 0 June 44,000 24,000 20,000 5000 0 0 Total 240,000 144,000 96,000 30,000 0 2 Overtime: New Overtime rate: $.96*1.5 = $1.44/case Total Cost = Regular Production Cost + Overtime Cost + Inventory Cost + Hiring/Firing Cost Total Cost = ($.96*144,000 cases) + ($1.44*96,000 cases) + ($0.30*30,000 cases) + ($1,500*2 fire/layoff) 13-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Fire layo ff 2 0 0 0 0 4 6

Chapter 13 - Sales and Operations Planning

Total Cost = $288,480 Subcontract: Total Cost = Regular Production Cost + Subcontract Cost + Inventory Cost + Hiring/Firing Cost Total Cost = ($.96*144,000 cases) + ($1.15*96,000 cases) + ($0.30*30,000 cases) + ($1,500* 2 fire/layoff) Total Cost = $260,640 Hybrid Plan Beginning inventory = 5,000; Beginning workers = 8 Month Demand

Regular Producti on

Overtime or Subcontract Production

Ending Inventory

Workers Required (4,000 cases/worker) 8 8 8 8 8 8

Hire

Jan. 24,000 32,000 0 13,000 0 Feb. 32,000 32,000 0 13,000 0 March 32,000 32,000 0 13,000 0 April 48,000 32,000 8,000 5000 0 May 60,000 32,000 28,000 5000 0 June 44,000 32,000 12,000 5000 0 Total 240,000 192,000 48,000 54,000 0 Total Cost = Regular Production + Overtime Cost + Inventory Cost Total Cost = ($.96*192,000 cases) + ($1.44*48,000 cases) + ($0.30*54,000 cases) Total Cost = $269,640

Fire layoff

0 0 0 0 0 0 0

2. Using the existing data in the solved problem (Neal Industries) assume that the overtime production wage rate is $24.00 per hour. Compute the cost of a chase plan using a stable workforce of 300 workers. Quarter

Demand

1 2 3 4 Total

6,000,000 9,000,000 15,000,000 10,000,000 40,000,000

Regular Production 6,000,000 6,000,000 6,000,000 6,000,000 24,000,000

Overtime Production

End. Inv.

0 3,000,000 9,000,000 4,000,000 16,000,000

1,000,000 1,000,000 1,000,000 1,000,000 4,000,000

Workers Required

Hire

Fire layoff

300 300 300 300

0 0 0 0 0

Production cost per unit: 500 hours * $16/hour = $8,000; $8,000/20,000 jeans = $0.40 per unit 13-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

Overtime Production Cost = $.40/unit*1.5 = $.60/unit Total Cost = Regular Production Cost + Overtime Production Cost + Inventory Cost + Hiring Cost Total Cost = ($.40*24,000,000 jeans) + ($.60*16,000,000 jeans) + ($0.10*4,000,000 jeans) Total Cost = $19,600,000 3. The Johnson Company manufactures expensive medical diagnostic equipment, It plans to meet all of its projected demand (given below for the next year by quarter). The firm plans to use a constant production rate of 300 units/quarter. Production costs are $20,000 per unit and holding costs are $2,000 per quarter per unit. Quarter Demand Quarter 1 2 3 4 Total

1 200

Demand 200 300 400 300 1200

2 300

3 400

4 300

Regular Production 300 300 300 300 1200

Ending Inventory 100 100 0 0 200

What is the cost of this production plan? Total Cost = Production Cost + Inventory Cost Total Cost = ($20,000*1200 units) + ($2,000*200 units) Total Cost = $24,400,000 4. The current aggregate demand requirements for a firm are shown below for the next six months Month Demand

May 120

June 100

July 100

Aug 100

Sept 130

Oct 150

The firm always plans to meet all demand. The firm currently has 120 workers capable of producing 120 units in a month (1 unit/worker). The workforce can be increased (at a cost of $500 per worker) or decreased (at a cost of $1000 per worker). Inventory holding cost is $100 per unit per month. The firm currently has 40 units of inventory on hand, and it would like to have at least 40 units available at the end of each month. Regular production cost is $3,000 per unit. a) What should the aggregate plan be if the inventory holding cost is to be minimized? Minimizing inventory holding cost requires that the plan result in the minimum safety stock requirement of 40 units at the end of each month. Therefore the firm must use a chase plan.

Chapter 13 - Sales and Operations Planning

Month

Demand

Regular Ending # Workers Hire Fire Production Inventory May 120 120 40 120 0 0 June 100 100 40 100 0 20 July 100 100 40 100 0 0 August 100 100 40 100 0 0 September 130 130 40 130 30 0 October 150 150 40 150 20 0 Total 700 700 240 50 20 Total Cost = Regular Production Cost + Ending Inventory Cost + Hiring/Firing Cost Total Cost = ($3,000*700) + ($100*240) + ($500*50) + ($1000*20) b) What is the cost of this plan? Total Cost = $2,169,000 5. A firm must plan production for the next six months. Each unit costs $250 to produce and it has an inventory holding cost of $10 per unit per month based on ending inventory levels. The cost to hire a worker is $100 and the cost to fire a worker is $200 per worker. Each worker produces 10 units per month. There are 20 persons on the payroll at the beginning of the first month. The company currently has 100 units of inventory in stock, and it wants to hold these as safety stock. Month Demand

1 300

2 300

3 300

4 300

5 400

6 500

a) From the information given above, what “level” production rate will meet demand for the next six months? Level Plan Month

Demand

1 2 3 4 5 6 Total

300 300 300 300 400 500 2100

Regular Production 350 350 350 350 350 350 2100

Ending Inventory 150 200 250 300 250 100 1250

Number of Workers 35 35 35 35 35 35

Hire

Fire

15 0 0 0 0 0 15

0 0 0 0 0 0 0

A constant production of 350 units per month would meet the demand for the next six months. b) At that production rate, what is the maximum end-of-period inventory experienced at some time during the six months? What would be the cost of a level production plan? The maximum end-of-period inventory experienced would be 300 units. Total cost = (2,100*$250) + (1,250*$10) + (15*$100) = $539,000 13-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

c) From the information given above, what is the total cost of a chase (Hire and Fire only) Production Plan? Month

Demand

1 2 3 4 5 6 Total

300 300 300 300 400 500 2100

Regular Production 300 300 300 300 400 500 2100

Ending Inventory 100 100 100 100 100 100 600

Number of Workers 30 30 30 30 40 50

Hire

Fire

10 0 0 0 10 10 30

0 0 0 0 0 0 0

Total Cost = Regular Production Cost + Ending Inventory + Hire/Fire Cost Total Cost = ($250*2,100 units) + ($10*600 units) + ($100*30) Total Cost = $534,000 6. JokersRWild makes playing cards in several different styles, but a “standard” deck of cards is used for planning purposes. The average worker at JokersRWild can make 10,000 sets of decks of cards per month at a cost of $1.00 per deck during regular production and $1.30 during overtime. The company currently employs 25 workers. Experience shows that it costs $500 to hire a worker and $500 to fire a worker. Inventory carrying cost is $.25/ deck per month. Given the following demand estimate, develop a six-month production plan based on level production, chase by changing workforce level, and chase using overtime (if they use overtime, they will not fire anyone and will allow inventory to increase if demand is less than regular production). The beginning inventory is 50,000 and at least that amount is desired each month. Month Jan. Feb. March April May June Demand 200,000 150,000 200,000 400,000 550,000 300,000 Level Production Plan Month Demand January February March April May June Total

200,000 150,000 200,000 400,000 550,000 300,000 1,800,000

Regular production 300,000 300,000 300,000 300,000 300,000 300,000 1,800,000

Ending Inventory 150,000 300,000 400,000 300,000 50,000 50,000 1,250,000

Hire

Fire

5 0 0 0 0 0 5

0 0 0 0 0 0 0

Total Cost = Regular Production Cost + Inventory Cost + Hiring Cost = Total Cost = (1,800,000*$1.00) + (1,250,000*$.25) + (5*500) = $1,800,000 + $312,500 + $2,500 = $2,115,000 13-10 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

Chase Production Plan – Using Overtime Month Demand Regular Overtime Inventory Number Hire Fire Production of Workers January 200,000 250,000 0 100,000 25 0 0 February 150,000 250,000 0 200,000 25 0 0 March 200,000 250,000 0 250,000 25 0 0 April 400,000 250,000 0 100,000 25 0 0 May 550,000 250,000 250,000 50,000 25 0 0 June 300,000 250,000 50,000 50,000 25 0 0 Total 1,800,000 1,500,000 300,000 750,000 0 0 Total Cost = Regular Production Cost + Overtime Production Cost + Inventory Cost Total Cost = ($1.00*1,500,000) + ($1.30*300,000) + ($0.25*750,000) = Total Cost = $2,077,500 Chase Production Plan – Changing Workforce Level Month Demand Regular Ending Number of Hire Fire Production Inventory Workers January 200,000 200,000 50,000 20 0 5 February 150,000 150,000 50,000 15 0 5 March 200,000 200,000 50,000 20 5 0 April 400,000 400,000 50,000 40 20 0 May 550,000 550,000 50,000 55 15 0 June 300,000 250,000 50,000 30 0 25 Total 1,800,000 1,800,000 300,000 40 35 Total Cost = Regular Production Cost + Inventory Cost + Hiring/Firing Cost Total Cost = ($1.00*1,800,000 units) + ($0.25*300,000 units) + ($500*40 hires) + ($500*35 fires) Total Cost = $1,912,500 7. Trexoid Inc. makes a popular video game console. Demand varies each month, with highest demand coming in the last quarter of the year. Regular production costs are $120 per unit and inventory carrying cost is $5/unit per quarter. Overtime production cost is $150 per unit. Assume that the 10 current Trexoid employees can produce 50,000 units per quarter in regular production and can work enough overtime hours to produce the amount required if a chase plan is employed. On the other hand, hiring cost is $5,000 per employee and firing cost is $10,000 per employee. Trexoid currently has 0 inventory on hand, and they would like to have 0 inventories at the end of the year. Forecasted demand is as follows: Quarter 1 Quarter 2 Quarter 3 Quarter 4

30,000 units 20,000 units 70,000 units 120,000 units

Chapter 13 - Sales and Operations Planning

Level Production Plan Average demand is 60,000 units/quarter, so Trexoid will have to hire 2 workers. Quarter

Demand

Regular Ending Number of Hire Fire Production Inventory Workers 1 30,000 60,000 30,000 12 2 0 2 20,000 60,000 70,000 12 0 0 3 70,000 60,000 60,000 12 0 0 4 120,000 60,000 0 12 0 0 Total 240,000 240,000 160,000 2 0 Total Cost = Regular Production Cost + Ending Inventory Cost + Hiring/Firing Total Cost = ($120*240,000 units) + ($5*160,000 units) + ($5,000*2 hires) Total Cost = $29,610,000 Chase Production Plan – Overtime Keeping the workforce stable, Trexoid will actually produce more than required in the first two quarters and build some inventory. Overtime will not be necessary until the fourth quarter. Quarter Demand Regular Overtime Ending Number of Production Production Inventory Workers 1 30,000 50,000 0 20,000 10 2 20,000 50,000 0 50,000 10 3 70,000 50,000 0 30,000 10 4 120,000 50,000 40,000 0 10 Total 240,000 200,000 40,000 100,000 Total Cost = Regular Production Cost + Overtime Production Cost + Ending Inventory Cost Total Cost = ($120*200,000 units) + ($150*40,000 units) + ($5*100,000 units) Total Cost = $30,500,000 Chase Production Plan – Changing Workforce Levels Quarter Demand Regular Ending Number of Hire Fire Production Inventory Workers 1 30,000 30,000 0 6 0 4 2 20,000 20,000 0 4 0 2 3 70,000 70,000 0 14 10 0 4 120,000 120,000 0 24 10 0 Total 240,000 240,000 0 20 6 Total Cost = Regular Production Cost + Ending Inventory Cost + Hiring/Firing Cost Total Cost = ($120*240,000 units) + ($5*0 units) + ($5,000*20 hires) + ($10,000*6 fires) Total Cost = $28,960,000 The lowest cost option is to chase by hiring and firing. However, students may debate the impacts of this decision on morale, the community, etc. 8. Appliances Inc. is preparing an aggregate production plan for washers for next four months. The company’s expected monthly demand is given below in the chart. The company will have 13-12 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

500 washers in inventory at the beginning of the month and desired to maintain at least that number at the end of each month. Below is other critical data: Production cost per unit = $300 Inventory Carrying cost per month per unit = $50 (based on ending month inventory) Hiring Cost per worker = $1000 Firing cost per worker = $2000 Beginning # of workers = 10 Each worker can produce 100 units per month LEVEL Plan Month Demand

Regular Ending Workers Hire Fire Production Inventory Required 1 4000 5,000 1,500 50 40 0 2 6000 5,000 500 50 0 0 3 3000 5,000 2,500 50 0 0 4 7000 5,000 500 50 0 0 Total 20,000 20,000 5,000 40 0 Total Cost = Regular Production Cost + Ending Inventory Cost + Hire/Fire Cost Total Cost = ($300*20,000 units) + ($50*5,000 units) + ($1,000*40 hires) Total Cost = $6,290,000 CHASE PLAN Month Demand

Regular Ending Workers Hire Fire Production Inventory Required 1 4000 4,000 500 40 30 0 2 6000 6,000 500 60 20 0 3 3000 3,000 500 30 0 30 4 7000 7,000 500 70 40 0 Total 20,000 20,000 2,000 90 30 Total Cost = Regular Production Cost + Ending Inventory Cost + Hire/Fire Cost Total Cost = ($300*20,000 units) + ($50*2,000 units) + ($1,000*90 hires) + ($2,000*30 fires) Total Cost = $6,250,000 9. Togo makes riding lawn mowers and tractors. The company’s expected quarterly demand is given below in the chart. The company will have 300 mowers in inventory at the beginning of the month and desires to maintain at least that number at the end of each month. Below is other critical data: Production cost per unit = $200 Inventory Carrying cost per quarter per unit = $60 (based on ending inventory) Hiring Cost per worker = $500 Firing cost per worker = $750 Beginning # of workers = 40 Each worker can produce 100 units per quarter LEVEL Plan 13-13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

Quarter

Demand

Regular Ending Workers Hire Fire Production Inventory Required 1 5000 7,500 2,800 75 35 0 2 9000 7,500 1,300 75 0 0 3 7000 7,500 1,800 75 0 0 4 9000 7,500 300 75 0 0 Total 30,000 30,000 6,200 35 0 Total Cost = Regular Production Cost + Ending Inventory Cost + Hire/Fire Cost Total Cost = ($200*30,000 units) + ($60*6,200 units) + ($500*35 hires) Total Cost = $6,389,500 CHASE PLAN Quarter Demand

Regular Ending Workers Hire Fire Production Inventory Required 1 5000 5,000 300 50 10 0 2 9000 9,000 300 90 40 0 3 7000 7,000 300 70 0 20 4 9000 9,000 300 90 20 0 Total 30,000 30,000 1,200 70 20 Total Cost = Regular Production Cost + Ending Inventory Cost + Hire/Fire Cost Total Cost = ($200*30,000 units) + ($60*1,200 units) + ($500*70 hires) + ($750*20 fires) Total Cost = $6,122,000 Complete the tables and calculate the cost of the two plans 10. Jones Inc. is preparing an aggregate production plan for next year. The company expects demand to be 1,000 units in quarter 1; 2,000 units in quarter 2; 4,000 units in quarter 3; and 3,000 units in quarter 4. The company will have 100 units in inventory at the beginning of the year and desires to maintain at least that number at the end of each quarter as safety stock. Other information: • • • • • •

Regular production labor cost = $100 per unit Overtime production cost per unit = $150 Inventory carrying cost = $25/unit/quarter based on quarter-ending inventory Hiring cost = $2,000 per worker Firing/layoff cost = $3,000 per worker Beginning number of workers = 15

Each worker can produce 100 units per quarter. a. What is the total cost of a level plan? Level Full Safety Inv. C Total Quarter Demand #Workers Time Lab Cost O/T Inv S Cost Hire Fire Cost 1 1000 10 25 250000 0 1500 100 40000 30000 0 2 2000 20 25 250000 0 2000 100 52500 0 0 13-14 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

3 4

3000 4000

30 40 25

25 250000 25 250000 25 1000000

0 1500 0 0 0

100 100

40000 0 2500 0 135000 30000

0 0

Average workers needed: 25 Total Costs 1,000,000 (regular production labor costs) + 0 (overtime) + 135,000 (inventory carry costs) + 30000 (hire costs) Total costs = 1,000,000 (labor costs) + 135,000 (inventory carry costs) + 30000 (hiring costs) = $1,165,000. b. What is the total cost of a chase plan utilizing hiring and firing? Quarter Demand #Workers 1 1000 10 2 2000 20 3 3000 30 4 4000 40 25 Average workers needed: 25

Full Safety Inv. C Total Time Lab Cost O/T Inv S Cost Hire Fire Cost 25 250000 0 1500 100 40000 30000 0 25 250000 0 2000 100 52500 0 0 25 250000 0 1500 100 40000 0 0 25 250000 0 0 100 2500 0 0 25 1000000 0 135000 30000

Total Costs 1,000,000 (regular production labor costs) + 0 (overtime) + 135,000 (inventory carry costs) + 30000 (hire costs) = $1,165,000.

Quarter Demand Workers 1 1000 10 2 2000 20 3 3000 30 4 4000 40

Lab Inv Total Costs O/T Inventory CC Hire Fire costs 100000 0 100 2500 0 15000 117500 200000 0 100 2500 20000 0 222500 300000 0 100 2500 20000 0 322500 400000 0 100 2500 20000 0 422500 1085000

Total costs of a chase strategy = $1,085,000. This is based on the assumption that they do not fire the additional workers at the end of the fourth quarter. If they do, then the costs increase significantly Lab Inv Total Quarter Demand Workers Costs O/T Inventory CC Hire Fire costs 1 1000 10 100000 0 100 2500 0 15000 117500 2 2000 20 200000 0 100 2500 20000 0 222500 13-15 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

3 4

3000 4000

30 300000 40 400000

0 0

100 2500 20000 0 100 2500 20000 75000

322500 497500 1160000

This new cost is only marginally less than our level strategy. Suppose Jones management is reluctant to constantly change the workforce by hiring and firing. The company decides to hire seven additional workers at the beginning of the year. The company will build inventory in low-demand months and use it in high-demand months. In addition, if necessary, overtime will be used to meet demand requirements if there is not sufficient inventory available. What is the total cost of this plan? Quarter Demand Workers 1 1000 22 2 2000 22 3 3000 22 4 4000 22

Lab Inv Costs O/T Inventory CC 220000 0 1200 100 220000 0 1400 100 220000 0 600 100 220000 270000 0 100

Hire Fire 32500 14000 37500 0 17500 0 2500 0

Total costs 266500 257500 237500 492500 1254000

Here, we can see that the costs are the highest - $1,245,000. The question for Jones Management is whether the increase in costs are justified by other factors (such as employee satisfaction or fewer quality problems). 11. Dale’s Dance Studio currently has three full time instructors who are each paid $2,500 per month. A dance instructor can only work a maximum of 100 hours per month since instruction normally takes place at night. They do receive $2,500 even if they do not work 100 hours however. Part-time instructors can be hired at a cost of $40 per hour. Dale’s has forecasted that demand for the next six months will be: Month 1 2 3 4 5 6 Hours 380 280 450 420 520 390 Should Dale hire more full-time instructor’s or rely on part-time instructors to meet demand? Rely Solely on Part-timers Month Demand (Hours) Full Time Hours 1 380 300 2 280 300 3 450 300 4 420 300 5 520 300 6 390 300 Total 2,440 Total Cost = Full Time Cost + Part-Time Cost

Part-Time Hours 80 0 150 120 220 90 660

Chapter 13 - Sales and Operations Planning

Total Cost = ($2,500*3 full time*6 months) + ($40*660 part-time) Total Cost = $71,400 Hiring One more Full Time Instructor Month Demand (Hours) Full Time Hours Part-Time Hours 1 380 400 0 2 280 400 0 3 450 400 50 4 420 400 20 5 520 400 120 6 390 400 0 Total 2,440 190 Total Cost = Full Time Cost + Part-Time Cost Total Cost = ($2,500*4 full time*6 months) + ($40*190 part-time) Total Cost = $67,600 Hiring two more full time instructors Month Demand (Hours) Full Time Hours Part-Time Hours 1 380 500 0 2 280 500 0 3 450 500 0 4 420 500 0 5 520 500 20 6 390 500 0 Total 2,440 20 Total Cost = Full Time Cost + Part-Time Cost Total Cost = ($2,500*5 full time*6 months) + ($40*20 part-time) Total Cost = $75,800 Dale should hire one more full time instructor and rely on part-time instructors to meet 190 hours of demand. 12. Make-Believe-You is a company that produces "cosplay" costumes for those people who want to live like their favorite action heroes. Currently, out of its catalog of hundreds of costumes, Make-Believe-You has identified six costumes that are demanded on a regular basis (with the following traits) and that are made in the same system:

Chapter 13 - Sales and Operations Planning

Forecasted Demand

Management has decided that it would like to begin with 200 units at the end of December and end with 100 on hand at the end of August. a. For the data provided in the previous question, develop an aggregate plan using a constant work force. (Hint: convert the individual units into aggregate units using a summed weighted approach. For example, Iron Man contributes 5.8*.06 = 0.35 hrs of demand for capacity, while Harley Quinn contributes 4.2*.32 = 1.34 hrs of demand for capacity. Use the same approach for each item to determine the overall aggregate demand for capacity.) Aggregate unit capacity = 4.2*.32 (Harley Quinn) +4.9*.21 (Guardians of the Galaxy – Star Lord) + 5.1*.17 (Star War – Storm Trooper) + 5.2*.14 (Lord of the Rings – Gandalf) + 5.4*.10 (Batman – Dark Knight) + 5.8*.06 (Iron Man) = 4.856 hrs per aggregate unit. Since we have 200 units at the start of January and we want 100 additional units at the end of August, we can generate the following aggregate plan using a level strategy: Model Harley Quinn Guardians Star War LOR Batman Iron Man Month January Feb March April

4.2 4.9 5.1 5.2 5.4 5.8 Demand 20 280 460 190

285 345 395 425 525 725

0.32 0.21 0.17 0.14 0.1 0.06 1

Capacity Level 97.12 1116.89 1359.68 1116.89 2233.76 1116.89 922.64 1116.89 13-18

Chapter 13 - Sales and Operations Planning

May June July August Average Capacity/month

310 145 110 325

1505.36 704.12 534.16 1578.2 8935.04

1116.89 1116.89 1116.89 1116.89 8935.12

1116.88

Under what conditions would you go with a chase strategy even though the costs might be lower with a level strategy? A chase strategy is appropriate when we don’t want to carry or when we are not sure of the forecast or its quality and we decide that it would be more appropriate to build to demand rather than to stock. What actions can you introduce to improve the quality of your aggregate planning? Here, the focus should fall on the forecast and linking the production to demand. For example, we can improve the quality of the forecast by: • •

Being at the conventions and seeing what people are actually wearing. Talking to people who are very involved in cosplay competition and seeing what they are making and why?

To better link Operations and Supply Chain Management to Marketing, we should look at moving to a pull or lean approach. Key to this strategic shift is the need for operations to reduce lead times and setup times. Med-Chem Products Hospital Division Case – Teaching Notes This case provides an excellent setting to discuss the key issues related to sales and operations planning. It highlights the difference in objectives in different functions as well as the problems encountered in numerous organizations. Questions 1. Describe the current system in use as it applies to the operations personnel and marketing personnel. To what extent does this system help or hinder Med-Chem’s ability to achieve its objectives? Why? 13-19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

In this current system, operations personnel and marketing personnel are not made to communicate and to calculate a forecast together. They both have separate forecasts and therefore different ideas of what should be kept in safety stock. They also have different ideas as to how to cut costs. Operations (with their different demand forecast) will make fewer products in order to save money and keep to their budget; while marketing has a different forecast and an entirely different budget to keep. This system hinders MedChem’s ability to achieve its objectives. In order to keep enough safety stock of the “star” and “cash cow” products, marketing and operations both have to have the same and constant demand forecasts, sales data and budgets. If marketing is doing a sales promotion, then they need to communicate with operations so they produce more units and increase safety stock during the sale period in order to decrease the threat of lost sales revenues. 2. For marketing and operations, what are the critical activities that they must do well for MedChem to be successful in the marketplace? Marketing and operations executives have to communicate with each other about demand, forecasts and sales. If both departments have the same forecasts, fewer products will be wasted, and fewer sales would be lost due to out-of-stock units. 3. What general recommendations would you make to Todd regarding the current situation? Marketing needs to communicate with operations well ahead of time when they are planning a sales promotion for certain products. Production can then save costs on overtime and increased hiring by slightly increasing production and therefore increasing safety stock in time for the sales promotion. Marketing should stop changing the forecasts so often so that production can keep up with demand and they will both have a clear 13-20 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 13 - Sales and Operations Planning

forecast to work towards. If the forecast keeps getting changed, it will be more difficult for Med-Chem to see where they can cut costs. Premium Foods Pandemic Planning Case – Teaching Notes This case presents a situation in which a well-performing provider of consumer-packaged foods, Premium Foods, is considering the purchase of a leading provider of pasta products, Perfect Pasta, to secure supply, expand its product line, and grow its market share. Its plans are disrupted by the pandemic, and the company finds itself in a quandary regarding how to allocate scare inventories to different customers. Ravi Khullar, a consultant initially hired to help Premium Foods analyze the acquisition, must shift his focus to help the company respond to the challenges created by the pandemic. In this case study, we expect students to: • • •

Compare and contrast sequential, cascaded supply chain planning processes with concurrent planning processes Evaluate supply chain choices and risk management strategies and their impact on resilience to major disruptions and shifts in business Develop an analysis of options that seeks to balance trade-offs across multiple criteria (the instructor may wish to introduce the Analytic Hierarchy Process or another multi-objective planning approach)

After completing this case study, we expect students to understand that: • •

•

Supply chain planning processes that are collaborative, agile and responsive enable businesses to manage disruption more effectively Supply chain design choices that maximize efficiency are not always compatible with choices that maximize resiliency. Supplier relationships are critical because they impact price/costs, but more importantly they impact visibility and the speed and quality of responsiveness to disruptions Risk management strategies involve trade-offs between different aspects of business (like speed vs. costs) and every trade-off has an impact on the business

Questions 1. What factors make Premium Foods’ supply chain more or less resilient to disruptions such as those posed by the pandemic? Resilience factor Produce breadth Supply lead times Number of sources of supply Supply locations Supply relationships

Premium Foods Four product lines; 105 SKUs 3-5 days, JIT Few for each category

Resilience impact More options, risk spread

Regional, nearby Collaborative / profit sharing

Less susceptible to delays Shared incentives to respond; supplier gives

Faster response More options

Chapter 13 - Sales and Operations Planning

Resilience factor

Premium Foods

Visibility Planning process

Extensive Concurrent / modelling capability supports scenario evaluation / real-time Event driven and 1 week cycle 1 week, JIT

Planning speed Finished goods inventories

Resilience impact priority Earlier warning Faster response, higher quality solutions Faster response Larger buffer

2. What are the strengths and weaknesses of Premium Foods’ planning process? Where would you place them on the S&OP Maturity Model introduced in this chapter? Premium Food uses a supply chain planning system that allows them to do “concurrent planning.” The system enables them to do their planning in real-time and any changes they make are immediately propagated to all parts of the supply chain This planning approach, coupled with collaboration with suppliers and distributors, gives planners broader visibility across the supply chain and they don’t experience delays in their decision-making processes. Based on the limited information given in the case, students will probably place the company at more mature levels. Premium Foods has good technology enablement and connectivity with external planning partners. There concurrent and rapid planning capabilities allow them to do event-based planning rather than just monthly planning that is typical in S&OP.

3. Which option for dealing with the ingredient shortage should Ravi recommend? Why? Should additional criteria be used to evaluate options? Evaluation of the four different options presented in the case can involve a fairly cursory discussion of the pros and cons of each option, or the instructor might choose to introduce various multi-objective decision making approaches. The table below presents the results of two approaches: 1) scores based on weighted percentage deviations from criteria targets, and 2) ratings generated by the Analytic Hierarchy Process (AHP). The data and calculations for both analyses are provided in the spreadsheet that accompanies this teaching note.

AHP Ranking (ignores targets) Alt Supplier 30.94% Equalshare 22.94% Fairshare 22.61% Prioritize 23.51%

Number of targets met 3 2 4 2

Weighted avg target deviation 8.58% −6.39% −13.41% −2.87%

Weighted avg abs target deviation 31.97% 15.24% 30.67% 5.01%

Max target deviation 76.00% 38.90% 57.00% 9.60%

Max weighted target deviation 10.87% 5.56% 8.15% 1.37%

Chapter 13 - Sales and Operations Planning

The discussion can center on the differences in recommendations depending on how one prioritizes the overall outcomes. The AHP ranking, which recommends the Alternative Supplier option, uses matrix algebra to create an overall weighted performance score for each alternative, yet it focuses only on relative performances across the options and criteria; it does not consider targets. Analyses of target achievement can prioritize the number of targets met, the weighted average deviation from targets, the maximum deviation from targets, etc. While the Fairshare option meets the largest number of targets, the Prioritize Customers option is best in terms of meeting targets overall. Students may come up with other ratings schemes to compare the options. However, it is useful to press students to think beyond the ratings to consider additional longer-term and risk-related factors. Each of the options involves several short-term vs long-term trade-offs which require decision makers to weigh priorities in ways that go beyond the simple weighting provided in the case. A summary of important considerations is given below.

Allow Alternate Supplier (on time but risky and environmentally damaging) -

On or above all delivery time related targets Ontime revenue and late revenues are better than targets, late revenue, lowest gross margin percent, worst environmental impacts Potentially higher costs and longer lead times from alternate suppliers Reliability and quality of alternate supplier should be considered along with potential risks

Equalshare Supply (middle performance but environmentally friendly) -

Close to target in key metrics, except high late revenue and high number of late orders Highest gross margin percent, Negatively affects customer satisfaction for strategic customers, might affect long term partnerships Priority of orders are not taken into account

Fairshare Supply (good margins but late and poor performing overall) -

Does not reach the target in most key metrics Lowest scores in ontime revenue, worst late orders, but highest gross margin Negatively affects customer satisfaction for strategic customers, might affect long term partnerships Priority of orders are not taken into account

Prioritize Key Customers -

Close to key targets Late revenue and orders are the only key metrics that have major deviation from the target Negatively affects customer satisfaction for non-key customer Reinforces collaboration and partnership with strategic customers

Chapter 14 - Materials and Resource Requirements Planning

Chapter 14 Materials and Resource Requirements Planning

Suggested Answers to Discussion Questions 1.

Why are spare parts and service parts considered to be independent demand, not dependent demand? The demand for spare parts and service parts comes from external events that are independent occurrences, such as maintenance or breakdowns. These do not depend upon the demand for finished goods.

Why is collaboration within an organization and the supply chain important when using DRP and MRP? The quality of the planning process depends upon the quality of the information used for planning. Within an organization, functional groups such as sales and operations must share information about actual orders and develop good quality forecasts that are used for planning. By collaborating with customers, companies will have more accurate forecasts to use for planning. Collaboration with suppliers also is important. Companies will have a better understanding of actual lead time. In addition, suppliers will have more accurate forecasts that they can use in their planning processes reducing costs and improving delivery performance.

The planning process involves a rolling time horizon. What does this mean to a planner? The planning is always working with a fixed time period, say a 12-week planning horizon. However, the planning horizon updates each time period. For example, in a 12-week planning horizon, when next week arrives, the current week 2 becomes 14-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

the new week 1. This is important because the rolling horizon and the lead time determine when an order shifts from being a planned receipt to a scheduled receipt. 4.

What is the relationship between cumulative lead time and changes in the MPS? Why? The cumulative lead time is the longest time in the bill-of-materials (BOM) and determines how long it will take to make a product from start to finish. If an increase in MPS quantities is made, say four weeks from today, and the cumulative lead time is eight weeks, there is not time to make the additional product. The end product will be late unless extraordinary measures are used to shorten the lead time. This might include rescheduling other products and using air freight for delivery. These types of measures add costs and may affect other customers.

What types of companies are likely to benefit the most from using MRP? Why? Companies that produce a variety of products that have several raw materials, parts or components are good candidates for MRP. For these types of products, benefits will outweigh the investment in the planning systems.

What problems can MRP create for suppliers as you go upstream in the supply chain? Why? Lot-sizing practices using FOQ or POQ can distort the true demand as viewed by suppliers. This lumpy demand can cause cycles of overproduction and underproduction by the supplier. This is referred to as the bullwhip effect and increases supply chain costs associated with stockouts and inventory holding costs.

Chapter 14 - Materials and Resource Requirements Planning

As an organization increases its level of outsourcing, what will be the impact on its bill of materials? Why? The bill of materials (BOM) for a company doing more outsourcing has fewer levels and thus becomes flatter. Rather than being shown on the buyer’s bill of materials, items such as raw materials and parts for the purchased items are shown on the supplier’s bill of materials.

How do L4L, FOQ, and POQ ordering policies impact set-up/ordering costs and inventory costs? Why? L4L places orders for the amount that is exactly needed. Thus, compared to FOQ and POQ, the ordering frequency and costs are higher, but the inventory costs will be lower. FOQ and POQ order less frequently and result in lower ordering costs but incur higher inventory costs.

What impact will a supplier’s quality and delivery problems have on a company using MRP? Why? MRP schedules orders to arrive when needed for production. If the delivery is late or if there are quality problems, the buyer may not have enough materials for production. The buyer may have to hold safety stock and thus incur higher inventory costs if their suppliers have quality or delivery problems.

10.

In what ways are DRP and MRP similar and how are they different? MRP and DRP both are used by firms to ensure that they have the right materials at the right time. The planning logic is similar for MRP and DRP. Both use a timephased schedule starting with a combination of forecasts and orders. They consolidate requirements from different sources; determine gross requirements; 14-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

and then move backwards in the planning horizon determining on-hand inventory, planned order receipts, and planned order releases. A primary difference is that MRP focuses on dependent demand for raw materials, parts and components that are needed to make different end products. DRP focuses on independent demand from different locations. It is used to determine the positioning and replenishment of finished goods inventory throughout the distribution network. 11.

How have advances in computer technology changed the planning process? Why? What changes do you expect in the future? Students will have different perspectives on this question. Increases in computing power and reductions in cost have dramatically increased the power and speed of operations planning software. ERP systems allow full integration within an organization increasing the quality of data and the speed of decision-making. ERP software as a service (SaaS) in which the software is in the cloud can increase the speed of implementation and ease of updates. Robotic process automation, machine learning, and smart contracts will automate the routine planning process. Advanced Planning Systems (APS) enables planning to extend beyond one organization into the supply chain and allows complex analysis. With web-based applications and the cloud, it is possible that totally integrated planning involving all supply chain members will become a reality. Sensors and IoT will allow track materials movements in real time.

12.

How have advances in computer technology changed the planning process? Why? What changes do you expect in the future? 14-4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

A good starting point is to have the students look up some of the technologies that have recently emerged. In discussing these technologies, we can see that they apply in several potential areas. The first is improved capacity planning. The chapter talked about APS. However, in the meanwhile, we have seen the emergence of Artificial Intelligence, which can be used to improve capacity planning by learning from past experiences. In addition, Artificial Intelligence can also be used to identify any potential problems in MRP reports by learning from past problems. The second area is that of feedback. MRP does have the ability to replan quickly. However, as with most things, if it is given timely warning, the planners can explore alternative potential approaches. Getting this feedback, especially from suppliers, is difficult if we rely on suppliers to tell us that they are experiencing potential problems (the suppliers may feel that telling their buyers that they are experiencing potential problems may be seen as implying that the suppliers do not have control over their processes). However, the emergence of IoT (Internet of Things) and RFID devices may now allow planners to track orders without the active participation of the suppliers. Now, MRP planners can determine if the incoming orders are going to arrive on time. Finally, computers are getting more powerful and less expensive. This means that replanning can now be done more frequently to determine how various actions will affect the feasibility of MRP plans. We can expect the impact of advances in computer technology to increase over time. 13.

To date, MRP systems have been limited to the firm. What are some of the challenges encountered when you try to extend MRP systems to embody the supply chain? 14-5 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

At first glance, it would make sense to extend MRP systems to the rest of the supply chain. There are, however, several major challenges to this task. First, there is the issue of interoperability – ensuring that the MRP system of the buying organization can interface with the systems of the suppliers and be able to read from their systems. Second, there is the issue of relationships. To interface with the supplier’s systems, not only do we have to deal with the issue of interoperability, we also have to have a situation where the suppliers are willing to do so. This means that there has to be trust and respect between the buying organization and the supplying organization. These traits are generated by good buyer-supplier relationships. Without such relationships, the suppliers can refuse to interface with the buying organization’s MRP systems. Finally, there is the issue of cybersecurity risk. When computer systems are linked, the weaker links (typically the small to medium sized suppliers) became targets for hackers, who are often trying to get access to the digital assets of the buying organization. Consequently, the integration of the supply chain brings with it new challenges and threats.

Problem Solutions 1. Using the BOM shown below, how many of part E will be needed if 20 units of end item A are needed? How many part C’s will be needed? Es are components in Bs and Ds. Start with the Bs. 20 As × 2 Bs for each A = 40 Bs. 40 Bs × 4 Es for each B = 160 Es. Then determine the Es needed for the Ds. 20As × 2Ds for each A = 40 Ds. 40 Ds × 2 Es for each D = 80 Es. The total number of Es = 160 + 80 = 240. 14-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

Cs are used directly to make As and are used to make Ds. 20 As × 1 C for each A = 20 Cs. 20As × 2 Ds for each A = 40 Ds. 40 Ds × 1 C for each D = 40 Cs. The total number of Cs = 20 + 40 = 60.

A 1 week

B (2) 2 weeks

E (4) 2 weeks

C (1) 1 week

F (2) 3 weeks

D (2) 3 weeks

C (1) 1 week

E (2) 2 weeks

2. Based on the BOM in problem 1, what is the cumulative lead time for end item A? How will this information be used? The cumulative lead time is the longest lead time path in the BOM. 1 week (A) + 2 weeks (B) + 3 weeks (F) = 6 weeks. 1 week (A) + 3 weeks (D) + 2 weeks (F) = 6 weeks. The cumulative lead time is 6 weeks. Changes made to the MPS in a shorter time frame than 6 weeks could cause delays or increase costs. 3. Develop an indented BOM for the product structure tree in problem 1. A *B (2) ** E (4) ** F (2) *C 14-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

*D (2) ** C ** E(2) 4. Based on the BOM shown below, how many units of part F will be needed if 15 units of end item A are needed? If the company decided to purchase part D from suppliers, how would be BOM change? Assume part D is purchased, how many units of part F are needed to make 15 units of end items A? Fs are used in component Ds and Component Cs. 15 As × 1 B for each A = 15 Bs. 15 Bs × 2 Ds for each B = 30 Ds. 30 Ds × 4 Fs for each D = 120 Fs. 15 As × 4 Cs for each A = 60 Cs. 60 Cs × 1 F for each C = 60 Fs. 60Cs × 3 Ds for each C = 180 Ds. 180 Ds × 4 Fs for each D = 720 Fs. Total Fs = 120 + 60 + 720 = 900 Fs. If part D is purchased, the number of levels in the BOM will be reduced from 4 levels to 3 levels. The components that are used to make Ds (E and F) will not be shown in the BOM. If D is purchased, C is the only parent of F in the BOM. 15 As × 4 Cs for each A = 60 Cs. 60 Cs × 1 F for each C = 60 Fs. Only 60 Fs will be needed. The other Fs will be purchased and used by the supplier who provides component D.

Chapter 14 - Materials and Resource Requirements Planning

A 2 weeks

B (1) 1 week

C (4) 1 week

D (2) 2 weeks

E (4) 1 week

D (3) 2 weeks

F(4) 2 weeks

E (4) 1 week

G (2) 2 weeks

F(1) 2 weeks

F(4) 2 weeks

5. Based on the BOM in problem 4, what is the cumulative lead time for end item A? The cumulative lead time is the longest lead time path in the BOM. 2 weeks (A) + 1 week (B) + 2 weeks (D) + 2 weeks (F) = 7 weeks. 2 weeks (A) + 1 week (C) + 2 weeks (D) + 2 weeks (F) = 7 weeks. The cumulative lead-time is 7 weeks. 6. Develop an indented BOM for the product structure tree shown in problem 4. A *B ** D (2) *** E (4) *** F (4) *C (4) ** D (3) *** E (4) *** F (4) ** G (2) ** F 7. Based on the BOM shown below, how many of part D will be needed if 100 units of end item A are needed? How many of part F?

Chapter 14 - Materials and Resource Requirements Planning

Part D is used in components B and C. 100 As × 2 Bs for each A = 200 Bs. 200 Bs × 4 Ds for each B = 800 Ds. 100 As × 4 Cs for each A = 400 Cs. 400 Cs × 6 Ds for each C = 2400 Ds. Total Ds = 800 + 2400 = 3200 Ds. Part F is used in component E. 100As × 2 Bs for each A = 200 Bs. 200 Bs × 2 Es for each B = 400 Es. 400 Es × 2 Fs for each E = 800 Fs. A 1 week

B (2) 2 weeks

E (2) 1 week

C (4) 1 week

D (4) 3 weeks

G (1) 1 week

H (4) 1 week

D(6) 3 weeks

F(2) 2 weeks

8. Using the information in problem 7 develop an indented BOM. A * B (2) ** E (2) *** F (2) ** D (4) * C (4) ** G ** H (4) ** D (6) 9. How many of part J will be needed if 40 units of end item A are needed? Managers have decided to outsource part G. Revise the BOM for end item A, if item G is now purchased from a supplier. How many of part J will now be needed if 40 units of end item A are needed?

Chapter 14 - Materials and Resource Requirements Planning

Part J is used in Components G and E. 40 As × 2 Bs for each A = 80 Bs. 80 Bs × 2 Gs for each B = 160 Gs. 160 Gs × 2 Js for each G = 320 Js. 40 As × 3 Ds for each A = 120 Ds. 120 Ds × 5 Gs for each D = 600 Gs. 600 Gs × 2 Js for each G = 1,200 Js. 40 As × 1 E for each A = 40 Es. 40 Es × 4 Js for each E = 160 Js. Total Js = 320 + 1,200 + 160 = 1,680 Js.

A 2 weeks

B (2) 1 week

F(2) 2 weeks

I (2) 1 week

C (1) 1 week

G (2) 1 week

J (2) 1 week

I (2) 1 week

D (3) 2 weeks

E (1) 1 week

G (5) 1 week

J (4) 1 week

J (2) 1 week

The revised BOM has 3 rather than 4 levels. After G is outsourced, Js are only needed for component E. 40 As × 1 E for each A = 40 Es. 40 Es × 4 Js for each E = 160 Js.

10. Draw a product structure tree for the BOM for the Baking Pan. If there are plans to make 100 baking pans how many handles are needed? How many bolt and nut sets are needed?

Chapter 14 - Materials and Resource Requirements Planning

Baking Pan * Pan (1) ** Pan shell (1) ** Handles (2) ** Bolt and nut set (4) * Lid (1) ** Lid subassembly ***Glass (1) ***Steel Rim (1) ** Handle (1) ** Bolt and nut set (2)

Handles are used for the pan and the lid. To make 100 baking pans, one pan and one lid are needed. The handles needed for the pan are 100 pans × 2 handles = 200. One handle is needed for each lid so there are 100 lids × 1 handle = 100. A total of 300 handles are needed. Bolt and nut sets are needed for the pan and the lid. The bolt and nut sets needed for the pans are 100 pans × 4 bolt and nut sets = 400 and for the lid 100 lids × 2 bolt and nut sets = 200. A total of 600 bolt and nut sets are needed.

Chapter 14 - Materials and Resource Requirements Planning

11. Draw a product structure tree for the BOM for the square Patio Planter. If 8 planters are planned to be made, how many bolt and nut sets will be needed? Patio Planter * Planter box assembly ** Base assembly (1) *** Base (1) ***Rolling Casters (4) ***Bolt and nut set (4) ** Side assembly *** Side panels (4) *** Corner Braces (4) ** Bolt and nut sets(4) * Top (1) * Bolt and nut sets(4)

Patio Planter

Planter Box Assembly (1)

Base Assembly (1)

Base (1)

Rolling Casters (4)

Top (1)

Bolt & Nuts Sets (4)

Side Assembly (1)

Corner Braces (8)

Side Panels (4)

The bolt and nut sets are used in the planter assembly, the base assembly, and directly in the patio planter. 8 patio planters × 1 planter box assembly = 8 planter box assemblies. 8 planter box assemblies × 1 base assembly = 8 base assemblies. 8 base assemblies × 4 bolt 14-13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

and nut sets = 32 bolt and nut sets. 8 planter box assemblies × 4 bolt and nut sets = 32 bolt and nut sets. 8 patio planters × 4 bolt and nut sets = 32 bolt and nut sets. The total number of bolt and nut sets = 32 + 32 +32 = 96 sets. 12. Complete the MRP Record for a bicycle frame using a L4L lot-sizing strategy. Considering the lead time, where should scheduled receipts be shown? Repeat using a fixed order quantity of 100 frames. Again, show scheduled receipts Compare and contrast the results. What are the benefits and drawbacks to each approach? MRP Record Lead time = 2 weeks On hand = 0 Safety stock = 0 Order quantity: L4L Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 2 weeks On hand = 0 Safety stock = 0 Order quantity: FOQ = 100 Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases

Part Name: Bicycle Frame

Week 1 70 70

Week 2 50 50

Week 3 80

Week 4 80

Week 5 70

Week 6 60

Week 7 80

Week 8 80

Part Name: Bicycle Frame

Week 1 70 100 30

Week 2 50 100 80

100

Week 3 80

100

Week 4 80

Week 5 70

Week 6 60

Week 7 80

Week 8 80

20 80

50 50

90 10

30 70

100

Chapter 14 - Materials and Resource Requirements Planning

Compared to the FOQ strategy, the L4L strategy orders more often (6 times compared to 4 times) but has no inventory costs. The FOQ strategy has inventory costs. The L4L also provides a truer picture of actual demand to the supplier. 13. Complete the MRP record for a bicycle seat. MRP Record Lead time = 1 week On hand = 40 Safety stock = 20 Order quantity: FOQ = 100 Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases

Part Name: Seat

Week 1 70 100 70

Week 2 50

Week 3 80

Week 4 80

Week 5 70

Week 6 60

Week 7 80

Week 8 80

40 60

60 40

90 10

50 50

70 30

100

14. Given the BOM and the MPS for end item A, complete the MRP schedule for items A, C, D, and E.

Chapter 14 - Materials and Resource Requirements Planning

A 1 w eek

C (4) 1 w eek

B (1) 3 w eeks

E (2) 1 w eek

D (2) 2 w eeks

F(6) 2 w eeks

E (4) 1 w eek

G (4) 1 w eek

H (1) 3 w eeks

MPS Item A

1 60

2 20

3 50

4 120

5 100

Item Lot Size Rule

A L4L

C L4L

D L4L

Safety Stock Beginning Inventory

0 0

MRP Record Lead time = 1 week On hand = 0 Safety stock = 0 Order quantity: L4L Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 1 week On hand = 0

6 50

7 80

8 40

E Multiples FOQ = 500 100 300

Part Name: A

Week 1 60 60

Week 2 20

Week 3 50

Week 4 120

Week 5 100

Week 6 50

Week 7 80

Week 8 40

120

100

120

100

120

100

Week

Part Name: C Week

Week

Chapter 14 - Materials and Resource Requirements Planning

Safety stock = 0 Order quantity: L4L Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 2 weeks On hand = 0 Safety stock = 0 Order quantity: L4L Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 1 week On hand = 300 Safety stock = 100 Order quantity: Multiples FOQ = 500 Gross Requirements Scheduled Receipts Available Inventory 300 Net Requirements Planned Order Receipts Planned Order Releases

1 80 80

200

2 200

3 480

4 400

5 200

6 320

7 160

200

480

400

200

320

160

200

480

400

200

320

160

480

400

200

320

160

Part Name: D

Week 1 40 40

240

Week 2 100 100

200

Week 3 240

Week 4 200

Week 5 100

Week 6 160

Week 7 80

240

200

100

160

240

200

100

160

100

160

Week 8

Part Name: E

Week 1 1360 1500

Week 2 1760

Week 3 1200

Week 4 1040

Week 5 960

Week 6 320

Week 7

Week 8

440

180 1320

480 1020

440 560

480 520

160

1500

1000

1500

1000

1500

Chapter 14 - Materials and Resource Requirements Planning

15. Given the BOM and MPS for end items A and B, complete the MRP schedules for A, B, C, D, and E.

A 1 week

C (2) 1 week

B 2 weeks

C (1) 1 week

D (1) 2 weeks

E (2) 2 weeks

E (4) 2 weeks

MPS Item A B Item Lot Size Rule Safety Stock Beginning Inventory MRP Record Lead time = 1 week On hand = 0 Safety stock = 0 Order quantity: L4L Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order

A L4L 0 0

3 200

4 200 150

B L4L 0 0

C FOQ = 500 0 50

6 200

7 200 150

D FOQ = 1000 200 500

8 150 E L4L 50 1000

Part Name: A

Week 1

Week 2

200

Week 3 200

Week 4 200

200 200 200

Week 5

Week 6 200

Week 7 200

200

200 200

200

Week 8

Chapter 14 - Materials and Resource Requirements Planning

Releases MRP Record Lead time = 2 weeks On hand = 0 Safety stock = 0 Order quantity: L4L

Part Name: B

Week 1

Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 1 week On hand = 50 Safety stock = 0 Order quantity: FOQ = 500 Gross Requirements Scheduled Receipts Available Inventory 50 Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 2 weeks On hand = 500 Safety stock = 200 Order quantity: FOQ = 1000 Gross Requirements Scheduled Receipts Available Inventory 500 Net Requirements

Week 2

Week 3

Week 4 150

Week 7 150

Week 8 150

150

Week 7

Week 8

150

Week 5

150

Week 6

150

Part Name: C

Week 1

Week 2 550

Week 3 400

Week 4

Week 5 550

Week 6 550

100

500

100 400

50 450

500

Part Name: D

Week 1

Week 2 200

Week 3 200

Week 4

Week 5 200

Week 6 200

Week 7

Week 8

300

1100 100

1100

900

700

Chapter 14 - Materials and Resource Requirements Planning

Planned Order Receipts Planned Order Releases

1000 1000

MRP Record Lead time = 2 weeks On hand = 1000 Safety stock = 50 Order quantity: L4L

Part Name: E

Gross Requirements Scheduled Receipts Available Inventory 1000 Net Requirements Planned Order Receipts Planned Order Releases

Week 1 2000 1050

Week 2 2300 2300

Week 3

Week 4 2000

Week 5 2300

Week 6 300

Week 7

Week 8

50 2000

50 2300

50 300

2000

2300

300

2000

2300

300

16. Given the BOM and MPS for end items A and B, complete the MRP schedules for A, B, C, F and G.

A 1 week

C (4) 2 weeks

E (1) 2 weeks

G (2) 1 week

B 1 week

D (2) 2 weeks

G (4) 1 week

I (2) 2 weeks

J (4) 1 week

F (4) 1 week

H (1) 1 week

MPS Item A B

2 100

3 200 100

4 250 100

5 100

6 300 100

100

Chapter 14 - Materials and Resource Requirements Planning

Item Lot Size Rule

A L4L

B L4L

Safety Stock Beginning Inventory

0 0

MRP Record Lead time = 1 week On hand = 0 Safety stock = 0 Order quantity: L4L

Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 2 weeks On hand = 400 Safety stock =100 Order quantity: Multiples FOQ 500 Gross Requirements Scheduled Receipts Available Inventory 400 Net Requirements Planned Order Receipts Planned Order Releases

F Multiples FOQ =1000 500 500

G Multiples FOQ = 1000 500 800

Part Name: A

Week 1

Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 1 week On hand = 0 Safety stock = 0 Order quantity: L4L

C Multiples FOQ = 500 100 400

Week 2

200

Week 3 200

Week 4 250

200 200 250

250 250

Week 5

Week 6 300

Week 7

Week 8

300 300 300

Part Name: B

Week 1

100

Week 2 100

Week 3 100

Week 4 100

Week 5 100

Week 6 100

Week 7 100

100 100 100

100 100

Part Name: C

Week 1

1000

Week 2 800 500 100

Week 3 1000

Week 4

Week 5 1200

Week 6

Week 7

Week 8

100 1000 1000 1500

100

400 1200 1500

400

Chapter 14 - Materials and Resource Requirements Planning

MRP Record Lead time = 1 week On hand = 500 Safety stock =500 Order quantity: Multiples FOQ = 1000 Gross Requirements Scheduled Receipts Available Inventory 500 Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 1 week On hand = 800 Safety stock =500 Order quantity: Multiples FOQ = 1000 Gross Requirements Scheduled Receipts Available Inventory 800 Net Requirements Planned Order Receipts Planned Order Releases

Part Name: F

Week 1 4000 4000 500

Week 2

Week 3 6000

Week 4

Week 5

Week 6

Week 7

Week 8

500

500 6000 6000

500

6000 Part Name: G

Week 1 400 1000 1400

12,000

Week 2 12,400

Week 3 400

Week 4 400

Week 5 400

Week 6 400

Week 7

Week 8

1000 11,500 12,000

600

1200 300 1000

800

1400 100 1000

1400

1000

17. The Natural Beauty Co. develops, makes, and markets a full line of hair care products that are sold through upscale hair salons. Natural Beauty Co. uses MRP for planning and scheduling. Given the MPS and BOM for Lemon Silk Shampoo, complete the MRP schedules for the surfactant, the thickener, and the fragrance. Note, there are 128 fluid ounces in a gallon.

Chapter 14 - Materials and Resource Requirements Planning

MPS Item Lemon Silk Number of 8 oz. bottles Item Lot Size Rule Safety Stock Beginning Inventory

1 500

2 500

Surfactant Multiples FOQ = 10 gallons 5 gallons 15.5 gallons

3 600

Thickener Multiples FOQ = 1 gallon 1 gallon 3 gallons

MRP Record Lead time = 1 week On hand = 15.5 gallons Safety stock = 5 gallons Order quantity: Multiples FOQ = 10 gallons

Gross Requirements (gallons) Scheduled Receipts Available Inventory 15.5 gallons Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 2 weeks On hand = 3 gallons

4 1000

5 800

6 700

7 800

8 1000

Fragrance Multiples FOQ = 16 ounces 8 ounces 0

Material Name: Surfactant

Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Week 8

8.75

10.5

17.5

12.25

17.5

6.75

8 3 10 10

7.5 2.5 10 20

10 15 20 10

6 9 10 20

13.75 11.25 20 10

9.75 5.25 10 20

12.25 12.75 20

Week

Material Name: Thickener Week

Week

Chapter 14 - Materials and Resource Requirements Planning

Safety stock = 1 gallon Order quantity: Multiples FOQ = 1 gallon Gross Requirements (gallons) Scheduled Receipts Available Inventory 3 gallons Net Requirements Planned Order Receipts Planned Order Releases MRP Record Lead time = 1 week On hand = 0 Safety stock = 8 ounces Order quantity: Multiples FOQ = 16 ounces Gross Requirements (ounces) Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases

0.47

0.56

0.94

0.75

0.66

0.75

0.94

2.53

2.06

1.50

1.56 0.44 1

1.15

1.41 0.59 1

1.47 .53 1

1.81 0.19 1 1

Material Name: Fragrance

Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Week 8

20 32 12

8 16 16 32

16 24 32 32

8 32 32 32

12 28 32 32

12 28 32 48

20 36 48

18. The computer keyboard assembly area has five employees who work 40 hours each week. Use this information to develop a load profile. What recommendations do you have?

Processing Time = 9 minutes Planned Order Releases Processing Load (hours) Available Capacity (hours)

Week 1 1000 150.0

Week 2 1200 180.0

Part Name: Computer Keyboard Week Week Week Week 3 4 5 6 900 1300 1400 1000 135.0 195.0 210.0 150.0

Week 7 800 120.0

Week 8 1100 165.0

200

Chapter 14 - Materials and Resource Requirements Planning

Load Profile 250.0

Hours

200.0 150.0

Load (hours) Capacity (hours)

100.0 50.0 0.0 1

Weeks

The load exceeds capacity in week 5 and there are significant levels of excess capacity in weeks 1, 3, 6, and 7. Perhaps product can be made in week 3 and held in inventory for week 5. 19. Calculate the processing load and develop the load profile for the computer assembly process. As the planner, what concerns do you have if any? What changes might you consider?

Processing Time = 2 hours Planned Order Releases Processing Load (hours) Available Capacity (hours)

Part Name: Computer Week Week Week 3 4 5

Week 1

Week 2

Week 6

Week 7

Week 8

120

100

140

110

120

Chapter 14 - Materials and Resource Requirements Planning

Load Profile 160 140

Hours

120 100 Load (hours)

Capacity (hours)

60 40 20 0 1

Week

The load exceeds capacity in week 5 but is significantly under capacity in weeks 3 and 4. It may be possible to shift production from week 5 to week 4 and hold product in inventory. 20. Calculate the processing load, available capacity, and develop the load profile for the stereo speaker subassembly. Two employees work the assembly process for 40 hours each. As the planner, what concerns do you have and what changes would you make if any?

Processing Time = 20 minutes Planned Order Releases Processing Load (hours) Available Capacity (hours)

Week 1

Week 2

Part Name: Stereo speaker Week Week Week Week 3 4 5 6

210

180

220

260

200

180

230

190

70.0

60.0

73.3

86.7

66.7

60.0

76.7

63.3

Week 7

Week 8

Chapter 14 - Materials and Resource Requirements Planning

Load Profile 100.0 90.0 80.0

Hours

70.0 60.0

Load (hours)

50.0

Capacity (hours)

40.0 30.0 20.0 10.0 0.0 1

Week

21. Calculate the processing load and available capacity and develop the load profile for the dishwasher. Eight employees work the assembly process for 40 per week each. As the planner, what concerns do you have and what changes would you make (if any)?

Processing Time = 30 minutes Planned Order Releases Processing Load (hours) Available Capacity (hours)

Part Name: Dishwasher Week Week Week Week

Week

600

625

640

600

620

Week

690

645

620

The load is calculated by multiplying the number of units and the processing time divided by 60 minutes per hour. The capacity is 8 workers per week multiplied by 40 hours per week. The results show that the load exceeds capacity in week 6 by 25 hours and in week 7 by 2.5 hours. To address this problem, 20 additional units can be produced in week 4 and 7.5 additional units can be produced in week 5. Inventory costs would increase as these items will be held in inventory until needed in week 6. Processing Time = 30 minutes Planned Order Releases Load

Week

600 300

625 312.5

640 320

600 300

620 310

690 345

645 322.5

620 310

Chapter 14 - Materials and Resource Requirements Planning

(hours) Capacity (hours)

320

22. Calculate the processing load and available capacity and develop a load profile for a baby stroller assembly process. The assembly process for baby strollers takes 18 minutes and the assembly line has 5 employees who work 8 hours per day. What concerns do you have if any?

Baby Stroller Processing Time = 18 minutes Planned Order Releases Processing Load (hours) Available Capacity (hours)

Mon

Tue

Wed

Thurs

Fri

116

144

148

110

156

The load is calculated by multiplying the number of units and the processing time of 18 minutes divided by 60 minutes per hour. The capacity is 5 workers per week multiplied by 40 hours per week. The results show that the load exceeds capacity the load requirements exceed capacity on three days, Tues., Wed. and Friday for a total of 14.4 hours. On Mon. and Thurs. the load is less than capacity by a total of 12.2 hours so strollers can be made on these days and held in inventory. But there is a possibility of late delivery when the load requirements exceed capacity early in the week and the load is less than capacity at the end of the week. However, an additional 2.2 hours of overtime will be needed to meet the production requirements. 14-28 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

Baby Stroller Processing Time = 18 minutes Planned Order Releases Processing Load (hours) Available Capacity (hours)

Mon

Tue

Wed

Thurs

Fri

116

144

148

110

156

34.8

43.2

44.4

46.8

QP Industries – Corporate Background: Teaching Note 1. What are the benefits from implementing a single, company- wide ERP system? Having the right items in stock, at the right place at the right time is critical to QP’s ability to meet the 12-hour guarantee. However, they need to achieve this without holding excess safety stock which will increase costs. The different business processes, planning systems, and databases that are being used across the company is inhibiting information sharing and thus making operations planning difficult causing delays in order fulfillment. Manual reentry of data results in

Chapter 14 - Materials and Resource Requirements Planning

errors and delays that can increase stock outs as well as inventory costs because there is too much of some items and not enough of others.

A single ERP system can benefit the company in several ways. Processes would be standardized across the company. Standardized processes can improve quality and help to speed-up the planning process. An ERP system can also provide information for analysis and decision-making that can improve the company’s performance.

It is important to note that ERP systems are organization-wide systems that link all a company’s functions using a single information system. The recommendation has only considered the operations and supply chain function. It is important to consider the benefits in efficiency that may be gained in other parts of the organization such as accounting, marketing and sales with an ERP system. It is likely that a well planned and executed implementation can improve the company’s efficiency.

2. What challenges are likely to be encountered during implementation? The diversity of products and systems within the company is a challenge. Although it is likely that the company can agree upon a single ERP system such as SAP or Oracle, agreeing upon the configuration of that system is likely to be difficult because there are so many different systems being used. Because of the growth through acquisition and a lack of process standardization there may be resistance to change to a single “company-wide” system. Extensive training will be needed to make sure all the users across the company are proficient on the new system. 14-30 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

Data accuracy is a problem for the company. For example, the BOMs are not accurate for some products. The data entered into the ERP system must be correct and there must be processes in place to ensure that accuracy is maintained. This may require changes in the company’s culture.

The level of investment required in the ERP system may be a concern to the executive leadership team since the payback from investment in ERP systems are not each to quantify.

3. What additional recommendations would you make to Adam? To minimize the risk and make the implementation go smoother rather than implementing an ERP system across the entire company at once, QP may want to implement the system in a single division first. The learning gained from implementing in a single system could be applied as the company roles out the ERP system division by division to the entire company. It is important to have a cross-functional and crosscompany representation on the ERP implementation team.

The Casual Furniture Company Case – Teaching Notes 1. Develop the MRP for all of the components.

Gross Requirements Scheduled Receipts On Hand Inventory 0 Net Requirements

Lead-time Week Week 1 2 70 70

Part Name: Bookshelf 4X3-01 0 Order Quantity Week Week Week Week 3 4 5 6 80 90 60 80

Lot for lot Week Week 7 8 80 70

Chapter 14 - Materials and Resource Requirements Planning

Planned Order Receipts Planned Order Releases

Safety Stock = 0 Gross Requirements Scheduled Receipts On Hand Inventory 120 Net Requirements Planned Order Receipts Planned Order Releases

Safety Stock = 0 Gross Requirements Scheduled Receipts On Hand Inventory 100 Net Requirements Planned Order Receipts Planned Order Releases

Safety Stock = 0 Gross Requirements Scheduled Receipts On Hand Inventory 200 Net Requirements Planned Order Receipts Planned Order Releases

70 70

Lead-time Week Week 1 2 70 70 20 50

Lead-time Week Week 1 2 80 90

80 80

90 90

60 60

80 80

Part Name: Cabinet 2 weeks Order Quantity Week Week Week Week 3 4 5 6 80 90 60 80

80 80 60

90 90 80

60 60 80

80 80 70

Part Name: Back 1 week Order Quantity Week Week Week Week 3 4 5 6 60 80 80 70

80 80

70 70

Lot for lot Week Week 7 8 80 70

80 80

70 70

Lot for lot Week Week 7 8

70 70 60

Lead-time Week Week 1 2 160 180

60 60 80

80 80 80

80 80 70

70 70

Part Name: Side 1 week Order Quantity Week Week Week Week 3 4 5 6 120 160 160 140

Lot for lot Week Week 7 8

160

160 160 120

Lead-time Week Week 1 2 160 180

120 120 160

160 160 160

160 160 140

140 140

Part Name: End 1 week Order Quantity Week Week Week Week 3 4 5 6 120 160 160 140

Lot for lot Week Week 7 8

160

160 160 120

120 120 160

160 160 160

160 160 140

140 140

Chapter 14 - Materials and Resource Requirements Planning

Safety Stock = 0 Gross Requirements Scheduled Receipts On Hand Inventory 300 Net Requirements Planned Order Receipts Planned Order Releases

Safety Stock = 0 Gross Requirements Scheduled Receipts On Hand Inventory 0 Net Requirements Planned Order Receipts Planned Order Releases

Safety Stock = 30 Gross Requirements Scheduled Receipts On Hand Inventory 500 Net Requirements Planned Order Receipts Planned Order Releases

Lead-time Week Week 1 2 210 210 90

380 120 500

500

Part Name: Shelf 1 Week Order Quantity Week Week Week Week 3 4 5 6 240 270 180 240

500 Week Week 7 8 240 210

140

210

370 130 500

500

Lead-time Week Week 1 2 280 280 600 320 40

600

Lead-time Week Week 1 2 890 300 1000 610 310

1000

190

450 50 500

500

Part Name: Bracket 1 week Order Quantity Week Week Week Week 3 4 5 6 320 360 240 320 320 280 600 600

560 40 600

320

280 320 600

600

Part Name: Oak Sheet 2 Weeks Order Quantity Week Week Week Week 3 4 5 6 900 400 850 410 590 1000 1000

600 Week Week 7 8 320 280

1010 20 1000

160

1000 Sheets Week Week 7 8

160

2. During week 1 of the plan the bracket supplier notifies CFC that the order for 600 units

will not arrive as planned. Instead, 300 will arrive this week and 300 will arrive next week, instead of all 600 arriving at the same time. Will this affect production, and if so, to what extent? By looking at the restated record in Figure 14.20 that splitting the scheduled receipt into two receipts for 300 each has no effect on the plan as only 280 units of the 600 were needed in the first period. This record indicates that no changes need to be made. 14-33 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

However, if the delay had extended beyond week 2, the production plan could not be met.

Safety Stock = 0 Gross Requirements Scheduled Receipts On Hand Inventory 0 Net Requirements Planned Order Receipts Planned Order Releases

Lead-time Week Week 1 2 280 280 300 300 20 40

600

Part Name: Bracket 1 week Order Quantity Week Week Week Week 3 4 5 6 320 360 240 320 320 280 600 600

560 40 600

320

Week 7 320

600 Week 8 280

280 320 600

600

3. Now that the plan has been developed, is it feasible considering the capacity of the cutting

department? What recommendations do you have?

Processing Time 10 minutes 10 minutes = .167 hours Planned Order Releases Processing Time (hours)

Lead-time Week Week 1 2 70 60 11.7 10

Processing Time 8 minutes 8 minutes = .133 hours Planned Order Releases Processing Time (hours)

Lead-time Week Week 1 2 160 120 21.4 16

Processing Time 5 minutes 5 minutes = 0.083 Planned Order Releases Processing Time (hours)

Lead-time Week Week 1 2 160 120 13. 10

Part Name: Back 1 week Order Quantity Week Week Week Week 3 4 5 6 80 80 70 13.4 13.4 11.7 Part Name: Side 1 week Order Quantity Week Week Week Week 3 4 5 6 160 160 140 21.4 21.4 18.7 Part Name: Ends 1 week Order Quantity Week Week Week Week 3 4 5 6 160 160 140 13.4 13.4 11.7

Processing Time 7 minutes 7 minutes = .117 hours Planned Order Releases Processing Time (hours) Total Processing Time for Cutting Department

Lead-time Week Week 1 2 500 58.7

Part Name: Shelves 1 week Order Quantity Week Week Week Week 3 4 5 6 500 500 58.7 58.7

105.2

106.9

48.2

Lot for Lot Week Week 7 8

100.8

The load profile diagram for the cutting department shows that utilization of capacity is 14-34 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 14 - Materials and Resource Requirements Planning

“lumpy.” In weeks 1, 3, and 5, the requirements exceed available capacity. In weeks 2 and 4, the requirements are less than the capacity. With this plan, staff scheduling will be a problem. Load Profile 120 100

Hours

80 Load (Hours)

Capacity (Hours)

40 20 0 1

Week

4. If you could change the lead times or lot sizing policies used for any of the components,

what changes would you make? Why? Producing the shelves in lot sizes of 500 appears to be the primary cause of the lumpy requirements. The operations manager should investigate why the lot size is being used and evaluate if changes can be made to reduce the lot size of the shelves.

Chapter 15 - Project Management

Chapter 15 Project Management Suggested Answers to Discussion Questions 1. What are some of the assumptions underlying the critical path method (CPM)? Can you think of situations in which the CPM assumptions would not be valid? There are three key assumptions for CPM: a) Project tasks have well-defined beginnings and endings. b) The tasks are independent; the duration of one task is not dependent on the duration of another task. c) A required sequence of the tasks can be established. For projects that have a high degree of uncertainty these assumptions may not hold. For example, you could consider creating a work of art such as a sculpture as project. However, the project tasks for creating the sculpture may not have well defined beginnings or endings. 2. Think of the last project in which you participated that did not go as well as planned (e.g., this could be a team assignment for a class). Were the causes of failure mainly social or technical in nature? Explain. Students may present a variety of responses here. Technological factors are the systems, equipment, and processes. Social factors include the team culture, norms, values, enthusiasm, experience, authority, and influence. Research shows that social factors are often of equal or even greater importance to a project’s success than technical factors. 3. At what point in the life of a project does the project manager have the greatest ability to influence the success of the project? Name three things you would try to 15-1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 15 - Project Management

get executive sponsors of a project to agree to before you accepted the job as project manager. A project manager usually has the greatest influence on a project during the planning stage. It is essential that top management agree with and support the objectives of the project and its priority, and agree with the measures that will be used to assess the project’s performance. Top management must also provide the resources needed to accomplish the project’s goals. The best team members must be assigned to the project, ideally on a full-time basis and from the beginning of the project to its end. 4. Suppose that you are the leader of a project aimed to quickly develop and explore radical new business opportunities that exploit the company’s strengths in supply chain management. What types of personnel would you want on your team? How would you organize the project? It is important to have team members who are committed and are excited about being on the project team. As a whole, the team members need to have all the relevant functional skills necessary to complete the project’s activities. The team members must also have excellent interpersonal skills that allow them to work effectively with other team members as well as with key stakeholders outside the team. A pure project structure in which the project manager has full authority over the project and all the project team members report to the project manager would be the best structure for this project. A pure project is the best approach when speed is critical, when the project includes uncertain tasks, and innovation is needed as is the case in this situation.

Chapter 15 - Project Management

5. What strengths do you possess that would make you an excellent project manager? In what areas do you need to improve? Student answers will vary. However, they should recognize that project managers need to have both technical and social skills. They need to be generalists, to understand how project goals fit with the organization’s overall goals, and also specialists, to understand the specific details of the project that will affect project performance. Good project managers have excellent communication skills, the ability to persuade and influence others, are self-motivated, are comfortable with ambiguity, manage stress effectively, are politically astute, understand the technical aspects of a project, understand the issues that cut across functional areas, and have high ethical standards. 6. What are the differences between a project objective statement, a project charter, and a project business case? A project objective statement is a concise statement of the objectives, deliverables, and timeframe for a project. A project charter includes this information but also includes information about the resources (e.g., team members) that will be used to execute the project, as well as identifying major stakeholders and the project’s priority in the overall project portfolio. A business case lays out the value proposition, the expected impacts and returns from the project, and the risks associated with it.

Chapter 15 - Project Management

Solutions 1.

Suppose that you have been given the task of organizing a graduation open house party for your younger brother who is graduating from high school. Write an objective statement and develop a WBS for the project, with at least three levels of detail. Write a few sentences describing how the elements in the WBS support the project objective statement.

Chapter 15 - Project Management

A project objective statement should include the scope and major deliverables, the schedule, and the resources required. Objective statement example: To throw a graduation party Saturday afternoon after graduation for 50 guests, that provides ample entertainment and food, and allows my younger brother time to socialize with all the guests, at a cost of $400 or less.

WBS Level 0 – Project 1 – Task 2 – Work package 2 – Work package 1 – Task 2 – Work package 2 – Work package 2 – Work package 2 – Work package 1 – Task 2 – Work package 2 – Work package 1 – Task 2 – Work package 2 – Work package

Project Tasks Plan brother’s graduation party Invite guests Make guest list Send out invitations Provide ample food for guests Hire caterer Choose appetizers Choose main course Choose dessert Provide entertainment Decide on type of entertainment Hire source of entertainment Decorate backyard Purchase decorations Put-up decorations

The elements in the WBS support the project objective statement because it includes all of the elements of the objective statement. The WBS addresses inviting guests, determining food, selecting entertainment, and decorating the space. The WBS is also helping to keep everything organized so my little brother has time to socialize with the guests.

Chapter 15 - Project Management

2. Somewhere in the United States, committee members in a voting precinct have decided to conduct a vote recount following an election. They have developed a preliminary WBS and have asked you to critique it. What are the weaknesses of this WBS?

Vote Recount Project Work Package

Task Subtask 1. Personnel 1.1 Establish criteria for selection 1.1.1 Screen criteria for redundancy 1.2 Bipartisan 1.3 Select Democratic Party Representatives 1.3.1 Contact Party 1.3.2 Ask for nominees 1.3.3 Select nominees 1.4 Contact Republican Party 1.5 Training 2. Process 2.1 Local and state requirements/history 2.1.1 Examine local historical practices 2.1.2 Determine state legal requirements 2.2 Procedures 2.2.1 Benchmark procedures in other states 2.2.2 Select best procedures 2.2.3 Make modifications to best procedures selected 2.2.4 Document procedures 2.2.5 Test procedures 2.2.6 Modify procedures as needed 2.3 Maintain objectivity 3. Facilities 3.1 Nice work environment 3.2 Search for available space 3.2.1 Contact real estate agents 3.2.2 Contact government agencies 3.2.3 Scan real estate Web sites 3.2.4 Contact failed dot-coms 3.3 Prepare rental agreement 3.3.1 Install utilities 3.4 Contract for support services 3.4.1 Janitorial service 4. Budget 15-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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4.1 Determine budget needs 4.1.1 Prepare formal budget proposal 4.1.2 Request budget allocation from county 5. Media and Public Relations The weaknesses of this WBS are that not everything is in the format of, “a noun and a verb to imply action,” with clear performance metrics. For example: Bipartisan and Nice work environment do not have an action and their metrics are not clear. Also, some of the subtasks could be broken down into more work packages; and the steps for the Democratic and Republican Parties are very different.

3. Answer these questions for the simple set of project tasks below. Task times are shown in hours.

a. What is the expected time that all five tasks will be completed? b. What is the earliest start for task C? c. What is the latest start for task A?

Solution: a. The critical path (longest path) is B – C – E. The path length is 4+2+6 so the completion time for all for tasks is 12 hours. b. The earliest start for task C is equal to the latest finish of its predecessors (A and B). B must be started right away because it is on the critical path; its earliest finish is 4 hours. Therefore, the earliest start for C is at the end of the 4th hour (beginning of hour 5). 15-7 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 15 - Project Management

c. Task A has 2 hours of slack (the longest path it is on is 2 hours shorter than the critical path). Therefore, its start can be delayed by 2 hours. Its latest start is at the end of 2 hours.

4. Answer the following questions for the network shown below. Times shown are in days.

a. b. c. d.

What is the length of the critical path? What are the earliest start and latest start for E? What is the latest start for B? If all other tasks are completed in their expected durations, would the project length be affected if task B actually takes 5 days instead of the expected 3?

Solution: a. Critical path is A−D−F−G−H = 2+5+7+5+2=21 b. Longest path to E is A−D = 2+5=7. This is the earliest start for E. The latest start for E is 21−2−5−6=8. E has 1 day of slack. c. Longest path backward to B is H−G−E. Latest start for B is 21−2−5−6−3=5. d. Task B has 3 days of slack (earliest start=2 and latest start=5), so being 2 days late would not affect the project length.

5. Suppose that you and 2 other students are working on a team research project for a course you are all taking. To complete the project, you expect that the 3 of you will need 15-8 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 15 - Project Management

to work together on reviewing related literature for about 5 days. Then, you will divide the work into three parts: collecting financial data (2 days), writing the text of the paper (5 days), and preparing the figures and tables (2 days). Then the team will work together in assembling and editing the paper (2 days).

a. Assuming that none of the work can be done in parallel (i.e., collecting data must precede writing, which must precede preparing figures and tables), how many days will it take to complete your research project? b. Ideally, the work would be best accomplished serially (as in question “a” above) so that all information created in one task is available for the processing of the next task. However, assuming for the moment that collecting data, writing text, and preparing figures and tables can be done in parallel (i.e., each task can be done by a different team member independently and simultaneously), how many days will it take to complete your research project? c. Suppose that the project is due in 14 days. How would you structure the project in order to make sure the paper is of highest quality and also delivered on time? Solution: a. The network is a serial set of tasks as shown below. The project length is 5+2+5+2+2=16 days

b. The network has a parallel structure as shown below. The project length (critical path length) is 5+5+2=12 days

Chapter 15 - Project Management

c. The completely parallel structure is probably not feasible. It would be difficult to write the paper completely independently of the data collection, and it would be difficult to prepare figures and tables without having any of the paper written first. The answer is to overlap some of the activities in a way that produces information needed for subsequent tasks. An easy solution is to break the writing into two subtasks (rough draft and final paper) so that most of the needed information can be provided from the writer to the person who prepares the figures and tables, such as in the network shown below. The project length is 5+2+3+2+2=14 days. Thus the project is completed on time.

Given the following information about a small project, Task A B C D E F

Duration Estimates 2 days 5 days 1 day 2 days 3 days 12 days

Immediate Predecessors None A B A B&D E&C 15-10

Chapter 15 - Project Management

Draw a network diagram.

b. Identify the critical path, earliest start and finish and slack for each task. The critical path is A, B, E, F Task

Immediate Predecessors

Earliest Start (ES)

A B C D E F

None A B A B,D C,E

0 2 7 2 7 10

Task

Immediate Successors

Latest completion

F E D C

None F E F

22 10 7 10

Earliest Completion (EC) = ES + task duration 2 7 8 4 10 22

Latest Start (LS) = LC – task duration 10 7 5 9

Slack = LS − ES 10−10 = 0 7−7 = 0 5−2 = 3 9−7 = 2

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B A

C,E B,D

7 2

2 0

2−2 = 0 0−0 = 0

c. Which of these activities should the project manager track most closely? The activities that the project manager should track most closely are A, B, E, and F. They are on the critical path.

d. What would happen if a new estimate for task D increases its expected duration from two days to six days? Would the project take longer? Would anything else change? Increasing the time required for D from 2 days to 6 days is an increase of 4 days. Activity D currently has 3 days of slack [LC – EC (7-4 days) or LS – ES (5 – 2 days). Thus, D will now be on the critical path and the overall project time will increase by 1 day and activity B is no longer on the critical path. The ES and LS time for activity E becomes 8 rather than 7 days.

Chapter 15 - Project Management

Given the following table of precedence relationships for a portion of a housebuilding project: Task A. Prepare Site B. Install Rough Plumbing C. Pour Concrete Foundation D. Concrete Curing Time E. Preassemble Wall Frames F. Erect Wall Frames

Duration Estimates 4 days 3 days 2 days 3 days 8 days 4 days

G. Install Roof H. Install Wiring I. Install Exterior Siding J. Install Insulation K. Hang Drywall

2 days 3 days 4 days 2 days 3 days

L. Install Windows M. Paint Interior N. Paint Exterior O. Level Yard P. Landscape Yard

1 day 6 days 5 days 2 days 4 days

Immediate Predecessor(s) None Prepare Site Install Rough Plumbing Pour Concrete Foundation None Preassemble WF, Cure Concrete Erect Wall Frames Install Roof Install Roof Install Exterior Siding Install Insulation, Install Wiring Hang Dry Wall Install Windows Install Exterior Siding Cure Concrete Level Yard

a. Draw a network diagram for this project and identify the critical path. Task

Immediate Predecessors

A B C D E F G H I J K L M N O P

None A B C None D,E F G G I H,J K L I D O

Earliest Start (ES) 0 4 7 9 0 12 16 18 18 22 24 27 28 22 12 14

Earliest Completion (EC) = ES + task duration 4 7 9 12 8 16 18 21 22 24 27 28 34 27 14 18

Chapter 15 - Project Management

Task P O N M L K J I H G F E D C B A

Immediate Successors None P None None M L K J,N K H,I G F F,O D C B

Latest Completion 34 30 34 34 28 27 24 22 24 18 16 12 12 9 7 4

Latest Start (LS) = LC – task duration 30 28 29 28 27 24 22 18 21 16 12 4 9 7 4 0

Slack = LS – ES 30−14 = 16 28−12 = 16 29−22 = 7 28−28 = 0 27−27 = 0 24−24 = 0 22−22 = 0 18−18 = 0 21−18 = 3 16−16 = 0 12−12 = 0 4−0 = 4 9−9 = 0 7−7 = 0 4−4 = 0 4−0 = 0

Chapter 15 - Project Management

b. What assumptions may have been made in the development of the time estimates? The assumptions that have been made are that every task will happen in the time frame allowed and nothing will be delayed. Another assumption is that time for each task is independent, that a change in the time for one task will not affect the time required to complete another task.

Chapter 15 - Project Management

c. What will happen to the project if the materials needed for the frame preassembly are not available until the second day of the project? What if the materials were delayed until the tenth day?

There are 4 days of slack time for task E, Preassemble Wall Frames. If the materials are not available until the second day, the project will not be affected. However, a 10 day delay would delay the start of F erecting the wall frames from 12 days to 18 days extending the overall completion of the project by 6 days.

d. Do you see any potential resource conflicts in this schedule? Will there be any incompatible tasks occurring simultaneously? If the preassembly of the wall frames is supposed to occur on site, it could create a problem. If the site is being poured with concrete while, simultaneously, the walls are being assembled, there could be a space issue.

8. Based on the precedence table below, draw a network diagram for this project. Identify the critical path, earliest start and finish, and slack for each task.

The critical path tasks are C,F, I, K, and L. Activity A B C D E F G

Duration (Days) 2 3 4 5 3 7 2

Immediate Predecessor none none none A B C D, E 15-16

Chapter 15 - Project Management

Activity H I J K L

Duration (Days) 4 3 1 3 1

Immediate Predecessor F F H I G,J,K

Task

Immediate Predecessors

Earliest Start (ES)

A B C D E F

None None None A B C

0 0 0 2 3 4

Earliest Completion (EC) = ES + task duration 2 3 4 7 6 11

Chapter 15 - Project Management

G H I J K L

D,E F F H I G,J,K

7 11 11 15 14 17

Task

Immediate Successors

L K J I H G F E D C B A

None L L K J L H,I G G F E D

Latest Completion (LC) 18 17 17 14 16 17 11 15 15 4 12 10

9 15 14 16 17 18

Latest Start (LS) = LC – task duration 17 14 16 11 12 15 4 12 10 0 9 8

Slack = LS − ES 17−17 = 0 14−14 = 0 16−15 = 1 11−11 = 0 12−11 = 1 15−7 = 8 4−4 = 0 12−3 = 9 10−2 = 8 0−0 = 0 9−0 = 9 8−0 = 8

Chapter 15 - Project Management

Given the following project network:

Identify the critical path and earliest start and finish for each task.

Critical path is A, C, D, F b.

Calculate slack for every project activity. The slack for activity E is 7 and for activity B is 2. For the remaining items there is no slack.

Task

Immediate Predecessors

Earliest Start

A B C D E F

None A A B,C C D, E

0 3 weeks 3 weeks 7 weeks 7 weeks 15 weeks

Task

Immediate Successors

F E D C B A

None F F D,E D B,C c.

Ta sk

Dura tion

Latest Completion LC 22 15 15 7 7 3

Earliest Completion EC + task duration 3 weeks 5 weeks 7 weeks 15 weeks 8 weeks 22 weeks

Latest Start LS = LC – task duration 15 14 7 3 5 0

Slack = LS−ES 15−15 = 0 14−7 = 7 7−7 = 0 3−3 = 0 5−3 = 2 =0

Draw this network as a Gantt chart. 1

1 0

1 1

1 2

1 3

1 4

1 5

1 6

1 7

1 8

1 9

2 0

2 1

2 2

Chapter 15 - Project Management

10. Given the network in problem 9, enter project data into a project management software program such as MS Project. Print a network and a bar chart (Gantt) view. Interpret the results.

The Gantt chart and network chart are shown below. Note that the critical path tasks are shown in red in the network diagram.

Chapter 15 - Project Management

11. Professor Bill is planning to launch a new research project that he hopes will culminate in a high quality published article. He and his collaborators have identified the research steps below. Bill will be considered for tenure in 18 months’ time, and getting another publication is critical to his success. If all goes according to plan, will the article be published in time to be considered a part of Bill's case for tenure?

Chapter 15 - Project Management

Activity

A B C

Refine research question Complete literature review Formulate theory and hypotheses

Expected duration 1 month 2 months 2 months

Design experiment

1 month

Get students for participation in experiment Run experiment

0.5 months

2 months

Conduct preliminary analysis of results Write the article

Final analysis of results

1 month

Submit article to journal and get reviews Revise the article using reviewers' comments Resubmit article and get acceptance Article appears in print after acceptance

4 months

F G

K L M

1 month

3 months

Precedence requirements None None Must complete refining research question and at least half of the literature review Must complete literature review and formulation of theory and hypotheses Must complete literature review and formulation of theory and hypotheses Must complete experiment design and Getting students Must complete running the experiment

3 months

Must first complete the preliminary analysis of results Must complete the preliminary analysis of results Must complete writing the article and final analysis of the results Must receive the reviews

1 month 2 months

Must revise the article Article must be accepted

Critical path (shown in red) is 20 months. So Professor Bill’s article will not be published in time for the tenure decision. Note that activity “B” is broken into two half activities “B1” and “B2” to allow formulation of theory to begin after the literature review is halfway completed.

12. Given the project data below, which activities are critical and what is the length of the critical path? If activity E is reduced by 2 days, what additional activities become critical?

Chapter 15 - Project Management

Activity A B C D E F G H I

Duration 4 5 2 3 6 3 5 3 4

Precedents None None B A, B C, D C, D F E, F G, H

B D E H I is the critical path at 21 days. If E is reduced from 6 to 4 days, the new critical path is B D F G I at 20 days. F and G become critical, E and H become not critical.

Chapter 15 - Project Management

Derek’s European Tour Case – Teaching Notes This case gives students an exercise in mapping out a set of tasks and wrestling with illdefined precedence relationships, external constraints, and possible risks. The case illustrates the flexibility that sometimes exists in how tasks are sequenced, as well as bringing in some realistic external considerations. Questions: 1. Draw a network diagram that gives a workable plan for Derek’s trip and work. 2. Can Derek achieve all the things he wants to do this summer? What is the first thing he needs to do? In what order should he visit the various countries he wants to see? The network shown on the following page (constructed in Excel) shows a feasible schedule that achieves all of Derek’s goals in terms of events he would like to attend and work he needs to get done. However, there is very little slack in the project plan. 3. When should Derek start doing the work for his father? When should he take the class? It probably is not feasible to start work for father immediately after graduation, but he can start work a few days later and get more work done in the week or so before he leaves for the trip. Alternatively, he can split the work before and after the on-line course, or overlap it with the on-line course slightly - though neither of these is desirable 4. What things might happen that put Derek’s plans at risk? How can he mitigate or respond to these risks? This could be a long list, but some of the obvious items are shown below. The key here is to get students to be creative in identifying risks and ways to mitigate them. : Risk factor Work might take longer than planned

Might not have internet access when needed for book work and for on-line course He might get sick during the trip He may want to stay longer/shorter than planned in some countries

Mitigation Make detailed work plan before beginning Start work earlier Purchase an internet card that works through his phone Be careful to wash hands and eat clean foods Make flexible bookings and make contingency plans for places he might stay at a moment’s notice (e.g., youth hostels)

Chapter 15 - Project Management

7Mar

14Mar

21Mar

28Mar

4Apr

11Apr

18Apr

25Apr

2May

9May

16May

23May

30May

6Jun

13Jun

20Jun

Pack

27Jun

4-Jul

11-Jul

18Jul

Wmbldn 6/22-7/6

Jazz Fest 7/13-15

Benelux

25Jul

1Aug

Book flights

Apply for passport

Italy Spain France Work for father

Grm/Aus/Swit

On-line course

Earliest start of on-line course June 1 Graduation May 15

This schedule is feasible, but just barely! Derek will have to cut a few days off the front and back end of the trip to allow for travel time. Probably is not feasible to start work for father immediately after graduation, but he can start work a few days later and get more work done in the week or so before he leaves for the trip Alternatively, he can split the work before and after the on-line course, or overlap it with the on-line course slightly - though neither of these is desirable

Start job

Chapter 15 - Project Management

Monolith Productions Case – Teaching Notes Questions: 1.

What analytical tools can be used to schedule the project? Is any tool more advantageous than others?

At the planning stage of the project, the team should develop a work breakdown structure (WBS), which is a hierarchical listing of all activities on the project. The WBS is used to estimate and monitor the resources required for completing the project. The critical path method can be used to plan and schedule the project. This approach will allow you to identify the “critical path”, the longest path of the activities on the project. A delay in any activity on the critical path will delay the project overall. Activities on the critical path must be managed carefully to ensure that they stay on time. The slack that is available in items not on the critical path can be determined. Items with slack time can be delayed up to their amount of slack without affecting the overall project. A probabilistic approach can be used to determine the probability that each task and the overall project will be completed on time. All three of these tools are very useful and serve different purposes in project management.

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Using the most conservative estimates (longest ties) for the timing of projects, can the movie be completed on time? Can the book be released on time to capture the holiday sales?

Film Production Task Develop project schedule and budget Write screen play Cast leading roles Cast supporting roles Build props Shoot interior scenes and retakes Shoot exterior scenes and retakes

Task Label A B C D E F G

Expected Duration 1 week 4 weeks 2 weeks 2 weeks 1 week 6 weeks 4 weeks

Editing Preview and complete reedits Complete commercials Talk show appearances

H I J K

1 week 1 week 1 week 2 weeks

Immediate Predecessor None A A A A B, C, E D, F, cannot begin until Week 11 F, G H G G

From the start of the project on Aug. 20, there are 17 weeks until completion of the project on Dec. 17. The first step is to identify the tasks, their durations, and the relationships to each other. Then the earliest start, earliest finish, latest finish, latest start are determined. The analysis shows that the film itself can be completed in 17 weeks by Dec. 17. However, the commercials will not be available until Dec. 10 rather than Dec. 3. The talk show appearances will not be available until Dec. 17 rather than Dec. 10. One way to address this problem is to develop the commercials and the talk show material based only on the interior shots. This will reduce time for each by 4 weeks.

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Network Diagram: Film Production 1

5 B 4 wks

1 3

3 5

C 2 wks A 1 wk

1 9

3 11

D 2 wks

5 11

16 17

F 6 wks

H 1 wk

I 1 wk

G 4 wks J 1 wk

K 2 wks

11* 15 E 1 wk 1 4

2 5

11 15 1 5

15 16**

•Must wait for weather in Boston. ** Desired by week 15

Book Production Task Develop project schedule and budget Write screen play Cast leading roles Cast supporting roles Build props Shoot interior scenes and retakes Shoot exterior scenes and retakes

Task Label A B C D E F G

Expected Duration 1 week 4 weeks 2 weeks 2 weeks 1 week 6 weeks 4 weeks

Writing book Determine layout and composition Photos and printing

H I J

2 weeks 3 weeks 1 week

Immediate Predecessor None A A A A B, C, E D, F, cannot begin until Week 11 B H G, I

Book Production Network Diagram

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H 1 wk B 4 wks

3 5

1 3

C 2 wks A 1 wk

1 9

3 11

D 2 wks 1

E 1 wk

5 11

6 12

5 11 F 6 wks

I 3 wks

G 4 wks

J 1 wk

12 15

15 16 15

11* 15 11 15

•Must wait for weather in Boston.

To capture the holiday sales, the book must be completed by Week 14. Currently the book would not be completed until week 16.

Which activities would you try to shorten? Why? The activities to shorten are those that are on the critical paths. For both the film and the book developing the budget and schedule (A), writing the screenplay (B), shooting the interior scenes (F), and shooting the exterior scenes (G) are on the critical path. Reducing the time for these tasks by a total of 2 weeks would allow the book and the promotional activities for the film to be completed when needed.

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4. What are the most likely risks that threaten the completion of this project? As project manager, which activities should receive your greatest attention? The film production currently is dependent upon the weather because fog is needed for the exterior shots for activity G, which affects completion of the film production, book production, and publicity events. You can analyze the historical weather data to determine the probability of fog in Boston to determine the degree of risk. To remove this risk, a fog machine could be rented and used to create artificial fog. Another risk is that BAA may request a lot of last minute changes at the preview stage. The project manager should work carefully with BAA to make sure their expectations are fully understood to minimize changes at the end of the project. The project manager should carefully manage the tasks on the critical path. Developing the budget and schedule (A), writing the screenplay (B), shooting the interior scenes (F), and shooting the exterior scenes (G) are on the critical path for both the film and the book projects. These tasks should be carefully managed to make sure there are no delays.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

Chapter 15 Supplement Advanced Methods for Project Scheduling Suggested Answers to Discussion Questions 1. When does it make economical sense to crash project activities? How do you know when to stop? It makes sense to crash a project until the cost of crashing outweighs the benefits of crashing the project. 2. Why does it never make sense to crash activities that are not on the critical path? The overall time that it takes to complete a project is determined by the time that it takes to complete the critical path. Spending resources to crash activities that are not on the critical path will not reduce the time required to complete the project overall. Thus, resources will be used without obtaining any benefit. 3. Suppose that your project has two activity paths of about the same length, but one path is made up of more uncertain activities while the other path is fairly routine. How would you manage the activities on these two paths differently? The path with the activities that have more uncertainty need to be managed using a probabilistic analysis. By estimating the best case, worst case, and most likely time required for each activity, the manager can determine the completion time taking uncertainty into account. The path with the stable activities does not need to have this analysis done. 4. What project factors would make you more or less comfortable with a lower probability that the project will be completed on time?

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

The importance of the project to the company and the penalty for being late are critical factors that must be considered. If an important project has a low probability of being completed on time or if the penalty for being late is high, resources should be shifted to increase the probability of on-time completion. For example, time to market for a new product may be very important for the company. If so, it would be prudent to shift resources to increase the probability of on-time completion.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

Problem Solutions

1. Bill needs to schedule a meeting for tomorrow afternoon, but he also has a tee time for golf at 10 a.m. Bill usually finishes a round of golf in 4.25 hours. If the course is empty and he doesn’t spend too much time looking for lost balls, he can finish in 3.25 hours. However, if the course is crowded, there are rain delays, and/or he hits many bad shots, a round can take as much as 5.5 hours. a. What is the expected time that Bill will complete his round of golf tomorrow? b. If Bill schedules a meeting to begin at 3:30 p.m. tomorrow and it takes 30 minutes for him to get from the golf course to his office, what is the probability that he will make it to the meeting on time?

Solution a.

Expected time = (3.25 + 4 * 4.25 + 5.5) / 6 = 4.29 hours . Bill should expect to finish at 2:17 p.m.

(10:00 a.m. + 4.29 hours) b. To make it to the meeting Bill needs to finish golf by 3:00 (3:30 p.m. – 30 minutes travel time). The probability that he will finish by 3:00 is:

Std deviation of golf duration = (5.5 − 3.25) / 6 = .375 hours

Target time – expected time = 3:00 – 2:17 = 43 minutes, or 43/ 60 = .716 hours

z = .716 / .375 = 1.911 From the standard normal table z=1.9 → .971 Bill has a 97 percent chance of making the 3:30 meeting on time.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

2. In problem 1 we assumed that it would take Bill 30 minutes to get from the golf course to his office. Assume now that this is the most likely time, but traffic and other factors could make the commute time in as little as 25 minutes or as much as 45 minutes. What is the probability that Bill will make it to his meeting on time if you take this variability into account?

Solution: Expected time for commute = (25 + 4*30 + 45) / 6 = 31.67 minutes = .53 hours Std deviation of commute time = (45 − 25) / 6 = 3.33 minutes = .056 hours

Expected time for the path (golf plus commute) = 4.29 + .53 = 4.82 hours; Bill should expect to arrive at the office at 2:49 (10:00 a.m. + 4. 82 hours) Std deviation for the path = square root (.3752 + .0562 ) = .379 hours

Target time – expected time = 3:30 – 2:49 = 41 minutes = .683 hours

Z = .683/ .379 = 1.803 From the standard normal table z=1.8 → .964 Including variability for commuting, Bill has a 96 percent chance of making the 3:30 meeting on time. 3. Consider the supply chain planning implementation project depicted in Figure 16S-1. Suppose that the client has offered a $4,000 bonus to us if we can complete the project seven working days early. Based upon the crash cost information provided in Table 16S-1, would you accept the client's proposal? By how many days could you profitably shorten the project? Activity to Crash

Crash Cost

0 1

Set System Protocols

$500

Critical Path Length 31 days

Notes:

30 days

Cheapest task on critical path

No tasks crashed

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

$500

29 days

Cannot crash this task any further

Set System Protocols Test System

$600

28 days

Cheapest task on critical path

Test System

$600

27 days

Pilot Test

$900

26 days

Prepare Documentation becomes on a critical path Crashing this task reduces both critical paths. Planned deadline met.

Total Cost:

$3100

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

The project must be crashed by an additional two days. Be careful to watch changes in critical path activities as you do this. To do this, you must crash Prepare Documentation by 2 days at a cost of $400 / day and Populate System Data by 1 day at a cost of $700. Thus, the total cost of crashing the project by 7 days is $4,600 which is more than the $4,000 bonus. The project could be shortened to 6 days by crashing Prepare Documentation by 1 day at a cost of $3,500. 4. Annie is planning a large surprise party for her sister Gwendolyn. She has developed the plan below, including estimates of the time (in hours) and cost necessary to perform each of the activities required at the currently planned pace and at the crashed pace.

Activity

Predecessor

A. Create Guest List

Current Planned Duration (hours) 8

Minimum Crash Duration (hours) 4

Current Planned Cost $200

Total Cost If Crashe d $310

Crash Cost per Hour

$110 / 4 = $27.50

B. Send Invitations A 2 1 $125 $150 $25 / 1= $25 C. Buy Decorations A 8 6 $300 $370 $70 / 2= $35 D. Plan Menu A 3 2 $150 $210 $60 / 1= $60 E. Purchase Food D 4 2 $475 $550 $75 / 2= $37.50 F. Prepare Food E 5 3 $225 $475 $250 / 2= $125 a. Annie is most interested in reducing the time associated with creating the guest list. What is the crash cost per hour for that activity?

$110 / 4 = $27.50 / hour b. Annie will save $40 for every hour she can reduce from her plan. Annie has decided to crash her project and use the money she saves to purchase a larger gift for Gwendolyn. Which activity should she crash first? The critical path for the party is A, D, E, and F. Because A is the lowest cost task to crash on the critical path Annie should first crash activity A. 15S-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

c. Annie has now crashed activity A by four hours at a cost of $110. What other activity could she crash to further reduce the project? The next lowest cost task to crash on the critical path is E thus Annie should crash activity E.

d. Annie has now crashed activity A by four hours at a cost of $110 and activity E by two hours at a cost of $75. What other activity could she crash to further reduce the project? The next lowest cost task on the critical path is D, but the cost for crashing D (

$60 / hour ) is greater than the savings ( $40 / hour ). Therefore, Annie should not crash any further.

e. How much money did Annie save by crashing the project? Annie saved: Activity A → $40*4 hours = $160 − $110 = $50 Activity E → $40*2 hours = $80 − $75 = $5 Total = $50 + $5 = $55 f. What is the duration of the fully crashed project? 20 hours – 6 saved hours = 14 hours 5. Given the data in Table 16S-3, what is the probability that the project will be completed in 32 days or less? What is the probability that the project will take longer than 32 days?

Task *Select System Modules Prepare Data *Set System Protocols *Populate System Data Prepare Documentation Design Training Program Hold Training Sessions

Best Case Duration 7 4 2 3 10 2 1

Most Likely Duration 9 5 3 5 14 2 1

Worst Case Duration 15 10 5 7 16 3 2

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

*Test System *Debug System *Pilot Test *Hold “Go Live” Meeting

4 2 2 1

6 4 3 1

8 6 4 1

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

Select System Modules t i = (15 + 4* 9 + 7) / 6 = 9.67 σ i = (15 − 7) / 6 = 1.33 Prepare Data t i = (10 + 4* 5 + 4) / 6 = 5.67 σ i = (10 − 4) / 6 = 1.00 Set System Protocols t i = (5 + 4* 3 + 2) / 6 = 3.17 σi = (5 − 2) / 6 = 0.5 Populate System Data t i = (7 + 4* 5 + 3) / 6 = 5.00 σ i = (7 − 3) / 6 = 0.67 Prepare Documentation t i = (16 + 4*14 + 10) / 6 = 13.67 σ i = (16 − 10) / 6 = 1.00 Design Training Program t i = (3 + 4* 2 + 3) / 6 = 2.33 σ i = (3 − 2) / 6 = 0.17 Hold Training Sessions t i = (2 + 4*1 + 1) / 6 = 1.17 σi = (2 − 1) / 6 = 0.17 Test System t i = (8 + 4* 6 + 4) / 6 = 6.00 σ i = (8 − 4) / 6 = 0.67 Debug System t i = (6 + 4* 4 + 2) / 6 = 4.00 σ i = (6 − 2) / 6 = 0.67 Pilot System t i = (4 + 4* 3 + 2) / 6 = 3.00 σ i = (4 − 2) / 6 = 0.33 Hold “Go Live” Meeting t i = (1 + 4*1 + 1) / 6 = 1.00 σi = (1 − 1) / 6 = 0.00

Sum the expected times for the tasks on the critical path.

tpath = Σti = 9.67 + 3.17 + 5 + 6 + 4 + 3 +1 = 31.84 σpath = square root ( Σσi2 ) = square root (1.332 + 0.502 + 0.672 + 0.672 + 0.672 + 0.332 ) = 1.86

z = (target completion time − tpath ) / σpath = (32 − 31.84) / 1.86 = 0.086 15S-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

Using the standard normal table, the probability that the project will take less than 32 days is 53 percent so the probability that the project will take more than 32 days is 47 percent. 6. Jude and Pat Strohsal have a crack in their water line and need to replace it. This will require digging up the water line, replacing it, filling the hole, leveling the soil, and reseeding the grass. The Strohsal’s plumber suggests that, because they will have the water line dug up, they also should replace the foot valve. Below are the plumber’s estimates of the time (in hours) necessary to perform each of the activities required.

Activity A B C D E F

Description

Predecessor

Optimistic

Most Likely

Pessimistic

Digging Replace line Replace foot valve Fill hole Level soil Reseed lawn

A B C D E

2 1 .5 1.5 .5 .4

3 1.5 1 2 1 .5

4 2 1.5 5.5 1.5 .6

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

a.If the plumber and his crew begin working at 7:00 a.m., what time are they expected to finish? Digging t i = (4 + 4* 3 + 2) / 6 = 3.00 σ i = (4 − 2) / 6 = 0.33 Replace Line t i = (2 + 4*1.5 + 1) / 6 = 1.5 σi = (2 − 1) / 6 = 0.17 Replace Foot Valve t i = (1.5 + 4*1 + 0.5) / 6 = 1.00 σ i = (1.5 − 0.5) / 6 = 0.17 Fill Hole t i = (5.5 + 4* 2 + 1.5) / 6 = 2.50 σi = (5.5 − 1.5) / 6 = 0.67 Level Soil t i = (1.5 + 4*1 + 0.5) / 6 = 1.00 σ i = (1.5 − 0.5) / 6 = 0.17 Reseed Lawn t i = (0.6 + 4* 0.5 + 0.4) / 6 = 0.50 σ i = (0.6 − 0.4) / 6 = 0.033

tpath = Σti = 3.00 +1.50 +1.00 + 2.50 +1.00 + 0.50 = 9.50 They are expected to finish in 9.5 hours, or around 4:30 p.m.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

b. The plumber has scheduled another small job at 6:00 p.m. If it takes 1/2 hour to drive from the Strohsal’s to the other job, what is the probability the plumber will be able to make the 6:00 p.m. appointment on time?

tpath = Σti = 3.00 +1.50 +1.00 + 2.50 +1.00 + 0.50 = 9.50 σpath = square root (0.332 + 0.172 + 0.172 + 0.672 + 0.172 + 0.0332 ) = 0.803

z = (target completion time − tpath ) / σpath = (10.5 − 9.5) / 0.803 = 1.24 The probability that the plumber will be able to make the 6:00 p.m. appointment is 89 percent. *10.5 hours because in order for the plumber to make it to the next appointment, the project needs to be done at the latest 5:30 p.m. which is a total of 10.5 hours. c. Jude Strohsal can't bear to see her lawn all dug up so she has decided to visit her mother on the day the work is to be done. Jude wants to return home at 6:45 p.m. What is the probability the work will be complete when she arrives home?

z = (target completion time − tpath ) / σpath = (11.75 − 9.5) / 0.803 = 2.8 The probability that the work will be complete when she arrives home is 99.74 percent.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

7. Consider the following software development plan.

a. The client has asked for an estimated completion date. What would you tell her? The tasks on the critical path are Rqmts, Design, Code B, Code C, Integ, and Test. tpath = Σti = 6.17 + 5.17 +10.33 + 3.33 + 8 + 2 = 35 weeks b. The client would like to have the completed software in 37 weeks. What is the likelihood that the critical path will be completed in that time frame?

tpath = Σti = 6.17 + 5.17 +10.33 + 3.33 + 8 + 2 = 35 weeks σpath = square root ( Σσi2 ) = square root(.25 + 3.35 + 4 + .69 + .45 + .11) = 2.97 weeks

z = (target completion time − tpath ) / σpath = (37 − 35) / 2.97 = 0.67 Since the z-score is 0.67, the likelihood that the critical path will be completed in 37 weeks is 75 percent. c. The client has just asked if it would be possible to have the completed software in 36 weeks. What is the likelihood the project will be completed in that time frame?

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

The critical path determines the project’s completion time. tpath = 35 week

σpath = 2.97 week z = ( target completion time − tpath ) / σpath = (36 − 35) / 2.97 = 0.34 Since the z-score is 0.34, the likelihood that the critical path will be completed in 37 weeks is 63 percent. d. The client wants to know if it would be possible to complete the project in 33 weeks. What is the probability of meeting the client’s demand?

z = ( target completion time − tpath ) / σpath = (33 − 35) / 2.97 = 0.67 Because the z-score is negative the likelihood that the project will be completed in 33 weeks is 25 percent. That is, 25% = 100% − 75%. e. You are concerned about the accuracy of your calculations because the paths are not independent. What is the likelihood that all of the coding activities will be completed on time? Because the two paths share several activities, it is difficult to estimate the likelihood that both paths will complete the project on time. However, because the duration of the “Code A” task is much shorter than the combined duration of tasks “Code B” and “Code C”, we can be fairly sure that “Code A” will always be completed before both “Code B and “Code C” are completed. Using the expected durations, “Code A” has 6.66 days of slack. Therefore, we can be confident that the expected critical path will always dictate the actual length of the project, and we can be assured of the correctness of our estimates of project completion in parts a-d above that are based on the critical path alone. 15S-14 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

8. Marty and Marge are renovating their house. They hope for all work to be completed before the Thanksgiving holiday, which is 55 days away. Given the data below, what is the probability that the house will be completed before Thanksgiving? Assume that only one activity can be done at a time. How many days would Marty and Marge need to crash the project (reducing the expected duration) in order to achieve at least a 90% probability of completing the renovation before Thanksgiving? Assume that crashing the project does not affect the uncertainty associated with activities.

Activity Demolition

Best case 1 day

Most likely case 2 days

Worst case 3 days

Framing

5 days

8 days

15 days

Plumbing

5 days

10 days

15 days

Wiring

13 days

20 days

25 days

Drywalling

4 days

8 days

15 days

Painting and Finish

2 days

4 days

8 days

t i = (w + 4* m + b) / 6 σi = (w − b) / 6

t path = t i σ path = (σi2 )1/2

Demolition Framing Plumbing Wiring Drywalling Painting and Finish

1 5 5 13 4 2

2 8 10 20 8 4

3 15 15 25 15 8

expected 2.00 8.67 10.00 19.67 8.50 4.33

std dev 0.33 1.67 1.67 2.00 1.83 1.00

variance 0.11 2.78 2.78 4.00 3.36 1.00

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

53.17 mean sum

14.03 variance sum

z = ( Target − t path ) / σpath = (55 − 53.17) / (14.03)1/2 = .489 ; this yields a 68.7 percent chance of on time completion (from Appendix A, z table) z for 90 percent = 1.28; solving for t path :1.28 = (55 − t path ) / (14.03)1/2 t path = 50.20 days ; need to crash the project (53.17-50.20) = 2.97 days in order get a 90 probability of on time completion 9. Frank owns and operates a company that installs audio visual equipment for corporate clients. He is currently working on a job that must be completed in 17 days. However, the project is running behind (see the remaining task information below). Equipment installation must be completed first. Then software installation and network connection can happen concurrently. After these are both completed, then system test can take place. a. How much will it cost Frank to crash the project enough to meet the 17 day deadline? Which tasks should he crash, and in what order? b. If the client offers Frank an incentive of a $500 bonus for completing the project 1 day early, should he do it? Remaining Project Activities

Planned Duration

Crash Cost

Equipment installation

10 days

$600 per day, max reduction of 1 day

Software installation

5 days

$300 per day, max reduction of 2 days

Network connection

7 days

System test

2 days

$400 per day, max reduction of 3 days Cannot be crashed 15S-16

Chapter 15S – Supplement: Advanced Methods for Project Scheduling

a. Current completion time is 10 + 7 + 2 = 19 days. This is two days beyond due date of 17 days. Crash one day, reduce equipment install at $600 Crash second day, reduce both software install and network connection one day each, at total cost of $300 + $400 = $700. Total crash cost for the 2 days is $600 + $700 = $1300 b. To reduce the project another day would require crashing both software install and network connection another one day each, at a total cost of $700. This would cost more than the $500 bonus offered.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

Chapter 16 Sustainable Operations Management—Preparing for the Future

Suggested Answers to Discussion Questions 1. Review the new strategic direction for Unilever, as presented at the beginning of this chapter. What are the economic rationales for these seven key strategic imperatives? What are the risks? To what extent are these initiatives driven by concerns of environmental as compared to business sustainability? The economic rationale for these seven key strategic imperatives is rather simple but critical. To Unilever, the developing market is the next key customer. However, for this new customer to be able to afford Unilever products, income levels should increase. For income to increase, Unilever can either rely on economic developments to take place. Alternatively, Unilever can work to improve the economic well-being of this new market segment. That is what Unilever is doing by working with the communities to have them become suppliers to Unilever. This is not a new strategy. When Henry Ford announced in January 1914 to the world that he would be paying his workforce $5.00 a day (a move that was rejected by the entire Board of Directors for Ford – except for one person – Henry Ford, who forced it through because he was the majority stockholder), what he was doing was increasing the ability of his workforce to buy his products. There are several risks to this new strategic initiative:

Chapter 16 – Sustainable Operations Management—Preparing for the Future

•

The developing communities might not be able to respond to these initiatives.

•

Other firms might copy the Unilever initiative, thus reducing its ultimate impact.

•

The increased income gained by the communities targeted by Unilever may be used to buy products other than those of Unilever.

•

Unilever might help build this new economic infrastructure, only to find that other companies take advantage of it.

This initiative is an example of an action in which both economic and business sustainability are tightly linked and interact in a mutually beneficial way with each other. 2. Why does the concept of “cradle to grave” no longer make business and environmental sense? For the longest period of time, the sustainability literature talked about the “cradle to grave” or the “seed to sewer” approach. That is, the focus was on taking resources out of the ground and then safely returning them. At first glance, this seems like a very attractive strategy. But, it is ultimately limited and doomed to failure. Why? Because there is still a need for resources to replace those returned to the ground. With many resources limited, this strategy cannot hope to succeed in the

Chapter 16 – Sustainable Operations Management—Preparing for the Future

long-term. With such an approach, over time, resources will become fewer in number and higher in cost. That is why McDonough and Braungart (2002)1 argued that the more appropriate approach is that of “cradle to cradle”. That is, we should design products and processes so that the wastes and the products at the end of their lives can be used to inputs back into the same processes. 3. What would the business model look like if we were to compete primarily on environmental sustainability? To address this question, we would have to return to the business model concept as first introduced in Chapter 2 of the book. As noted in this discussion, the business model consists of three interrelated elements: the critical/key customer, the value proposition, and the capabilities. If we were to focus on environmental sustainability, then the following business model conditions would have to be present: •

The critical/key customer would be one that values environmental sustainability above everything else and they are willing to pay for products having such attributes.

•

The value proposition would have to focus primarily on environmental sustainability.

McDonough, W., Braungart, M. 2002. Cradle to Cradle: Remaking the Way We Make Things. New York, NY: North Point Press. 16-3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

•

The various capabilities (capacity, performance measurement system, culture, and supply chain capabilities) would be oriented towards environmental sustainability.

Yet, there are several problems with this approach. First, it ignores the need for the business model to economically sustainability. We cannot pursue environmentally sustainability at the cost of profit (which is the vehicle by which the firm invests itself and keeps itself going). Second, once we have achieved environmental sustainability, then there is the question of what the next stage in strategy is going to be. Third, if our competitors were to emphasize the same issues, then we would find ourselves in a situation where it is difficult to differentiate ourselves from our competition. 4. In a recent study by MIT, it was found that the Toyota Prius, a hybrid, was less environmentally responsible than a Hummer SUV. How could this be? You might want to consider using the AT&T Environmental Assessment Matrix in addressing this question. The key to this question is to get the class to think in terms of the major stages of the product life cycle. In this case, we have extraction, production, usage, and disposal. Those who argue that the Prius is energy-efficient tend to focus on the usage phase of the life cycle. This is one area where the Prius definitely beats the Hummer. Yet, until recently, the problem with the Prius is that its energy comes from electric batteries that were made out of lead. The production of these batteries creates more waste and pollution during the production stage and the

Chapter 16 – Sustainable Operations Management—Preparing for the Future

disposal stage. Consequently, it is possible that these costs more than outweigh the benefits generated by higher efficiency during usage. 5. What are some operations/supply chain management strategies that can be used to deal with the challenges of diminishing natural resources? This question really forces the student to explore alternative approaches. Some of these approaches focus on redesign or the use of substitute materials. Still, others deal with the issue of reverse logistics. Here, we focus not simply on the flow of products from supply to demand but more importantly on the flow of material back from the downstream. This is an important issue 6. Why is it that some managers are not willing to pursue more aggressively environmental sustainability even when presented with compelling reasons for its need? (HINT: think about issues such level of resources available, risk of failure, and how the managers are measured and rewarded.) This is not an unusual situation. In a research study funded by NSF carried out by one of the authors, it was frequently noted that managers, when they uncovered such waste, quickly tried to cover it up. This apparently illogical action was really grounded on some critical and very logically driven considerations: •

Complexity – by uncovering environmental waste issues, I have just made the person’s job far more complex.

•

Failure – now the manager is an additional factor that, should they fail, can adversely affect their future in the company.

•

Not their primary job considerations – often the managers are hired to do something other than improve environmental performance. 16-5

Chapter 16 – Sustainable Operations Management—Preparing for the Future

•

They are not rewarded for these activities.

•

There is the possibility that there is an adverse short-term trade-off between environmental sustainability and the other elements of value (costs, lead time, quality).

•

The nature of costs and benefits of dealing with environmental problems: o The costs are upfront, the benefits occur later on in time. o The costs are certain; the benefits are unknown. o The costs are borne by your department while the benefits are incurred by other departments.

These factors create a situation which can be best described as the “paradox of waste.” 7. The Triple Bottom Line can be viewed as a three-legged stool in that each element must be present or, if one or more elements are removed, then the entire structure collapses. To what extent do you agree with this approach? Why is it important that each element be present? The triple bottom – begin by reminding the students of the elements that make it up – pollution, profit, and people. Anytime that we focus on either one or two elements of this model, we find that it becomes “unfair.” If we ignore profit, then businesses will not be enthusiastic in embracing sustainability; if we ignore pollution, then we defeat the whole purpose of sustainability; if we ignore the people, then we have a system that may either be unfair or that exposes the personnel to some unnecessary risks. All three elements must be present for sustainability to work as a long-term development. 16-6 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

8. Do you think companies should invest in community-based programs such as supporting the arts? Why or why not? The answer to this question really focuses on how the company views its social commitments (one of the three elements of the ESG). If the company views articles as being important and that it is necessary to support initiatives aimed at improving the level of involvement in art, then this is a justified investment. Again, the basis for this answer is that of how the firm views its social obligations. Even for students who argue against this position, it should be noted that such investments, while costing money, may result in other important benefits such as improved name recognition, improved reputation, and the ability to attract job candidates and consumers who view the traits embodied by such arts initiatives. 9. One common approach that companies use to protect human rights is a supplier code of conduct. How can you increase the effectiveness of a code of conduct? A supplier code of code sets down a set of standards (or formal expectations) that an organization has for how it wants its suppliers to act. The challenge of setting down such standards is that the supplier will do just enough to meet the minimum requirements without actually changing their behavior or achieving the underlying goal of the supplier code of conduct. The other challenge is that of misrepresentation – saying one thing and then doing another. To get around these and other similar issues, the following actions might be considered to increase overall effectiveness:

Chapter 16 – Sustainable Operations Management—Preparing for the Future

•

Make it part of the requirements for a supplier to do business with your organization. This means that the supplier must have a supplier code of conduct as part of the prerequisites to be considered as a supplier. Furthermore, such a supplier code of conduct is part of the regular review/evaluation process. That is, the supplier must show how they have enhanced or applied the code in their on-going activities. Failure to do so can be considered as a condition for either reducing the amount of business given to the supplier.

•

Develop a supplier council focusing on the supplier code of conduct. That is, allow the suppliers to organize a group dealing with supplier conduct. The purpose of the group is to prompt the supplier code of conduct and to make suggestions regarding the structure and elements of the code of conduct, how it is to be applied, measured, and rewarded. The council becomes the vehicle for legitimizing the supplier code of conduct and for providing supplier input into the code.

•

Develop and implement a set of measures for assessing the application of the supplier code of conduct. The measures describe operationally what your organization expects when such a code is implemented and applied. It also helps the suppliers assess their own level of progress in implementing such a code.

•

Work with other firms in your industry to develop an industry-wide standard for a supplier code of conduct. This approach, examples of which include Responsible Care® in the Chemical Industry, achieves three 16-8

Chapter 16 – Sustainable Operations Management—Preparing for the Future

objectives. First, it makes the supplier acceptance of the conduct easier to achieve since a supplier knows that they have to have such a code and they must follow such a code should they wish to do business in the industry. Second, it sends a clear message to the suppliers of the industry that such a code is important since the industry has adopted one. Third, it ensures that there is one common approach for the code; the supplier is not put in the position of having one code for customer X and another somewhat different code for customer Y. •

Develop an audit procedure. That is, the suppliers know that they will be subject to an external code focusing on their development and application of this code of conduct.

•

Ultimately, develop an externally supported certification standard. An example of such a standard is the ISO 9000 standard in quality or the ISO 14001 standard in environmental management systems.

10. Given the increasing importance of DEI (Diversity, Equity, and Inclusion), it can be expected that programs and initiatives focusing on this corporate plan and objective will significantly impact operations and supply chain management. Discuss the potential impact of DEI on: a. Capacity/aggregate planning. With DEI, you have potentially complicated the process of planning capacity. Now, it is no longer enough to have people. You must now ensure that the composition of the employee base is consistent with the DEI goals and objectives. This may mean not only hiring more minorities, but also investment in developing minority 16-9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

groups so that they can have the chance to succeed and that they have access to the necessary knowledge and skills to do their jobs. The firm may have to actively promote and recruit from the targeted minority groups. In other words, it has to be more engaged in employee development and recruiting. b. Supplier development and supplier base management programs. When applied to the supplier base, we are faced by two challenges. The first is that of the recruiting, development and management of minority suppliers. This means investing in the supplier base and more specifically making targeted investments. Second, there is the issue of ensuring that the suppliers that you are using are also involved in DEI initiatives. This means issues transparency becomes very important to the firm and its management of the supplier base. 11. The goals of ESG are important and appeal to many customers, analysts and investors? What are the challenges facing firms as they pursue ESG in today's environment? There are several challenges that must be recognized. These include securing “buy-in” from the firm’s employees as to the importance and need for such initiatives and why their involvement is so critical to the success of these programs. If they do not accept the goals of ESG, then we may have a situation where what the company says and what they actually do are at odds with each other (thus creating potential problems in the market, in terms of reputation and credibility should these inconsistencies become widely known). We also need their involvement since they will be directly involved in completing the necessary reports and forms (and in ensuring that these forms are accurately completed). 16-10 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

Finally, the people are critical because they ultimately contribute to the organization’s culture and it is the culture that will ultimately ensure the longterm success of such problems. The next set of challenges involves convincing upper management and the board of the validity of such initiatives (especially if these initiatives come from the bottom up (from the operating personnel). ESG must be viewed as a long-term strategy, which means taking short-term potential hits to profit to enable longterm achievement of the ESG goals. Finally, there is the challenge of convincing the marketplace that your commitment to ESG is valid and real, and not some public relations initiative. This may be a concern where the company has had a record of doing poorly on the ESG criteria. 12. Review the following article printed in FastCompany magazine - Are ESG Ratings actually Measuring how Responsible a Company is? (https://habitat.inkling.com/project/sn_5371a/files/s9ml/chapter16/ch16 _reader_9.html). What are some of the major concerns present when reviewing or using ESG data/reports? This answer can be regarded as a continuation of the prior discussion. Here, the point of the article is that the ESG measures are not perfect; they are proxies. They can be “gamed” with the result that a firm can manipulate the reports to project an image of a company that is committed to ESG when, in fact, it is not. 13. The American South and the American Midwest experience natural disasters on a regular basis (hurricanes such Hurricane Katrina in the American South 16-11 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

and tornados in the American Midwest). Whenever such a disaster takes place, organizations such as the American Red Cross must respond. Part of this response is the need to set up a supply chain structure. Identify and discuss several of the factors can influence the design and deployment of such a supply chain. How can technology be used to improve and enhance the operation of this supply chain? Here it is useful to have the students approach this question by doing some reading into humanitarian supply chains. The point that students must recognize is that these supply chains have to be effective – they must be able to respond quickly to mitigate the human costs of the disaster. Furthermore, they must deal with the following traits: •

They have no control over the demand or the supply

•

They must deal with donors (suppliers) who can make significant demands on how their supplies/donations are used.

•

Their activities are subject to external publicity and public scrutiny.

•

In many cases, the location of supply and demand may be different.

•

The disasters can affect not only people but also the infrastructure, thus making it difficult to move in goods and services

•

The effects of government must be recognized.

•

It is often difficult to forecast the location and nature of demand.

•

Demand can change significantly (e.g., a police officer announces that it is safe for the people to go back to their homes – suddenly, the demand that 16-12

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requires the services to provide over 20,000 hot meals per meal is suddenly gone). In this environment, a different approach must be introduced. Often, this supply chain relies on human relationships and networks. Technology is used to support activities but it does not have the same impact as in a Wal-Mart. 14. Recently, companies such as Verizon, Automatic, and Zubie have introduced a module that plugs into the diagnostic port of most cars. This module keeps track of the status of the car and informs the user of any problems (explaining the problems in plain English). In some cases, some companies such as Verizon have introduced a version that is connected to a cellular network. How could such a product potentially affect the customer and the management of automotive maintenance? Think about issues such as how such a development could such activities as the ordering of spare parts and the monitoring of vehicles to identify systematic problems in product design or component reliability. This question indirectly gets at the power of the Internet of Things. It also leads to an interesting phenomenon now known as “gossiping cars.” That is, the cars, as they are being used, are now uploading information about how drivers use them, conditions under which they are being used, and problems being encountered. Consider this latter issue for a moment. As the car’s system monitors its status and it encounters a component that is nearing failure, it can communicate that information to at least three parties: (1) the driver – to let them that a potential problem was developing; (2) the closest dealership – to let them know that the 16-13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

driver might need to schedule an appointment (and also to order the replacement component); and, (3) the manufacturer – who can use this information to identify potential quality problems that may not be visible when looked at in isolation but that become very visible when looked at in aggregate. This latter is critical because the information that is generated can be used to improve the design and manufacture of cars; it can also be used to deal with potential quality problems in a proactive manner. 15. How could the Internet of Things affect such activities as you visiting a store to buy a product? The answer is that this can create a true shopping revolution. For example, you decide to enter an electronics store with the goal of buying a digital camera for yourself. When you enter the store, the store’s sensor communicates with your smartphone to find out what types of products you like. Once it knows, then it would send you a message asking what products you are interested in. Once you respond, the system (again working through your smartphone) might ask you a series of simple questions aimed at identifying what features you are looking for in a phone, how much you are willing to spend, and if you might be willing to consider an “open box” product (something that has been previously purchased but returned and often offered to customers at a discount). Depending on what you answer, the system would recommend several possible products to you, along with offering you a coupon if you are interested in buying today. Once it identifies some candidates, it would direct you to the area where they are located so that you could look at them and work with them. As you pick up a camera, the system 16-14 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

might show you the specifications along with any customer reviews. It might even notify a sales associate to come to you to provide any help. If you decide to pick a certain product, the system could query the inventory stores to determine if there is enough stock. If there is, the sales associate might be directed to pick it up. If there is, the system might check the stock of other stores or of the Distribution Center to see if any are available. If there is, it could offer you a choice of how you might want to get the product – pick it directly or have it shipped to you. Once you decide to pick it, your smartphone (again prompted by the store’s IoT) might recommend other products (e.g., memory card, camera bag, lens filter, lenses) that you might want to consider buying; it might enough tell about financing options available to you. In other words, the IoT promises to radically transform the shopping experience. In addition to serving the customer, IoT is also generating a lot of information for both the store and the camera manufacturers regarding what products the customers want or what they are looking at. The resulting information can be used to fine-tune, for example, promotions or forecasts; it could also be used to help camera manufacturers design and manufacturing more attractive products (from the customers’ perspective). 16. Have you ever used social media to decide what products to buy or even where to go for a vacation? Provide some examples. Have negative reviews on social media ever caused you to avoid buying a certain product? Why?

Chapter 16 – Sustainable Operations Management—Preparing for the Future

This is a simple exercise involving the class that shows the power of social media and the fact that it is a more trusted source of information for today’s consumers. To reinforce this point, use the following video from youtube: https://www.youtube.com/watch?v=GwdtMs9ulLE&t=104s – Millennials: Changing Consumer Behavior: Goldman Sachs' Lindsay Drucker Mann 17. Have you ever stayed at an Air BnB? If so, why? To what extent was your decision influenced by the price, the location, or the experience that the Air BnB offered? Here, the goal is to have the students understand that with Air BnBs, what is being bought is not the location or the price but the experience. To reinforce the point, have the class read: Melnyk, S.A., Vorhees, C., and Little, N. 2017. Serving Up An Experience” Supply Chain Management Review. March/April, pp. 43-53

Chapter 16 – Sustainable Operations Management—Preparing for the Future

Case Discussions EuroConstellation Electronics This case is essentially a disguised synopsis of a real occurrence at one of Apple’s largest suppliers a few years ago (Foxconn, located in Shenzhen, China). The story received worldwide media coverage and set into motion a number of inquiries and programmatic changes aimed at improving the quality of life for workers at these kinds of factories. What are the circumstances of workers in such factories? •

Though the setting described includes aspects unique to Mongolia (nomads, horse culture), most of the basic facts apply. Factory workers (mainly in western regions of China) come from small villages and travel long distances to work and live in factory compounds for many months at a time. They may get to see their families, and sometimes children, only for short periods perhaps once each year.

•

Workers are entirely dependent the firm for food, supplies, housing, entertainment, etc. This situation creates potential for abuse, e.g., charging high prices for supplies. In the worst case, such workers have very little power or say over their daily lives (think of the work farms and towns in The Grapes of Wrath).

•

The factories can represent very large communities. For example, one set of colocated factories engaged 300,000 workers.

For more facts and opinions on the situation, see the following sources: https://en.wikipedia.org/wiki/Foxconn_suicides https://www.theguardian.com/technology/2017/jun/18/foxconn-life-death-forbiddencity-longhua-suicide-apple-iphone-brian-merchant-one-device-extract 16-17 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

A few representative facts: •

20 Chinese universities compiled a report on Foxconn, which they described as a "labor camp."

•

Interviews of 1,800 Foxconn workers at 12 factories found evidence of illegal overtime and failure to report accidents

•

Foxconn also implemented a pay raise from 950 yuan to 1200 yuan but they in turn increased their quota by twenty percent as well.

Discussion of the Case Instructors will find students eager to discuss the facts of this case, offering a number of varied perspectives. A good goal is to encourage students to consider the perspectives of different stakeholders, yet to focus on the short and long term goals of EuroConstellation with an eye toward objectively evaluating the merits of different options available to them. The following questions provide good starting points for a broad discussion of the issues: 1. Should labor standards from developed (mostly western) countries be applied to plants in developing regions? - What is the appropriate basis for comparison in evaluating worker conditions? - What is in the best interest of the workers, given their immediate alternatives? 2. Outline an action plan that Robert can give to his task force. What further information will the task force need? What actions, if any, should be taken immediately?

Chapter 16 – Sustainable Operations Management—Preparing for the Future

The Problem with Plastics This is an interesting case that exposes students to some important issues pertaining to sustainability within the corporate setting. Specifically, the case forces the student to recognize that: •

Waste (pollution) is a symptom that masks the true issues that have to be ultimately dealt with.

•

In practice, the impact of sustainability driven initiatives is often most felt in the non-direct labor areas (i.e., overhead).

•

The linkages that often exist between sustainability and health/safety.

•

How convenience often trumps the needs of good housekeeping or sustainability unless the system is designed to make the desired outcome inevitable.

•

Local optimization (by purchasing in this case) does not necessarily lead to global optimization for the firm.

•

The importance of a total cost of ownership approach to justifying the new approach.

•

The attractiveness of simplification in the face of “unnecessary” complexity.

Size-Up: Begin by asking the class what is going on in Voiture. Some of the issues that should be raised include: •

40 different types of plastic used for storage. Why is this important? Indicates a problem with the engineering design process. Apparently, engineers feel free to add new plastics whenever they feel that it is appropriate without understanding the impact of this decision on the system. 16-19

Chapter 16 – Sustainable Operations Management—Preparing for the Future

•

The impact of a new plastic film is ultimately very high: o New source of supply has to be secured. o Floor space set aside for recycling bin (this means that the amount of floor space for production is reduced) o New location in inventory has to be identified and established. o Additional operator training is introduced. o New inventory records introduced. o New recycling guidelines. o Potentially reduces leverage (the ability of purchasing to reduce purchasing costs by “bundling” items together). o If we buy these items from Chinese suppliers, safety stock levels go up (why? To protect Voiture from possible variations in delivery lead time and/or quality levels). o These costs are often hidden and not explicitly captured.

•

The current system is creating numerous problems: o Health/Safety problems because plastics not properly put into bins. o Plastics not put into correct bins (causes resorting fees later on in the process). o Indications that these problems are a result of the unnecessary complexity of the existing system.

•

Purchasing system is another factor complicating the process because they are buying to reduce purchase price (not total cost). That is, they are buying to

Chapter 16 – Sustainable Operations Management—Preparing for the Future

improve their performance potentially at the cost of reduced performance elsewhere in the system. •

R-CYCL is a start-up that provides employment for the chronically unemployed from Detroit (thus making it very attractive from a sustainability perspective). If we go back to the old way of doing things (throwing the plastics out), then we have two problems: o We are not acting in a sustainable fashion. o We could put R-CYCL out of business.

•

Frank Morgenstern is looking at costs when making his decisions, so we have to provide a cost-driven answer.

Analysis: Next, we focus on what Lucy must present as she prepares her case for Fred. To do so, she must begin with a Total Cost of Ownership. She must also argue that the costs that we are being charged by R-CYCL are not the real issue; rather they are a symptom of other issues that are present (specifically, complexity in plastics because every engineer is allowed to specify his own form of plastic; buying from China; inherent problems in identifying and then sorting these plastics for recycling when sorting can be viewed as not part of the tasks of the operators). Total cost of current system: •

Storage/inventory space

•

Additional forms for each plastic

•

Storage space on the floor for the plastics when storing for disposal 16-21

Chapter 16 – Sustainable Operations Management—Preparing for the Future

•

Health/safety issues

•

Additional training

•

Increase in non-value-adding complexity

•

Difficulty in correcting identifying and sorting of material for disposal (it can be argued that to the operators this is an additional step with little or no value and it is not linked to their jobs).

•

Increased purchasing costs (because of smaller batches and lack of opportunity to leverage purchasing buys).

It is important to end this discussion by pointing out that these costs are hidden from management because they often put into overhead. Proposal: The proposal from FilmTech seems to address a number of these issues because, while more expensive, it eliminates many of the issues previously identified; it also brings with its own advantages, specifically: •

Purchasing can leverage its buys (by combining the various buys into one larger order, we can reduce purchasing costs).

•

The need for safety stock is reduced (instead of buying from China and having to worry about delivery problems, we are buying from Lapeer, which is some 50 miles away).

•

There is no sorting problem (one plastic, one bin – what is there to go wrong). This means that Lucy can now capture the benefits that she previously promised.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

While making these points to Fred, Lucy should also raise the following issues that must be addressed sometime in the future: •

Engineering is allowed to develop its own plastic’s requirements without recognizing that when this is done we are generating problems elsewhere and ultimately this plastic is really not a value-adding issue (it is used for storage). All of these results in increased product/system complexity. Maybe a better system for managing the specification of storage plastics (to encourage usage of existing plastics) is needed.

•

Purchasing is being rewarded for reducing purchasing price, not total cost of ownership (a concern).

Chapter 16 – Sustainable Operations Management—Preparing for the Future

HyperCar This is a great case that I have used in several MBA classes. It shows that technological feasibility, while important, is not enough. The best way to teach this case is to begin with the following assumption: Assume that the HyperCar is technologically feasible and that the goal of Louvins is to introduce it with no more than $2000 premium. This assumption forces people to move away from the technological issues. This is distractive and it ignores some critical issues. Next, draw a supply chain with an upstream part (from our suppliers to us) and a downstream side (from us to the customer). Now, have the students list the features that make the HyperCar different: •

•

Steered by a joystick

•

Body made of lightweight carbon fiber

•

Thin, high pressure tires

With this list, next ask the students to assess the extent to which the typical automotive supply chain will work for this product. The answer is that it will not. What this means is that the HyperCar must build a new supply chain for a product that about which there is a great deal of uncertainty. Next, turn to downstream side, and ask the students the following questions: •

Where would you go to get the energy for this car?

•

How easy would it be to get this product insured? 16-24

Chapter 16 – Sustainable Operations Management—Preparing for the Future

•

If you were a customer living in Michigan, Ontario, Alberta, Wisconsin or anywhere that there is a great deal of snow, how attractive would you find such a product (not much – since it is light, it would have difficulty being driven in snow and ice)?

•

Where would you go to have the engine worked on?

•

Where would you go to have bodywork done?

•

Given that hydrogen is potentially dangerous, how would you make this product sufficiently safe?

In short, the student should see that it is not the technological feasible that is critical; rather it is the fact that the capabilities of the existing automotive supply chain are not aligned with the needs of this product. Consequently, its long-term feasibility must be questioned. The “best” thing that Louvins can do with the HyperCar is to learn from it and to spread these lessons and their supporting technology to the rest of the automotive industry.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

Sourcing Outside the Cage Overview The case was written to challenge students to consider multiple challenges and stakeholders in the decision to go cage-free, as well as the motivation behind the decision and what’s at stake. The following are some of the key issues that students should identify and work to address, but this list is not exhaustive. This is an interesting case in that it exposes the student to the economic costs of becoming sustainable. The key to this case lies in the student’s ability to assess the extent to which the issues present are persistent or short-term and the economics of bringing about the transition. As a suggestion, the following approach should be used: • • • •

What is the issue before Adam Warren of Supply Chain Operations and Services (SCOS) and Nadia Bolton of Morning Star Dining (MSD)? Why the shift to cage-free eggs? o How persistent are these changes? What are the economics involved? What would you recommend.

Issues before SCOS and MSD A major shift in consumer preferences to cage-free eggs is emerging. This means a major shift in sourcing strategies. This is not a trivial issue for SCOS since it now in a long-term contract that has another two years to run. There is also uncertainty as to whether some of SCOS’s major customers (e.g., McDonald’s has indicated that it will not commit to cagefree eggs for the next 7 years). To emphasize the size of the cost implications, have the students answer the question of what the cost implications of going to cage-free eggs would be. The answer: SCOS currently buys 50,000,000 pounds of pasteurized liquid eggs @ $0.51 / pound or $25,500,000 per year. Going to cage-free eggs would increase the bill to 50,000,000 × 0.81 = $40,500,000 Difference - $15,000,000 increase in costs. In addition, this would require a major commitment to the suppliers to support them (needed if they are to make the shift to cage-free eggs). 16-26 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

Why the shift to cage-free eggs The answer here is simple – it is a reflection of the emergence of millennials (those born between 1982 and 2004). This is a generation of consumers for which social issues are critical. For this generation, there is something wrong with having chickens cooped up closely in cages. They want chickens to be free ranging. The class has to decide if this is a short-term or long-term development. The answer – a long-term development.

Economics Involved This section should form a major component of the resulting discussion. Cost implications Current approach Fixed costs: Capacity (# chickens) Life: Cost per lb Cage free Fixed costs

$500,000 100,000 15-20 years $0.51

Capacity Life Cost per lb.

$8,000,000 (new)2 $6,000,000 (retrofit) 100,000 assume same as cage approach $0.81

Volume per year:

50,000,000

Breakeven Retrofit X = 6,000,000 / .3 (difference between cage and cage − free) = 20,000,000 or 40% of current yearly volume

New construction X = 8,000,000 / .3 = 26,666,667

Chapter 16 – Sustainable Operations Management—Preparing for the Future

Other issues: Contracts in place to run for 2 more years It takes time for suppliers to change facilities or to build new facilities and to stock them. Uncertainty from customers (e.g., restaurants) regarding whether they will commit to cage-free eggs.

Recommendations • • • •

Strong evidence that there is a shift to cage-free eggs. Work with customers (e.g., McDonalds) to get commitments to buy cage-free eggs Work with suppliers – indicate that you will be shift contracts at their end to contracts for cage-free eggs. Begin the process of seeing if you can negotiate reduced egg prices based on commitments (i.e., longer-term contracts).

“Sourcing Outside the Cage” The case was written to challenge students to consider multiple challenges and stakeholders in the decision to go cage-free, as well as the motivation behind the decision and what’s at stake. The following are some of the key issues that students should identify and work to address, but this list is not exhaustive. Supply There are capacity issues in the marketplace in general, so how would Morningstar get enough cage-free eggs for its restaurants? Will all restaurants go cage-free or just in the US? North America? Global? What approach will they take on the supply side – will they try to work collaboratively with their supplier to establish the required capacity, or will they take a transactional approach, buying what’s available in the market at the lowest possible price? What would collaboration look like, (length of purchase contract, price, etc.)? Cost How would switching to cage free impact the cost of sales at restaurants? The company operates in a very competitive environment, and price of the food products served is a principle point of competition. Could the cost increase associated with cage-free eggs get passed on to the consumer, or would the franchisees have to absorb it? On the supply side, is MSD comfortable paying the current market price for liquid cagefree eggs or do they have grounds to negotiate? The case provides sufficient information for students to get an estimate of the cost of producing conventional eggs, (both cost per liquid pound, and cost per dozen shell), and their supplier’s margin on those conventional eggs. There is also sufficient information to estimate the fixed costs of transitioning to cage-free production that their supplier would want to recover. Based on this, students can generate estimates of incremental production cost increases given a selected time to recover. From there, they could assess the merits of various contract terms. 16-28 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Chapter 16 – Sustainable Operations Management—Preparing for the Future

Timing Do they seek to begin transitioning immediately or do they wait? If they wait, how long? What are the pros and cons/risks of these timing decisions? Motivation Why is the company considering this switch? Is it a good decision? The motivation for MSD to go cage-free seems to be the desire to avoid negative attention from animal activist groups. What is the “cost” of potentially incurring the ire of such groups? Is this an issue that will impact the average consumer’s purchase decision or MSD’s brand image? Is cage-free really “good enough” given the birds are still confined indoors, or will the demands of the animal groups change over time such that free-range is demanded, requiring a completely different growing arrangement? If animal welfare is truly the issue, is cage-free or free-range even truly in the best interest of chickens? Franchisee Relations How will franchise owners react and respond to a decision by MSD to go cage-free? Will the decision be received the same by franchisees in Plainview, TX as in Eugene, OR? How should MSD approach their franchisees about this decision, with openness or with authority? How will cage-free eggs impact franchise profitability? Students should be able to estimate the percentage increase in cost of sales, and the associated impact on average store profit.